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Liberty/UGC Deal Could Change Chilean Landscape

Liberty Media International Inc.'s agreement to make a major investment in UnitedGlobalCom Inc. could spark some changes in the Chilean cable market.

The deal, announced last month, appears to put Liberty in the awkward position of having stakes in both of Chile's dominant-and fiercely competitive-MSOs, Metropolis Intercom and VTR Globalcom S.A.

"Potentially, we do have a foot in both camps," Liberty managing director for Latin America Greg Armstrong said, referring to Metropolis and VTR.

VTR is Chile's leading MSO, with about 400,000 subscribers, while No. 2 Metropolis has some 270,000 subscribers.

Earlier this year, Liberty, along with local partner Grupo Claro, increased its stake in Metropolis through a holding company they jointly own called Cordillera Comunicaciones S.A. Cordillera owns 100 percent of Metropolis after telco Telefónica Chile S.A. sold its stake amid disagreements over an Internet strategy.

But while owning 50 percent of Metropolis, Liberty also appears to have a firm link to VTR, which is 100 percent-owned by UGC. Liberty's pending deal is set to see it take a 45 percent stake in UGC.

The deal between UGC and Liberty is not set to close until later this year. However, if it goes ahead as expected, it is set to raise some tricky issues among the shareholders involved in both Chilean MSOs, and to draw attention from Chile's antitrust watchdogs, analysts said.

"The regulatory agencies would certainly take a look at it, and I can't image that it would be allowed to pass," said Bruce Stanforth, head of Latin American corporate research at BNP Paribas Group in New York.

As part of the wide-ranging deal, Liberty will contribute most of its international assets to UGC in exchange for a large stake in the company. However, Metropolis is not explicitly listed as part of the agreement.

"The crux of the deal was in Europe, and in Latin America, the crux of the deal was the assets in Argentina on the programming and distribution side," Armstrong said. But, he added, the deal's impact on Liberty's Chilean holdings is not clearly defined, and "much would depend on the response of the Chilean government."

Some industry experts speculated that Liberty will eventually be forced to jump into the camp of one MSO or the other. "It would be safe to say that [Liberty] will eventually be forced to sell one of the cable holdings," Stanforth said.

Added one Santiago-based cable executive: "It would seem logical for Liberty to opt for VTR," given that it would have greater management control of that MSO.

In response, Armstrong said Liberty was committed to continuing as an investor in Metropolis. Grupo Claro and UGC executives couldn't be reached for comment.