| BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Grabbing for the Net (int'l edition) Can UPC dominate in Europe? 'Hold on a second. Hold on.'' Cable mogul Mark Schneider is hunched over a computer, clicking away on a mouse. The chief executive officer of United Pan-Europe Communications is struggling to set up a videoconference from his Amsterdam office. But the wrong window keeps popping up. Schneider finally calls for help, and the video link from London appears. When he tries to sign off, though, the PC again resists his commands. This cable guy is clearly no gearhead. ''I have to start learning,'' he says. ''We're getting in this computer stuff so fast.'' Indeed he is. Not content to simply provide his 6 million European customers with cable TV, Schneider now wants to become the Net giant in Europe by piping them telephone and high-speed Internet services as well. Schneider, an American, calls his approach ''the triple play.'' It's similar to the cable strategy AT&T is pursuing in the U.S. And like AT&T's C. Michael Armstrong, Schneider has outsized ambitions. By creating a network of fat pipes and filling them with UPC programming and Web sites, he says, ''We're literally building a new Internet.'' With his project, Schneider, 44, is a prime example of the new generation of American entrepreneurs in Europe. From Britain's cable king, NTL Inc. CEO J. Barclay Knapp, to such telephone leaders as Viatel Inc.'s Michael J. Mahoney and Global TeleSystems Group's H. Brian Thompson, Americans are racing to buy and build pipelines for the Net. While the European media powers are struggling to move beyond national borders, the newcomers often start out with a Continental focus. And their ambitions find plenty of funding back home. ''American capital has built all the new networks in Europe,'' says Viatel's Mahoney. ''REAL COMPETITION.'' Win or lose, Schneider could fuel explosive growth in Europe's Internet. So far, Europe's former phone monopolies have dominated the Internet, punishing Web-surfers with pricey per-minute charges. That has dampened growth. Only a quarter of Europeans venture onto the Internet, half as many as in the U.S., and their visits are short. But early next year, UPC will be introducing a new television set-top box, a key to its triple-play in 11 European markets and Israel. Meantime, phone companies are racing to deliver cheap, high-speed access of their own. ''We're about to see real competition for the Internet connection,'' says Scott Moore, a networks analyst at International Data Group. To win, Schneider must clear some big hurdles. For the cable business, he must generate programming in a mind-numbing 22 languages for markets from Sweden to Malta. At the same time, he faces powerful phone companies, from France Telecom to Sweden's Telia, which have a wire going into nearly every household and enjoy a home-market advantage. He will also face challenges from new technologies, including wireless communications. Most crucial, Schneider must find a way into the lucrative German market. And if Deutsche Telekom, pushed by regulators to sell its 18 million-subscriber cable empire, unloads its business to one of his rivals--Britain's NTL, for example, or Germany's Mannesmann--Schneider could find himself facing an imposing foe on the Continent. ''What happens with Deutsche Telekom will be crucial,'' says Jozef Cornu, executive assistant to the chairman of Alcatel. MICROSOFT STAKE. The jostling for DT's rich asset--the only European cable network with more customers than UPC--is leaving Schneider frustrated. He complains that DT, to avoid building a strong domestic competitor, is trying to sell off the system in little pieces under terms that he considers unacceptable. ''We may have to build out our own system in Germany,'' Schneider says. DT denies that it's attempting to fracture future competition and says the smaller pieces will bring a better price. Meanwhile, Schneider is taking the battle to court. In mid-November he launched a suit in British courts against Deutsche Bank, alleging that the investment side of the bank was advising UPC on strategy while secretly planning to bid for a piece of the DT cable system--a portfolio investment for the banking giant. The bank responds that a Chinese wall kept the two operations at the bank from communicating. Despite the German woes, UPC, with expected 1999 revenues of $419 million, has been a hit with investors. As part of an initial public offering that raised $1.4 billion in February, Schneider sold Microsoft Corp. a 7.8% stake for $333 million. That provided the software behemoth with a fast-growing European platform for its Web products and a place in UPC's set-top box for its Windows CE operating system. With Microsoft on board, UPC stock has tripled this year, even though the company is projected to lose $406 million in 1999, according to Morgan Stanley Dean Witter. In July, UPC raised $1.5 billion through a junk-bond issue. An equity offering in October added $500 million more to the kitty. FAMILY AFFAIR. The money fuels a steady stream of acquisitions. Schneider has tripled his subscriber base to 6 million by picking up 15 cable businesses, mostly in France, the Netherlands, and Sweden. His options are limited in Europe's sparsely cabled south. But he's eager to spread eastward. In June, he dished out $807 million for @Entertainment, a Polish network listed on Nasdaq. And he plans to raise more money. ''We're seeing so many deals coming out, we want to stay one financing ahead of the curve,'' he says. For Schneider, cable is a family business. His father, Gene, was an industry pioneer, who got his start stringing cable in Wyoming in 1953. He's now chairman of UnitedGlobalCom Inc., which holds a 51% stake worth $6 billion in UPC. After a stint as a lawyer in Washington, Mark joined his father's businesses. In 1995 he moved to Europe, formed UPC, and began buying cable companies. If Schneider succeeds, the payoff is clear. He calculates that in Vienna, where UPC has 40,000 phone and Internet subscribers, customer bills can rise from an average of $15 per month to more than $100. But such math has others racing to combine voice, video, and high-speed Internet data. Already, France Telecom and Deutsche Telekom are rolling out enhanced data services through the phone wire. It's a technology known as DSL and could eventually power a three-way system of its own. Schneider says the difference in the marketplace will boil down to service and content. With an eye on improving content, he's launching a high-profile Web portal called Chello. He's also building a $30 million TV studio in Amsterdam, where satellite feeds from all over the world will be dubbed, subtitled, cut, and morphed for a continent of different tastes and languages. It's a diverse crowd. But Schneider is betting that his far-flung customers will all buy into his triple play. By Stephen Baker in Amsterdam, with Jack Ewing in Frankfurt _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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