It May Take Some Time for Telecom Deals to Jell
Few industry lawyers, investment bankers and brokers found their telephones ringing off the hook with new deals on Friday, despite passage of a sweeping telecommunications reform bill that would free telephone companies, broadcasters and cable TV operators to enter one another’s markets.
Industry officials say most investors had anticipated passage of the legislation and had long ago made overtures to capitalize on the loosening of federal telecommunications ownership and market restrictions. The bill awaits the signature of President Clinton, who supports the measure and has promised to sign it within a week.
“It’s too early to pop the champagne,” said one Washington lawyer who represents a stable of broadcast clients. “Let’s say the president were to sign the bill Thursday. That doesn’t mean that on Friday you could necessarily close a deal,” because the Federal Communications Commission still must review each transaction as well as issue new rules doing away with old restrictions.
Indeed, despite pending telecommunications reform, more deals seem to have unraveled in recent months than to have come together.
For instance, on the day the telecommunications bill was overwhelmingly approved by Congress, long-distance carrier Sprint Corp. and its three cable TV partners announced that they would not immediately spend billions to upgrade their cable networks to provide telephone service.
Under a revised agreement, Sprint said it would negotiate individually with each of its three cable partners about whether to provide local telephone service--a move, analysts say, that reflects their fears about the immense technical hurdles still to be overcome in order to offer two-way communications over different cable TV systems.
Sprint’s decision follows an announcement by Pacific Bell last month that it was pulling the plug on ambitious plans to build an interactive video network in California. Meanwhile, AT&T; Corp. and the seven regional Bell operating companies surprised federal officials late last month when they opted not to participate in a widely publicized auction for a new satellite TV service.
AT&T; chose a more modest route of investing in an existing satellite TV provider, and the regional Bells have grown cool toward the idea of providing video to consumers other than through a traditional cable TV system.
“It’s going to take anywhere from a year to 18 months for markets to begin to converge,” said William N. Deatherage, a telecommunications analyst for Bear, Stearns & Co. in New York. Not only is there still regulatory uncertainty, but technology remains in flux, Deatherage added.
Even in the broadcast industry, which got the clearest signal from Congress to consolidate, it may take time for deals to jell. Under the legislation, broadcasters can buy as many as eight radio stations in some big-city markets, and broadcasters can now own properties vast enough to reach 35% of the population instead of the previous limit of 25%.
“The bill’s passage was anticipated, so a goodly number of deals have been in the works for two to five months based on that anticipation,” added Elliot Evers, managing director of Media Venture Partners Ltd., a major nationwide media brokerage firm. “When Congress puts its stamp of approval [on the new law] it does make thinks easier,” but he said he has received only a few calls from people seeking to complete deals as a result of Congress’ voting Thursday to approve new telecommunications laws.
Analysts said those station owners willing to sell were better off waiting for the bill to be signed and regulatory issues cleared up, enabling a greater number of possible buyers to drive up prices.
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Mixed Signals
Investors pushed many telecom-related stocks higher Friday, but dumped AT&T; and MCI.
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Fri. close Pctg. Stock and change chng. Ortel Corp. $14.00, +$1.88 +15.5% DSC Commun. 33.00, +2.48 +8.1% Genl. Instrument 25.00, +1.63 +7.0% Scientific Atlanta 17.00, +0.75 +4.6% Qualcomm 47.75, +1.63 +3.5% Newbridge Netw. 52.25, +1.63 +3.2% Pacific Telesis 30.50, +0.88 +3.0% TCI 21.63, +0.38 +1.8% Ameritech 60.25, +0.38 +0.6% BellSouth 42.25, -0.38 -0.9% AT&T; 64.75, -1.63 -2.5% MCI 28.00, -1.13 -3.9%
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