Charter wants High Speed Access

Cable operator tries to take comman of its top ISP

Charter Communications' offer to take control of High Speed Access including its relevant real estate and personnel for about $73 million is part of an emerging trend by cable operators to take greater control of their ISP brands.

HSA handles about 35% of Charter's Internet business, which also includes deals with Excite@Home and EarthLink. Charter wants to “pull [HSA] in house” and make it part of Charter Pipeline, said a company spokesman.

“We want to ensure that our customer service for these high-speed data customers doesn't get interrupted,” he said.

The offer is $73 million in cash and assumption of $13 to $14 million in liability. At the same time, Charter will return all Series D preferred shares that it and parent company Vulcan Ventures hold as part of their 50% stake in HSA.

The buyout would maintain a Charter-specific Internet brand in a multi-ISP open access environment, said Cynthia Brumfield, president of Broadband Intelligence.

“This has more to do with [HSA] out there negotiating other deal, such as with AOL Time Warner,” where HSA is an unaffiliated ISP on Time Warner's cable networks, she said.

The Time Warner relationship is one of five businesses that HSA runs. In addition to Charter, it operates Web host Digital Chainsaw, cable modem access for small multiple systems operators (MSOs), DSL access and an international unit. Only the international business is making money, said HSA President and CEO Dan O'Brien.

“I don't think that [$73 million Charter] cash would be sufficient to run all five of the businesses,” O'Brien said, noting Charter's bid is “a complicated offer that segregates and separates assets and obligations and different pieces.”

HSA's selected customer roster
Cable Company	Customers
Charter Communications	750,000
Marcus Cable	60,000
Genesis Cable	34,000
Covington Cable TV	19,500
Cablevision	10,000
Tri-Lakes Cable	8000
Western Cable Communications	8000
Mid-Coast Cable TV	385
Source: HSA

HSA will make the determination “which of those do we want to run or, possibly, create a liquidating distribution that says, Here's how much cash we have, and we're going to give that to the shareholders and shut it down,’” O'Brien said.

Keith Kennebeck, an analyst with The Strategis Group, said he likes the bid's timing. Cable-specific ISPs saved MSOs money by building their high-speed Internet infrastructure. Now that that's finished, ISP value is down.

“It might be a pretty savvy business move to buy them up,” he said.

“This provides an opportunity for [Charter] to be able to buy those assets, integrate them internally much [like] Adelphia and Cablevision do in running their own data businesses eliminate the majority of our [financial] burn and provide us with cash value,” O'Brien said.

The sticking point is price.

“If I were them, I would jump for Charter's offer because it's a good one,” Brumfield said.

O'Brien isn't jumping though. “I'm generally not in the habit of accepting someone's first bid,” he said.