Charter, AT&T; Call Off Their Proposed Cable System Swap

Charter Communications Inc., the nation’s fourth-largest cable provider, and industry leader AT&T; Corp. called off a planned swap of cable systems Thursday because of a disagreement over the value of those assets.

The breakdown underscores the difficulties both companies are encountering in carrying out their cable strategies. Charter, which is controlled by cable newcomer Paul Allen, the computer billionaire, was counting on a two-pronged customer swap with AT&T; to make the company dominant in Los Angeles and St. Louis.

For its part, AT&T; had been counting on using these large customer swaps to leverage cable operators into forging partnerships needed by the telecommunications giant to compete against the Baby Bells in providing local phone service. The company’s failure to form any phone partnerships is one reason AT&T;’s stock has plunged to new lows.

Under a plan announced late last year, Charter had agreed to trade systems serving 632,000 customers in Fort Worth and areas of Connecticut, Massachusetts, Northern California, Tennessee and Kentucky to AT&T; in exchange for AT&T; cable systems serving 704,000 customers in Charter’s headquarters of St. Louis as well as in Birmingham, Ala., and parts of Illinois and Georgia.

Charter signaled several months ago that the swap was in trouble, claiming that due diligence of the AT&T; systems revealed that they were more run-down than expected, requiring heavier investments to equip them for delivering telephone and high-speed Internet services.

Sources close to Charter said the deal fell apart after AT&T; reneged on the second phase of the two-part transaction. In addition to the swap, AT&T; had agreed to sell Charter its Los Angeles system, which serves more than 500,000 customers and which it purchased last month as part of MediaOne Group. The transaction would have vastly consolidated the fragmented Los Angeles cable market, giving Charter and Adelphia Communications each more than 1 million subscribers in the region.

In March, AT&T; quietly decided to keep MediaOne’s Los Angeles properties after a review of the system showed marked improvements in subscriber growth and profitability under the leadership of Teresa Elder. AT&T;’s management was so impressed with Elder that they appointed the MediaOne executive to head AT&T; Broadband’s entire Western region, giving her authority over 8.2 million subscribers.

Analysts expect that AT&T; and Charter will eventually consummate some of the swaps in their push for efficiencies.