Cox Cable and Southwestern Bell to Team Up

In the latest marriage between a cable TV operator and a telephone company, Cox Cable Communications and Southwestern Bell will form a $4.9-billion joint venture to pursue burgeoning telecommunication opportunities, the two companies said Tuesday.

The firms will team up to offer a wide array of video and other interactive services to the venture’s own cable customers and, eventually, to phone customers. Executives said the venture also hopes to invest in programming.

Cox has extensive cable operations in California, including a San Diego system that is America’s sixth-largest with 321,000 subscribers. It also has systems in Santa Barbara, Bakersfield and Humboldt County.

Cox and Southwestern Bell have established what is only the most recent alliance between former telecommunication adversaries who are now scrambling to exploit the rapidly developing convergence of telephone, television and computer technology.

The joint venture is also one of the most ambitious alliances to date. Cox and Southwestern Bell said the partnership plans to double its size through acquisitions to make it the third-largest U.S. cable TV provider.

Since the summer, cable TV operators and phone companies have been forging alliances at a dizzying pace in anticipation of a many-channeled information highway. Bell Atlantic Corp., for example, agreed to acquire cable giant Tele-Communications Inc.

Motivated by competition, the Baby Bells are eager to expand into new businesses. Tuesday, for example, Chicago-based Ameritech asked the government for permission to offer long-distance phone service, a business now closed to the regional phone companies.

Government regulations will also influence how much the Cox-Southwestern Bell venture can grow. Meanwhile, Cox Cable customers won’t see any immediate change. But sooner or later they can expect everything from interactive home shopping to movies on demand via cable. Eventually, they may also get the chance to use cable for making phone calls.

Under the partnership, Southwestern Bell will invest $1.6 billion for a 40% stake and Cox Cable will contribute $2.3 billion in equity for a 60% stake.

Cox will also invest $1 billion in a non-voting preferred partnership stake. Southwestern Bell has an option to increase its stake to 50%.

“Our goal is to create a growth vehicle with a lot of flexibility,” said Jim Adams, group vice president of Southwestern Bell. “Its objective is to get larger and to bring, through that size, all the efficiencies and procurement of programming capabilities.”

San Antonio-based Southwestern Bell, which provides phone service in Texas, Arkansas, Kansas, Oklahoma and Missouri, was the first Baby Bell to get into the cable business when in February it agreed to buy Hauser Communications’ cable TV systems in suburban Washington for $650 million. Adams said those systems would not be included in the partnership and will be operated solely by Southwestern Bell.

Cox, with 1.62 million subscribers, is the country’s fifth-largest cable TV operator. Cox Cable is a unit of Atlanta-based Cox Enterprises, owner of 17 daily newspapers, including the Atlanta Journal and Constitution, and 19 radio and TV stations.

Initially, Cox and Southwestern Bell were in discussions with the owners of Atlanta’s cable TV system about joining the partnership. The system, which serves 440,000 subscribers, is principally owned by the Bass Group. Several glitches, including a local cross-ownership ban that prevents a newspaper from owning a local cable system, have delayed that deal.

The once-stodgy Cox media conglomerate, with annual revenue exceeding $2.4 billion, lately has been making aggressive forays into emerging technologies. Earlier this year, for example, Cox teamed with Southwestern Bell to offer cable and phone service in the United Kingdom and has joined with BellSouth Corp. and Prodigy to supply information by personal computer.

Cox Cable President James Robbins said the financial capacity of the partnership will allow it to grow even without additional investors, although he left open the possibility that others might join in the future. “Our first concentration is going to be to build up the distribution of the partnership, because that will ensure participation in the programming game down the road,” Robbins said.

Although cable operators are prohibited from offering telephone service over their local cable systems and telephone companies are blocked from offering cable TV over their phone lines, many in the industry expect the regulatory barriers to crumble.