U S West Inc. said it plans to split U S West Media Group and U S West Communications Group into separate public companies with separate boards of directors sometime after mid-1998.
The proposed split is an acknowledgement that U S West was apparently wrong in its 1992 assessment that telephone and cable networks eventually would converge, said Richard McCormick, chairman and chief executive officer of the company. Once completed, the transaction would allow Communications Group, a local telephone company with service in a 14-state region, and Media Group, which is primarily focused on cable, to separately pursue alliances and agreements not possible as a combined entity, he said.
“Not only has the marketplace and the technology not come together across these industry boundaries and made it economic for us to put these businesses together, but the regulation certainly hasn’t moved in that direction either,” he said.
The move has invited speculation that one or both segments of the business may be merger candidates for telecom and cable companies.
Despite each group’s different focus, however, both groups hold wireless interests.
U S West NewVector Group, part of Media Group, holds domestic cellular licenses, although it is in the process of merging those properties into AirTouch Communications Inc. All of U S West’s cellular markets operate under the AirTouch brand name.
But while Media Group is in the midst of ridding itself of its wireless holdings to focus on its core cable business, Communications Group has acquired D- and E-block personal communications services licenses primarily in markets where it provides local wireline service. The company said it plans to use the licenses to offer its Access2 Advanced PCS service, an integrated wireline/wireless service that rings a customer’s wireless phone if it is on, or a home or office phone if it is off. The service, which the company recently launched in Denver, provides a voice-mail box common to both the wireline and wireless phone.
Under the plan, Communications Group will be renamed U S West Inc. The group also will expand to include U S West Dex, the company’s directory business.
Media Group will be renamed MediaOne Group Inc. Its properties also include the company’s interests in the Time Warner Entertainment partnership, the wireless operations of NewVector Group, all of U S West’s international interests and interactive services.
The two groups since 1995 have traded under separate classes of common stock-a yield stock to track its telecommunications business and a growth stock to track the Media Group. The groups have continued to operate under a common financial structure and board of directors.
Moody’s Investors Service, New York, placed the debt ratings of the company and its affiliate, U S West Capital Funding Inc., under review with direction uncertain. The action represents the uncertainty of the final disposition of the currently outstanding debt of both U S West and U S West Capital Funding, said the ratings firm.
The split is expected to affect around 700 jobs based in the Denver area. Most of those employees, primarily in support areas common to both groups, will be absorbed into the new companies, said U S West.
The transaction is subject to regulatory and shareholder approvals as well as a favorable ruling from the Internal Revenue Service.
The groups also reported financial results for the third quarter ended Sept. 30.
U S West Media Group reported a net loss of $144 million on revenues of $2.3 billion, compared with a net loss of $109 million on revenues of $2 billion for the third quarter of 1996.
The group’s domestic wireless business had net income of $28 million, a 39.1 percent decrease from net income of $46 million during the third quarter of last year. However, the group’s domestic wireless business reported total revenues of $50 million, 52 percent more than revenues of $33 million, for the same quarter last year.
International wireless revenues increased from $23 million during third quarter 1996 to $52 million this third quarter. Net loss in international wireless business was $42 million, 50 percent more than a net loss of $28 million for the same quarter last year.
The group’s domestic cellular business closed the quarter with a 32 percent increase in its subscriber base with 2.2 million proportionate customers.
Communications Group reported net income for the quarter of $336 million, or 69 cents per share, on revenues of $2.7 billion. During the same quarter last year, Communications Group reported net income of $286 million, or 60 cents per share, on revenues of $2.5 billion.
