PacBell Seeking Buyers for Its Cable TV System
Beating a dramatic retreat from its once-ambitious plans to be a major player in the television business, Pacific Bell has put its partly built California cable television network up for sale.
The big telephone company is quietly soliciting offers for the 2,733-mile system, according to a document obtained by The Times. The system was launched four years ago in an effort to bring movies, interactive news and home shopping to residents in San Diego, San Jose, Orange County and the Los Angeles area.
The decision underscores a nationwide pullback by the telephone industry, which just a few years ago considered cable TV a major growth opportunity--only to realize that competing with cable and satellite television companies would be far more difficult, and expensive, than they originally anticipated.
PacBell once intended to spend as much as $16 billion building the cable network. It also launched Tele-TV, a joint venture with Nynex and Bell Atlantic, to buy and develop video programming, and acquired several “wireless cable†television systems to jump-start its video services.
But Tele-TV has been curtailed sharply after more than $300 million in expenditures. And though PacBell is continuing to market wireless cable, company sources say its parent company, SBC Communications, is also considering selling this system.
PacBell suspended construction of the cable system in most of Southern California early last year but contended that it still hoped to complete the system. But SBC, which acquired PacBell earlier this year, has long been cautious about TV and decided to pull the plug entirely.
“We made the decision that this is not a technology that we’re going to pursue,†said Larry Solomon, a spokesman for SBC Communications. “It’s expensive.â€
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Earlier this year, SBC announced that it had changed its “strategic direction†away from cable without detailing its plans. SBC took a $145-million hit in the second quarter of fiscal 1997 related to cable projects, according to documents filed with the Securities and Exchange Commission.
“They’ve dumped a lot of money on products that never took off,†said Brett Azuma, an analyst with the technology research firm Dataquest. “SBC has been very upfront with their intent to refocus Pacific Bell on [telecommunications] rather than video services. SBC realized the payback could take decades, if it happened at all.
“To back away from something as sexy as this system has to be tough for the company’s public image.â€
Although phone companies are mostly giving up the battle, cable operators still face other formidable competition from the booming satellite television market, led by DirectTV, owned by Hughes Electronics Corp.
PacBell disclosed its plans to sell the partially completed cable network in a document distributed in recent weeks to several potential buyers.
Though the so-called “advanced communication network†can be used for telephone and Internet services, the document states that Pacific Bell is hoping to sell the system to a cable or video company rather than a competing telecommunications firm. Certain pieces of the system “may be negotiated for separately,†according to the document. Those assets include the system’s fiber-optic cable and PacBell’s cable franchise for the city of San Jose.
Analysts say PacBell could have trouble finding a buyer that is willing to pick up the tab--at least several hundred million dollars--for the unfinished network.
The digital network, a combination of fiber-optic and coaxial cable, was supposed to replace the phone company’s copper wires, according to the report. Touted as a more “intelligent†communication system, the network also was designed to alert the phone company to network disruptions and allow for clearer sound on routine calls.
Despite its early promise, Pacific Bell struggled to make the high-speed project work, analysts said. The company curtailed its network construction in Los Angeles and Orange counties last year, leaving behind hundreds of miles of dormant cable lines.
In Calabasas, where nearly 700 homes had been fully wired with the new technology, phone company workers had to return to dismantle the boxes that would have made the system operable.
But PacBell continued the venture in San Diego, offering limited telephone service, and in San Jose, where it had signed a cable franchise agreement.
With such a limited roll-out, the company’s sign-up base remained small. PacBell had about 8,000 cable television subscribers, 6,600 telephone customers and 80 cable modem users on its high-capacity system, according to the document.
This year, SBC stopped all construction on the network. To pay for this shutdown, SBC spent $553 million on the network and any related fees, according to SEC filings.
PacBell’s request for bids was sent to cable companies and entertainment firms throughout the country, company officials said. The document details the specifics behind the company’s failed effort.
After initially denying that the document exists, Pacific Bell officials insisted the telephone company merely wants to see what companies would be interested in picking up the dormant network.
“Just because we’re requesting proposals doesn’t mean we’re actually selling anything,†said John Britton, director of media relations for San Francisco-based PacBell.
While PacBell gathers bids for its high-speed network, the company for now is keeping its wireless digital television service. Launched in May, the video system bounces a microwave signal off an antenna on Mount Wilson and sends it to an estimated 25,000 residents in Los Angeles and Orange counties.
PacBell officials declined to comment on whether the wireless system would be sold.
For PacBell, the future of information service means Internet and telephone service--not cable television and video-on-demand--said Melanie Posey, an analyst for the market-research group IDC Inc.
“The cable push is over,†Posey said. “Their best scenario would be to dump [the advanced communications network] to someone who wouldn’t compete in this arena.â€
Today, PacBell’s list of telephone rivals continues to grow. Because of federal and state deregulation, many cable operators have upgraded their networks with fiber optics. And like phone companies edging away from the cable television world, video providers now realize it is expensive to equip their cables with two-way voice capability.
As a result, many regional cable providers--Cox, Time Warner Cable and TCI Cablevision--insist they have no use for PacBell’s network.
“It’s an issue of redundancy,†said Leo Brennan, general manager for Cox Communications of Orange County. “Why should I buy their cable when we already have our own fiber plant in our franchise area?â€
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PacBell officials declined to say who is looking at their network. But at least one traditional cable company is said to be in the bidding, along with a consortium of several former PacBell executives.
“We’ve sent the request out to many companies. Cable providers, even Dick Clark Productions, anyone who might be interested in the system,†Britton said.
One company left off the mailing list is San Diego-based SpectraNet International, a telecommunications firm and PacBell rival for Orange County consumers.
“PacBell did not send us a copy of the [document] and I’m not surprised,†said Bob Cerasoli, chief strategic officer for SpectraNet.
“They know we’d have a serious interest in expanding our network in Orange County. I know they know, because we’ve told them. But why sell to a communications competitor, which is your core business? Why not sell to a cable company, which is your fringe business?â€
Britton said PacBell hopes to solicit offers from anyone, including SpectraNet.
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(Orange County edition) Cable Snarl
Key dates in the development of Pacific Bell’s 2,733-mile advanced communications network and its proposed sale:
1993
* Big plans: Pacific Bell announces it will build a state-of-the-art network to carry next-generation information services into homes and businesses throughout the state by 2000. Network would provide dial-up movies, interactive news, education, entertainment, shopping, video telephone and high-speed cable modem service.
1994
* January: Bell begins replacing copper telephone wiring with hybrid system of coaxial and fiber optic cable in portions of Orange and Los Angeles counties, San Diego and San Francisco Bay Area.
1995
* September: Pacific Telesis Group, parent of Pacific Bell, announces it will cut $1 billion over five years from network’s budget and shift emphasis from Southern California to Bay Area, where it faces stiffer competition from cable companies as telecommunications services are deregulated.
1996
* January: Construction stops on Los Angeles-area network after $100 million is invested to get it started.
* April: SBC Communications acquires Pacific Bell.
* May: Work halts on the Orange County portion of network, mostly in the cities of Orange, Cypress and Villa Park; construction continues in San Diego and San Jose.
1997
* SBC stops all construction on the network, and Pacific Bell quietly begins looking for buyer.
Source: Times reports; Researched by JANICE L. JONES / Los Angeles Times
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