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PacBell Seeking Buyers for Its Cable TV System

Business: Firm's parent company pulls plug on effort to send movies and interactive news to homes.

November 13, 1997|P.J. HUFFSTUTTER | TIMES STAFF WRITER

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 then $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."

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."

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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.

Analysts say that Pacific Bell could have trouble finding a buyer who 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.

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