Cable rates climb: Cox pays Park Avenue prices for heartland customers

Cox Communications will buy more than half a million Southern and Midwestern cable subscribers from Gannett Co. for the surprisingly steep price of $5100 per subscriber.

For $2.7 billion in cash, Cox will acquire 303,000 Gannett customers in Kansas, 122,000 in Oklahoma and 97,000 in North Carolina. All told, the nation's fifth largest cable operator will pick up 522,000 new subscribers in the deal.

The company claims the per-subscription price is reduced by a $350 million tax benefit that will result from doing an all-cash deal. Figuring in the tax breaks and some operational synergies, Cox officials said the per-capita cost is closer to $4500.

Should the deal go through, the systems Cox will gain are high-quality. "Nearly 90% of the Oklahoma and Kansas systems are already upgraded to 750 MHz," said James Robbins, president and CEO of Cox, in announcing the deal. Overall, about 75% of Gannett's systems are upgraded for high-speed data. Those lines can be used quickly to carry the packages of interactive video, voice and data services that Cox offers in other parts of its network.

The Gannett systems also fit nicely into Cox's map. Gannett's Oklahoma holdings are concentrated in the Oklahoma City suburbs, while Cox is the dominant operator in the city itself. The Kansas properties, located mostly in Wichita, Topeka and Manhattan, will cluster with networks Cox already owns in the Midwest, giving Cox 2.4 million customers in six Midwestern states. Cox also owns cable systems in Roanoke and Hampton Roads, Va., which should integrate with the North Carolina purchase.

The deal is just the latest in a string of increasingly expensive cable buys. Paul Allen's Charter Communications bought Marcus Cable for about $2300 per subscriber in June 1998. A year later, Charter offered to pay $4000 for each subscriber to Fanch Communications.

That differential reflects the new economics of multiservice cable, observers said. "A price of $2000 literally is the financial net present value of $40 per month for cable video over 12 months," said Thomas Eagan, an analyst with Paine Webber. "But do that math again for high-speed Internet, and again for cable telephone, and you can see where you'll pay upwards of $4000 per head."