Liberty Media Group’s announcement last week that it plans to acquire The Associated Group Inc. would give Liberty, the Tele-Communications Inc. offshoot traditionally focused on video programming, a foothold in the emerging broadband wireless access market.
Among other things, Associated owns a 41-percent interest in Teligent Inc., the broadband services provider headed by ex-AT&T President Alex Mandl. Teligent plans to offer small- and medium-sized businesses access to local, long-distance, high-speed data and dedicated Internet services in a total of 74 markets in the United States via 24 GHz fixed wireless spectrum.
“The Associated transaction is a unique opportunity for Liberty,” said Robert Bennett, president and chief executive officer of Liberty. “It allows us to obtain an attractive investment in the very exciting and rapidly growing business of Teligent.”
The wireless broadband market has come into keen focus recently, as data traffic threatens to outpace voice traffic, and bottlenecks begin to crop up in the last mile between high-capacity conduits like fiber and the businesses that need access. A recent Strategis Group report predicts the overall market for broadband access will reach $160 billion by 2003, and wireless access will account for about $10 billion of the total within the next five years.
Peter Nighswander, vice president of competitive telephony at Strategis, said Liberty likely realized cable was a maturing industry and sought to invest in the higher-growth market for broadband.
“The cable programming and the broadband may not necessarily go hand in hand, but it was an opportunity for (Liberty) to tap into a lucrative market,” said Nighswander.
Why a company traditionally focused on the cable industry would be interested in Teligent is up for debate, but some analysts believe it is part of a continued blurring of the lines between different types of services.
Larry Swasey, an analyst at Allied Business Intelligence in Oyster Bay, N.Y., said the deal most likely is part of a strategy that would allow Liberty access to businesses, a market segment it can’t reach with cable modems. A variety of communications companies, he said, are moving toward a bundled approach that will allow them to offer several services to the entire market.
“Everyone is trying to offer multi-tiered applications,” said Swasey. “And people are expecting more and more services as these companies get bigger.”
Liberty’s parent, AT&T Corp., is a prime example of that trend. AT&T has been on a buying spree-particularly within the cable industry-designed to allow it to bypass Baby Bell telephone lines and provide a variety of services, including local telephone service, via the cable lines into customers’ homes. AT&T also is experimenting with providing local telephone service using a proprietary wireless technology.
“It used to be that there was a traditional break-a clear line between cable and telephony,” said Swasey. “Everyone is building toward what I call a `megaworld’ where everyone is going to look identical, and they will compete on price points, branding and image and how quickly they can get to market.
“You have to get all the services together before you can go forward,” continued Swasey.
In addition to Teligent, Associated owns wireless location company TruePosition Inc., as well as an interest in a Mexican cellular telephone company. Associated also owns interests in AT&T and Liberty.
The deal calls for Liberty to acquire Associated in a complex all-stock transaction, including the assumption of about $187 million of debt. Liberty’s class A and class B common stock are tracking stocks of AT&T, which earlier this year completed its acquisition of Liberty’s former parent TCI. Although Liberty is now owned by AT&T, it operates independently of the company.
Associated shareholders are scheduled to receive about .62 shares of class A Liberty Media common stock plus about .47 shares of AT&T common stock for each share of Associated class A and class B common stock. The AT&T common stock issued in the transaction is equal to the number of AT&T common shares held by Associated. AT&T will receive and retire those shares, making the transaction financially neutral to AT&T common stockholders, said the companies.
AT&T spokesman David Caouette said AT&T’s involvement in the transaction was limited to helping structure the deal to be tax free, and he said the company had no comment on its interest in becomming operationally involved with Teligent or any of Associated’s other businesses.
The deal, which is expected to close early next year, is valued at about $3 billion.
