The “For Sale” sign has been in the paint shop for months, and when it is planted in the corporate front lawn it will read something like this: “Cable operation covering four big Midwestern markets. Latest technology. 200,000 subscribers. A real deal.”
What’s not clear is who will show up to see the property.
SBC Communications Inc. has been hinting that it will sell Ameritech Corp.’s Americast cable systems since it took over Chicago-based Ameritech last fall. Cable industry observers say it is only a matter of time before the San Antonio-based telecommunications company unloads Ameritech’s costly venture into cable.
SBC confirmed Wednesday it is exploring the sale of the Americast system that serves about 75 communities in the Chicago and Detroit suburbs, Cleveland and Columbus, Ohio. But the SBC spokesman insisted a sale is only an option, not a foregone conclusion.
`We may end up continuing to run them,” SBC spokesman Tony Katsulos said.
Few in the telecommunications industry put any faith in that option.
“It’s no surprise that they want to sell Americast,” said Jeffrey Kagan, an Atlanta-based telecommunications analyst. “They did the same thing a few years ago when they took over Pacific Bell. But as to who would buy Americast, I haven’t a clue.”
Most of the available evidence points to RCN Corp., which in December bought Chicago-based 21st Century Telecom Group and last month filed applications to offer cable, telephony and high-speed Internet access service to more than 300,000 households in 22 Cook County communities.
New Jersey-based RCN is rapidly gaining a telecommunications profile in large markets on the East Coast and is duplicating that pattern on the West Coast. RCN is backed by Microsoft Corp. co-founder Paul Allen, who in October paid $1.65 billion for a 27 percent stake in the company.
Cable industry sources said RCN has been in negotiations to buy the Americast system. A spokesman for RCN said it is company policy not to comment on speculation.
Beyond RCN, the list of potential buyers is short. AT&T Corp. is always mentioned as a would-be buyer because it has deep pockets to support its expansionist ambitions. AT&T, however, already has more than 90 percent of the cable households in the Chicago market, which raises the question as to why AT&T would buy a competitor in markets where the company already has a presence.
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Scott Seawell, marketing vice president of One Point Communications Inc., a Bannockburn company that provides telephony, cable and Internet service to multifamily dwellings, said AT&T also could run into antitrust problems if it buys the competition. One cable company executive, noting the political sensitivity and the largely unsatisfied public clamor for a choice in cable operators, cautioned: “You never want to eat up a competitor.”
Nancy Kaplan, a vice president of Renaissance Strategy, a Boston consulting firm, said the key will reside in technology. “A company that wants to buy it is either looking for the two-way technology that they’ve built in or may see something in the software. But it’s difficult to see any national player beyond possibly AT&T,” Kaplan said.
A spokeswoman for AT&T declined to comment.
The lack of cable competition is a common condition in most markets, and that reality limits the options for any Americast sale. In the Detroit suburbs, for instance, AT&T and Comcast Corp. are the dominant cable operators, with Ameritech competing against one or the other in about three dozen communities. Unless another cable or telecommunications company comes in to challenge the incumbents, as Americast did, the options are problematic.
“If Americast were killing the cable guys, [SBC] would keep the system,” said Kenneth Anderson, head of Anderson Pacific Corp., a Chicago-based telecommunications company. “They’re not getting enough customers.
“They’re not going to be sold at a profit, that’s for sure. They’ll take a definite haircut on this one.”
Cost is no small consideration for potential buyers. Before being bought out by RCN, 21st Century racked up $250 million in debt en route to attracting only about 37,000 customers. While the Chicago City Council and several suburban communities welcomed the competition in their communities, 21st Century’s experience proved to be enormously expensive. That same lesson will loom as potential buyers inspect the Americast system.
“This is a tough row to hoe to make it operationally successful,” said James Goss, a media industry analyst for Barrington Research Associates, in Chicago. “It’s very tough to rationalize the costs and recover any sort of profit margin on that.”