Cox buys 80 percent of Prime Cable

Cox Communications Inc., one of the nation's largest communications companies with more than 3.3 million customers, has acquired a majority interest of Prime Cable's Las Vegas system in a $1.325 billion stock and cash deal.

The Greenspun family, which also owns the Las Vegas Sun and American Nevada Corp., the prime developer of Green Valley, will retain a minority position in the company.

Jim Robbins, president and chief executive officer of Cox, said the new company would be known as Cox Communications of Las Vegas.

Robbins and Brian Greenspun, vice president of Prime, announced the deal today in which Cox will take over Prime South Diversified Inc., the holding company for Prime, Hospitality Network Inc., PrimeTel of Nevada and a 35 percent holding of NextLink Nevada.

Prime Cable serves 319,000 residential customers in the Las Vegas Valley and is a 33 percent partner in Las Vegas 1, a new 24-hour news channel that debuted last month. Hospitality Network is an in-room entertainment and interactive services system that is growing to a customer count of 105,000 hotel rooms -- 77,000 in Las Vegas -- by the end of the year.

PrimeTel is a competitive local exchange telephone company in Las Vegas and NextLink is an interexchange telecommunications company offering long-distance access, switched services and private network connections, primarily for business and hotel customers. At the end of 1997, it had more than 3,500 access lines and 600 switched circuits in Southern Nevada.

Greenspun said the deal is subject to regulatory approval and should close within three to six months. The transfer of the cable franchise and the renewal of franchises must be approved by Clark County and the four municipalities served by Prime Cable. Greenspun said he expects those issues to be on the agendas of the respective entities within two months.

Jim Spinello, franchise services manager for Clark County, said the review process generally takes about 30 to 45 days, with much of the time frame dependent upon the complexity of the deal.

The county has a jump on the review process in this case because it is on the verge of completing an audit of the Prime Cable system.

Spinello said franchise transfers require an affirmative vote from the Clark County Commission and the city councils of Las Vegas, North Las Vegas, Henderson and Boulder City.

He said part of his routine investigation of new franchise owners is to talk with colleagues in other cities about their past record. Asked about Cox's reputation and its record on keeping rates down, Spinello said he "has not heard anything to indicate they are not a good cable provider and operator."

Greenspun said he is enthusiastic about the deal because Cox shares the same kinds of values his family has had in its management of the cable operations.

"My family recognized that in order to keep Las Vegas growing from a communication standpoint we had to find a partner that had access to leading-edge technology," Greenspun said today. "We invited four companies to talk to us and it was clear by the end of the day that Cox was the kind of company that shared the values we've had since my father started the company. It seemed like a perfect fit."

Robbins said Cox was interested in pursuing the deal because of the tremendous growth opportunities Las Vegas represents.

"We feel the communications service we provide is just as important as water and power as we move into the 21st century," Robbins said. "We hope to build on the same concepts in Las Vegas as we have in the Southwest and in other parts of the country. We hope to build on the reputation Brian and his family have built in Las Vegas and they will continue to have a 20 percent interest in the company."

Presently, the family owns 75 percent of the cable holding company with Prime Cable of Austin, Texas, holding the remaining 25 percent. Bell South held options allowing it to convert to a 15 percent ownership position, which would have changed the Greenspuns' position to about 63 percent ownership.

The selling shareholders in the deal -- Bell South and Prime -- are taking cash in the transaction, but Greenspun said his family is taking a combination of stock and cash. At $1.325 billion, the deal represents one of the highest prices paid per subscriber for a cable system.

But Greenspun and Robbins said the transaction is more than just a cable television deal with the telephone and other ancillary businesses associated with the transaction.

Analysts have cited convergence of networking services as one of the byproducts of the Telecommunications Act of 1996 and the Cox acquisition as consistent with what the industry giants are doing to compete in local markets.

"It's heading in the direction most consumers want," said Ken McGee, vice president of The Gartner Group, a Stamford, Conn., company that researches the telecommunications industry. "In a perfect world, they would have one company providing cable, telephone service, long distance and Internet access."

The transaction announced today puts Cox in that position. In acquiring the Prime system, Cox will have access to an additional 506,000 residences in one of the fastest growing metropolitan areas of the United States as the premiere provider of advanced video, voice and data services for the region.

But McGee said two of the three goals of the Telecommunications Act aren't being met by the convergence and consolidation efforts within the industry.

"The problem we have with consolidation is that there are fewer competitors and rates will increase over time," McGee said. "I'm convinced that the long-term benefit will yield lower rates for consumers."

McGee emphasized that he was talking specifically about the industry as a whole and not Cox in its transaction with Prime.

Robbins said he does not expect the existing rate structure to change as a result of the acquisition, but he noted that customers will soon see a wide array of new services -- and new technology isn't cheap.

"Modern telecommunications don't come for nothing," Robbins said. "We'll always be concerned with rates and affordability, but we also know that customers nationwide are willing to pay for quality service and a quality product. Customers in the not too distant future will see new services: high-speed Internet access, telephony service and digital television, which will offer a vastly expanded channel capacity."

Robbins said Cox will evaluate the top management in place at the various companies before making a determination on whether to keep them or replace them with Cox management. He added that he expects the total number of employees to increase as the system continues to grow. There are about 500 Prime Cable employees and about 1,000 people employed by the other Las Vegas companies involved in the deal.

Cox is one of the nation's largest cable operators, with 3.3 million customers. The company wholly owns and operates 16 cable systems in the United States, and shares ownership of a Florida system with Time Warner Communications.

Cox focuses on operating fewer larger systems, rather than many smaller systems, a strategy that creates greater economies of scale. Nearly 85 percent of the company's customers are served by nine large systems in New England, Virginia, Nebraska, Oklahoma, Florida, Louisiana, Arizona and California.

In the first quarter, Cox posted revenues of $415.8 million, a 9 percent increase over revenues of $383.1 million in the year ago quarter. Operating cash flow in the quarter was $149.1 million, a 7 percent increase over operating cash flow of $139.6 million in the first quarter of 1997. Operating income fell 12 percent quarter-to-quarter to $43.5 million. The company attributed the decline to a continuing upgrade and rebuild of its broadband network.

Cox's net loss was $101.9 million compared to a net loss of $37.8 million in the first quarter of 1997. Few cable companies actually post profits; cable industry analysts rely primarily on cash flow analyses to check the health of their investments.

Cox Communications, based in Atlanta, is part of a larger family of companies that includes Cox Newspapers; Cox Fibernet, a telephone provider; and Cox Interactive Media, an Internet site designer. Cox also owns interests in cable and telephone companies in the United Kingdom, and in the Primestar direct broadcast satellite company. Programming investments include The Discovery Channel and The Learning Channel, among others.

The Cox companies draw their roots to 1898, when former school teacher and Cincinnati Enquirer reporter James M. Cox purchased the Dayton Evening News for $26,000. The company entered the cable television business in 1962, with the purchase of three Pennsylvania cable systems.

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