Copyright 2004 St. Louis Post-Dispatch, Inc.

St. Louis Post-Dispatch (Missouri)

March 9, 2004 Tuesday Five Star Late Lift Edition

Jerald Kent's Cebridge Connections is growing almost as fast as his second company, Charter Communications Inc., did in its early years. The growth just comes in smaller spurts.

On Monday, Cebridge Connections agreed to buy cable systems that will bring its subscriber total to nearly half a million in 23 states by summer. Charter also reached half a million subscribers within two years of the company's founding in 1993.

Kent, longtime partner Howard Wood and investor Daniel Bergstein formed Cequel III LLC two years ago to manage and invest in communications companies. They started Cebridge last year after partnering with Oaktree Capital Management to buy assets of bankrupt Classic Communications Inc., a Texas-based cable company.

The latest deals include: About 19,000 subscribers served by Tele-Media Corp. in Kentucky, North Carolina, Tennessee, Virginia and West Virginia. Tele-Media is based in Pleasant Gap, Pa.; and about 41,000 customers served by USA Media Group LLC in California, Idaho, Nevada, Oregon and Washington. USA Media's headquarters is in Reno, Nev.

Cebridge didn't disclose terms for the deals, which come on the heels of another pending acquisition from Thompson Cablevision. All three deals are expected to close by late spring or early summer.

Wood and Kent said they're not aiming for rural systems — just systems with growth potential and enough size to justify adding services like high-speed Internet service, digital cable and in some markets, video-on-demand. Some of the systems are in fast-growing suburban areas of cities like Houston, Dallas, and Little Rock, Ark.

Many of the communities have no high-speed Internet service until Cebridge adds it. The vast majority have no digital subscriber line competition from telephone companies. So the company is rapidly upgrading systems and rolling the service out where it can.

Cable modem service "is the glue to hold our video customer," Kent said in an interview. If the company can add telephone service, too, it has a potent triple-play that can help fend off raids on its customer base from satellite companies.

Cebridge expects to have 80 percent to 85 percent of its systems upgraded and offering cable modem service by next year. Most of the remaining markets are currently too small to justify an upgrade.

Kent says Cebridge doesn't have as many opportunities to buy systems now as Charter did because the industry is more consolidated. But he expects opportunities to crop up as larger companies combine to strengthen their position in key markets and then sell off non-strategic assets.

"We can afford to be patient," he said.

Cequel III's other investment, AAT Communications Inc., also is finding fewer deals that are more expensive. The company recently closed on a $10 million transaction and expects to close a $91 million deal on March 19.

Together, the two companies expect to generate $375 million in revenue this year, Kent said. The companies' cash flow is growing, but they are not yet profitable after non-cash expenses like depreciation.

Cequel III is no longer an investor in Broadwing, a fiber-optic network it purchased with Corvis Corp. of Columbia, Md. In November, Corvis decided to take full ownership of the venture, giving Cequel III stock, warrants and services in exchange for their stake in the company.