Venezuelan MSOs Eye Merger, Telephony Rollout

Caracas, Venezuela-As summer nears an end, Venezuela's telecommunications business is starting to heat up.

Two of the country's leading MSOs are preparing to offer telephony services, with phone company Compañía Anónima Nacional Teléfonos de Venezuela (CANTV) set to lose its monopoly in November. At the same time, the pay TV duo may merge into one cable and telephony company if current talks bear fruit.

Venezuela's cable industry is largely controlled by three players: SuperCable, Intercable and Cabletel.

While Adelphia Communications Corp.-backed SuperCable officials said they have no immediate interest in providing phone service, Intercable and the owner of Cabletel, telecommunications firm VenInfoTel C.A., definitely have merger and telephony on their minds.

Intercable, 66 percent-owned by Dallas-based private investment firm Hicks, Muse, Tate & Furst Inc., has already balked at one asking price VenInfoTel has offered, Intercable director of corporate communications Mario Seijas said.

"Their bank, J.P. Morgan [ & Co.], is preparing another quote," he added. "That will be evaluated and, if necessary, challenged by our bank, Chase Manhattan [Corp.], to come up with an acceptable figure."

The two companies had been in previous merger talks, but failed to reach an agreement. However, strategic needs could push them together now.

Since Hicks, Muse bought into Intercable two years ago, the MSO has expanded rapidly into provincial areas, laying a fiber-optic network and buying numerous mom-and-pop operations.

From its original base in west-central Venezuela, it has expanded into all five regions into which the National Communications Commission (Conatel) has divided the country for telephone service. In short, it is everywhere cable should be except in the key market-the capital city of Caracas.

Caracas is the stronghold of SuperCable and Cabletel. Ven-InfoTel already has the hybrid fiber-coaxial infrastructure rings in Caracas that telephone switching and interconnection require.

"We can switch into telephony faster than any other cable operator," VenInfoTel chief operating officer and former Bell Atlantic Corp. (now Verizon Communications) executive Peter Aquino said. "That's what we came for."

Meanwhile, Intercable has ordered a trial switchboard, and it has two telephones in test operation in its offices. Like VenInfoTel, it plans to provide HFC telephony, but unlike VenInfoTel, its network would require more extensive upgrades.

Aquino said a merger is far from a done deal. "With deregulation, everybody wants to get into telephony," he added. "And for those who aren't technically advanced or in Caracas, the quickest way would be to merge with us or acquire us. So we're talking to a lot of people."

He said the company has held discussions with AT & T Corp. and Spanish telecommunications giant Telefónica S.A., two likely acquirers. Both own stakes in VenWorld, a holding company that owns almost 43 percent of CANTV.

Industry executives speculated that the two companies might try to unwind their CANTV stake before deregulation because their ownership entails a noncompetition clause. Conceivably, they could partner with a cable company.

Previously, VenInfoTel had approached SuperCable, aiming to acquire or merge with the company. But, according to Aquino, SuperCable's asking price of $220 million, or $2,000 per subscriber, was considered too high. "We feel that is too much for a company without telephone capability," Aquino said.

SuperCable spokeswoman Dolly Armitano said the company is concentrating on other projects, such as the Internet, and it is not immediately interested in launching telephony service.

For all of the champing at the bit, the bidding on telephony licenses is on hold. At the end of July, Venezuelan Chamber of Subscription TV president Alberto Arapé expressed his impatience.

While pleased that a revised Telecommunications Law has been passed, he expressed concern that there is no detailed model of how the industry will be opened to competition. One undefined issue is the registration of bidders on telephony licenses.

The legislative logjam caused by the July 30 national elections suspended any action on the matter until sometime this month. Government officials said that about 20 companies, including the two MSOs, are interested in providing telephony service.

Even more may be on the way. "Many foreign investors have been waiting for signs of [economic and political] stability in the country after the elections before making a move," Aquino said.