Market Insight

Broadstripe Communications exits cable business with sale to WaveDivision And WideOpenWest

August 25, 2011

Harold Vargas Harold Vargas Senior Analyst, Television Media

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Broadstripe Communications, which filed for bankruptcy in 2009, has agreed to sell its assets to WaveDivision Holdings and Avista Capital Partners, owners of WideOpenWest. WaveDivision, a cable operator which serves over 300,000 customers, will acquire around 60,000 customers, passing 103,000 homes in Oregon and Washington for $32m, while WideOpenWest will get 48k customers, passing 92,000 homes, for $55m in Michigan.

Broadstripe's Maryland system are being acquired for $8m by a newly-formed company, Anne Arundel Broadband, and will be partly operated by Broadstripe's current Executive Vice President of Regional Operations.

In the mists of the recent Time Warner cable acquisitions of Insight Communications, there continues to be a wave of consolidation involving the nation's smaller, more rural cable operators. Prior to the Broadstripe sale, there have been nine cable deals this year, of which five involved purchases by cable operators with less than 500,000 subscribers.

The sale of Broadstripe's assets caps the end to 11 years of cable service, marred by a bankruptcy in 2009. The past six years for Broadstripe have been particularly tumultuous, beginning when it agreed to sell its Oregon, Washington and Michigan systems to WaveDivision in December 2005 for $157m. Broadstripe terminated the deal, concluding that with improvements in the markets and with additional funding it could grow organically, and through acquisitions. The combined sale of $87m for Broadstripe's Oregon, Washington, and Michigan systems is a little above half of what it would have received had the original deal gone through (without adjustment for inflation).

For Wave Division, the gain of 60,000 customers at an inexpensive $533 per basic sub, which is significantly below the current market average $3,852 for 2011, is a significant boost to their subscribers in the west coast, where they operate in California, Washington and Oregon. At year end of 2010, IHS Screen Digest estimates WaveDivision had 137,000 video subs, 110,000  HSD subs, and 51,000 voice subs.

WideOpenWest's acquisition of 48k customers from Broadstripe's Michigan systems is one of its largest acquisitions since it began service in 2001 after acquiring cable systems from Ameritech New Media serving over 310,000 customers for an estimated cost of $300m. WideOpenWest now operators in Ohio, Illinois, Indiana, and Michigan, and the addition of 48,000 customers at a below market price of $1,145 per basic sub will help expand their footprint after their failed bid for Insight Communications. IHS Screen Digest estimates at end of 2010, WideOpenWest had 425,000 video subs, 354,000 hsd subs, and 209,000 voice subs.

Broadstripes Maryland system was to have been originally sold to Comcast on April 2007 for $115m. At that time, the deal would have left Broadstripe in a good position to begin its growth phrase with a fresh infusion of cash. With the onset of the recession, the deal collapsed in late 2007 and after a failed attempt to acquire James Cable's 50,000 subscribers for $110m in 2008, Broadstripe declared bankruptcy in January 2009. Broadstripe has now sold their Maryland systems for $8m, a 93 per cent decrease from their 2007 price, to a newly formed company, Anne Arundel broadband.

Private-equity buyers, such as WideOpenWest owners, Avista Capital Partners, see value in such cable acquisitions and expansions. They bring in steady revenue from subscriptions, all the while increasing customers, expanding footprint, and building and upgrading infrastructure. In a cable industry where customers have been declining, such deals also make smaller cable companies more attractive acquisition targets for larger cable operators seeking to increase their own subscriber numbers.

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