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Charter in AT&T hookup?
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December 6, 2000: 5:55 p.m. ET
Charter Communications seen as likely buyer of some AT&T Broadband assets
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NEW YORK (CNNfn) - Cable system operator Charter Communications Inc. is emerging as the most likely buyer of AT&T Corp.'s broadband assets in Montana and Iowa if the telecommunications titan follows through with a rumored sale, analysts said Wednesday.
St. Louis-based Charter Communications (CHTR: Research, Estimates) primarily invests in suburban or secondary markets, and a purchase of AT&T's cable systems in these rural areas would fill in geographical holes in its portfolio, analysts said. The Wall Street Journal reported Wednesday that AT&T was looking to sell its cable operations in Montana and Iowa to help pay down a massive debt load.
"Charter Communications has a focus on rural markets, so it wouldn't surprise me," said analyst Drake Johnstone, of Davenport & Co.
 A Charter Communications spokesman declined to comment on the company's interest in purchasing the assets of AT&T Broadband, a unit of AT&T Corp. Charter has assets in Wisconsin and Minnesota but lacks holdings in Montana and Iowa, the spokesman said.
The operations reportedly up for sale boast about 1.2 million subscribers and could draw bids of about $3 billion, the Journal said.
Both AT&T and AT&T Broadband declined to comment.
While Charter has emerged as a frontrunner, AT&T could also sell the assets to other regional cable operators, analysts said.
Selling cheap?
The decision to sell shocked some analysts who believe that the phone company could generate $25 billion in sales by selling its 25 percent stake in Time Warner Entertainment and its 30 percent stake in Cablevision Systems Corp. (CVC: Research, Estimates), as well as holdings in Vodafone Group Plc (VOD: Research, Estimates) and in other various domestic and international assets. Time Warner (TWX: Research, Estimates) is the parent company of CNNfn.com.
The sale is part of AT&T's overall strategy to lower its $62 billion debt load, analysts said. The company's share price has plummeted from its 52-week high of $60.82. Shares for AT&T gained 63 cents to $21 in afternoon trading Wednesday.
New York-based AT&T (T: Research, Estimates) is also attempting a major restructuring where it will split into three separately traded companies, consisting of cable, wireless and consumer long distance.
"I'm surprised they are selling customers at this juncture," said analyst Pat Comack of Guzman & Co. "Don't see why they need to sell cable assets unless these assets are not profitable."
The Montana and Iowa assets aren't located close to AT&T's other assets and would be more profitable with a cable company located in the regions, analysts said.
"These cable systems are in rural areas, so they potentially are not as profitable," said Davenport's Johnstone. "AT&T is looking to unload them because their focus is not on rural cable markets."
Cheap price?
Still, the $3 billion amount means that AT&T Broadband would be selling subscribers at a relatively cheap price of $2,500 a piece. Subscribers normally fetch about $3,000 to $4,000 a head, analysts said.
"The fact that AT&T is selling at $2,500 means these subscribers are in the outskirts or AT&T needs the money," Comack said.
AT&T Broadband is one of four units expected to be created from the current AT&T Corp. operations under a massive restructuring plan unveiled in late October to help rejuvenate the company's stock price and help reduce its debt load.
The current plans call for the company to create a tracking stock for its broadband unit via an initial public offering sometime next year, then convert the tracking stock into an asset-backed security within 12 months.
When asked Tuesday how the company's new independence would impact AT&T Broadband's future growth, AT&T Broadband Chief Executive Officer Daniel Somers said he was unsure, but stressed the need for better management in the future.
"Who knows what the future holds for any of us," Somers said, speaking to analysts and investors at the UBS Warburg Media Conference in New York. "I don't really focus on worrying a lot about what AT&T Broadband will look like post-IPO.
"AT&T Broadband is a broadband service provider with a great footprint and terrific growth potential that needs to be managed more efficiently," he added.
Somers did say the company's efforts to roll out high-speed digital cable options across its vast network was proceeding on plan.
Somers said the company anticipated seeing its revenue-growth accelerate in the mid-teen level next year as it continued to sign on high-speed customers.
Charter Communications fell by 16 cents to $19.50 Wednesday. 
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