2 Cable Deals Promise L.A. Sweeping Changes

Two cable deals announced Wednesday promise to bring about the most far-reaching changes in the Los Angeles-area cable landscape since franchises were first issued in the market in the late 1980s.

After a customer swap with Comcast, Adelphia Communications would become the region’s largest operator, serving 1.1 million out of the 2.8 million cable subscribers in Los Angeles and Orange counties.

In the other transaction, Charter Communications would pay $1.9 billion in stock and cash to buy Falcon Cable TV, the only Los Angeles-based cable operator. After the acquisition, which must be approved by regulators, Charter would serve 500,000 cable subscribers in Los Angeles and Orange counties.

Sources say that Charter, controlled by billionaire Paul Allen, is negotiating a swap with AT&T; that would give the company control of 580,000 more subscribers in the region, which would put Charter neck and neck with Adelphia in the area.

Jerald L. Kent, president and chief executive of Charter, would not comment on the speculation.

The deals would be major steps toward the long-delayed consolidation of the cable business in Los Angeles, which has lagged behind other major cities in high-tech offerings such as high-speed Internet connections and telephone and digital TV over cable lines.

Although urban areas such as New York, Chicago and San Francisco are dominated by one or two cable operators--giving the companies the subscriber concentrations needed to justify investing in these services--Los Angeles has been split among more than half-dozen operators.

The two transactions announced separately Wednesday promise to reduce the fragmentation, with two long-standing Los Angeles cable operators, Falcon and Comcast, exiting the market, while two others, Charter and Adelphia, increase their positions on the way to becoming the dominant players here.

“This is all about gaining operating efficiencies to roll out new services and compete with satellite television and phone companies,” said Tom Eagan, a cable analyst at PaineWebber Inc. “There will be increased swaps in Los Angeles until only two or three players are left in the market, down from seven before these transactions.”

AT&T; is expected to trade Charter the systems it is picking up here in its acquisition of MediaOne Group. Analysts predict that Time Warner may trade away its 350,000 subscribers in Orange County and 232,000 customers in San Diego to improve its standing in another market. Cox Communications will probably remain in Orange County, where it serves 226,000 subscribers, because of its huge concentration in nearby San Diego, where it dominates with 505,000 customers.

“It became clear we could never dominate in Los Angeles,” said Steve Burke, president of Comcast’s cable division. “You really need to control the majority of a market. We get out of two places where we can’t have a majority of the market and add to our dominance in two other regions.”

Under terms of the deal announced Wednesday, Comcast would take over 464,000 Adelphia subscribers in the Midwest and the Mid-Atlantic, where the Philadelphia-based operator has its largest concentration of customers.

Adelphia would pick up subscribers in Florida and Southern California, where it recently announced a deal to buy Century Communications, Los Angeles’ biggest cable operator.

In buying Falcon, Charter would add 1 million subscribers--175,000 of them in California. Charter would assume about $1.7 billion of Falcon debt, bringing the value of the deal to $3.6 billion. Marc Nathanson, the founder and chairman of Falcon, with a 28% equity stake, would become vice chairman of Charter.

The Falcon deal, along with another acquisition announced Wednesday of Denver-based Fanch Communications, would make Charter the nation’s fourth-largest cable operator, with 5.5 million subscribers.

Allen has been on a buying frenzy during the last year to fulfill his vision of a “wired world” that uses cable wires to deliver a host of new services to consumers. Kent said the company is well on its way to upgrading the systems Allen has acquired in Los Angeles during the last year.

He said the rebuilding of systems for Glendale, Burbank and Pasadena will be completed in the next few months, allowing the roll-out of Wink, an interactive TV service that certain cable subscribers will get at no additional cost, and a Worldgate service that provides Internet access over television.

Charter already sells the Worldgate service for $9.95 a month in St. Louis.

Kent said Riverside and Long Beach will be finished next year, and that Charter will aggressively upgrade the remote systems it is acquiring as part of its Falcon purchase, which he said “need some tender loving care.”

Most of Falcon’s systems are antiquated, with only 36 channels.

Small-town systems such as Falcon’s have been left on the sidelines of the cable consolidation game because of the high cost of rebuilding and the uncertainty of returns. The higher population densities found in cities have made these systems the most desirable and the highest-priced.

Los Angeles is the exception, largely because of its vast size, high cost of operating, more cumbersome regulatory environment, high theft rate and low cable penetrations. One cable operator called it the “Siberia” of cable, with some of the lowest cable penetration rates in the country.