April 2, 2007 1:36 PM PDT

Comcast and Insight unwind partnership

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Comcast and Insight Communications plan to divide up the roughly 1.4 million high-speed Internet and cable TV customers in the midsize cable operator they jointly own.

The companies on Monday said they will each take control of 50 percent of Insight's subscriber base. Insight is the ninth-largest cable operator in the country, with a network clustered in four states: Illinois, Kentucky, Indiana and Ohio.

Under the agreement, Philadelphia-based Comcast, the nation's largest cable operator by subscribers, will own the cable systems serving roughly 980,000 video customers and 300,000 high-speed Internet subscribers in parts of Illinois and Indiana. Insight will keep 964,000 video customers and 308,000 high-speed Internet customers in Kentucky and Ohio, as well as in one city in Indiana.

As part of the deal, Comcast and Insight will be responsible for $1.33 billion and $1.26 billion of the partnership debt, respectively.

Comcast inherited its stake in Insight from its acquisition of AT&T Broadband. Analysts expected that Comcast would unwind this partnership; the company has been ending partnerships with Time Warner Cable, Adelphia Communications and Susquehanna Communications. But they say this agreement is particularly noteworthy because it gives Comcast very high-quality subscribers as well as assets in an area where the company already provides cable services.

"The acquired properties fit like a glove, giving Comcast much greater efficiency in operations that could have been enjoyed by Insight," Craig Moffett, an analyst at Sanford Bernstein, said in a research note published Monday.

While Comcast said the added subscribers will generate an additional $290 million in cash in 2007, the deal actually makes Comcast smaller in the eyes of the Federal Communications Commission. That could bode well for Comcast, as the FCC considers limiting the amount of multichannel subscribers a cable company can have, Moffett said in his note.

"By shedding the attributed subscribers associated with the deal, Comcast actually contracts by 640,000 subscribers," he said. "This comes at a time when the FCC is once again entertaining (to uncertain ends) a long-dormant 30 percent national multichannel subscriber share cap."

The deal also raises questions about whether Time Warner, the second-largest cable operator in the United States, might make an acquisition play for Insight. From a clustering point of view, Moffett said the remaining Insight properties comprise an obvious match for Time Warner, which has significant cable infrastructure in parts of Kentucky, Illinois and Ohio.

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