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Cable's Unlikely Empire


Media: Cable

Cable's Unlikely Empire

UnitedGlobal has jerry-built a huge network outside the U.S.

Sitting in their headquarters in a suburban Denver high-rise, top executives of the biggest cable-TV empire outside the U.S. are pondering whether to plaster the company name on their private Bombardier jet. "Nah, too showy," says Gene W. Schneider, UnitedGlobalCom Inc.'s 73-year-old chairman.

Certainly keeping a low profile has not hurt UnitedGlobal or Schneider so far. In the past year alone, the company has struck more than 20 deals to buy into cable-TV systems from Santiago, Chile, to Limoges, France. Today, it owns or controls cable systems with a potential market of more than 15 million homes in 23 countries. UnitedGlobal figures it can sign up many of these to pay for telephone and Internet services as well as TV shows. The plan seems to have captivated Wall Street, which ignited UnitedGlobal's stock price to $80 1/2 on Feb. 15, from $7 in October, 1998. "They have an awfully aggressive game plan," says Mitchell Freund, head of international distribution for Gaylord Cable Network. "I don't know anyone else that is buying up as many systems as they are."BIG-TIME BACKERS. Being well-heeled helps. After raising more than $4 billion in the past year--including $493 million last September from big-time backers John C. Malone's Liberty Media Group and Microsoft Corp.--UnitedGlobal has been kicking the tires of cable systems all over the planet. Schneider, a cable vet who sold his U.S. systems to Malone in the late 1980s, and Michael T. Fries, UnitedGlobal's 37-year-old president, are betting that the rest of the world will embrace the digital "bundling" strategy that U.S. cable companies have just started to deploy. "These guys have been working at the most important thing--getting in the front door," says Robert R. Bennett, president of Liberty Media. "They're way ahead of everyone else."

The problem is, competition from satellite and telephone giants is much more intense outside the U.S. And while stateside cable operators have gone through years of consolidation to create "clusters" of adjacent systems over which to spread upgrading and programming costs, UnitedGlobal is a mishmash of holdings.

In Europe, UnitedGlobal has stakes in dozens of companies through Amsterdam-based United Pan-Europe Communications, its largest unit. Run by Schneider's 44-year-old son Mark, UPC has stakes in cable systems serving 7 million consumers in 13 European Union countries and Israel. But UPC misses out in the continent's biggest markets: It has no presence in Britain and little in Germany or France.

And instead of being able to offer the same service everywhere, UPC operates in 11 different languages. Still, because customers pay as little as $3 a month in Romania and about $11 in places such as Sweden and Norway--far lower than the average U.S. cable bill of about $38. So, UPC is investing heavily to upgrade its systems, and there's lots of room to grow. Plus, it's rolling out a high-speed Web access service, called Chello, that's modeled after Excite@Home Corp., which is signing up 3,500 subscribers per week at $40 a month.

After Europe, UnitedGlobal's biggest push is in Latin America. There, the market for Internet and digital TV services alone will jump to $11 billion in 2005, from $319 million in 1999, predicts Patrick Grenham, telecom analyst for Salomon Smith Barney. UnitedGlobal owns systems in four Latin American countries, including Chile's largest cable system. "The cable markets in Europe and Latin America are where the U.S. was years ago," says Fries. "In some cases, there are huge opportunities to sell cable customers phone or Internet services because the incumbent phone companies just aren't doing a very good job."

Not that it'll be easy. Prices are rising fast for cable systems in Europe. And UnitedGlobal is not a big player in major Latin markets such as Brazil and Mexico. Plus it faces competition from other gringo investors such as Hicks, Muse, Tate & Furst Inc., and from entrenched rivals including Brazilian TV giant Globo Cabo and Spain's Telefonica.

Certainly, the Schneiders know their cable. Gene and his brother Richard started out helping their uncle wire Casper, Wyo., for cable TV in 1952. By the mid-'80s, Gene had built United Cable Television Corp. into the nation's eighth-largest cable system. When he sold it to Malone's Tele-Communications Inc. in 1989, for $2 billion, Schneider kept a couple of foreign systems that TCI didn't want. That formed the basis of United International Holdings Inc., recently renamed UnitedGlobalCom.

Investor enthusiasm may be attributed to how reminiscent of Schneider's strategy is to Malone's assembly of TCI. Though he was criticized for years for TCI's poor quality and second-tier markets, Malone--a UnitedGlobal director--still managed to sell it to AT&T for $55 billion last year. With a better service record, some analysts already value the company at nearly $12 billion--$5 billion more than even its current run-up level. If the cable game is to be played outside the U.S. the same way as it is inside, then perhaps UnitedGlobal's ultimate goal is to be acquired. In that case, Schneider definitely needn't bother putting the logo on the plane.By Ronald Grover in Englewood, Colo., with Bureau ReportsReturn to top


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