Comcast Makes Stock Deal to Control Rival Jones

In a sign of the continuing consolidation of the cable industry, Comcast Corp. said Monday that it has struck a complicated, multilayered deal that by 2001 would give it control of a smaller rival, Jones Intercable Inc.

The transaction, valued at about $700 million, would give Philadelphia-based Comcast, the nation’s fourth-largest cable concern, 1 million more subscribers at a time when operators are racing to expand and provide new services, such as high-speed connections to the Internet, digital television and telephone.

Under the deal, Comcast would purchase both common stock and options to buy controlling shares in Denver-based Jones that are currently held by BCI Telecom Holding, the Canadian Bell operating company, over the next 3 1/2 years.

Comcast would pay $400 million for most of BCI’s interests in Jones and later $100 million for the rest, assuming BCI exercised an option to buy a block of controlling shares from Jones founder Glen Jones.

The Canadian company would exercise that control option in 2001 and sell it to Comcast at a cost based on the stock price at that time. If the option were exercised today, it would be valued at about $200 million, according to Richard Bilotti, an analyst at Morgan Stanley Dean Witter.

After rushing to compete in the cable business earlier this decade to take advantage of deregulation, phone companies have dramatically backed off to focus on core operations. Bell Canada initiated the deal by putting its Jones interests on the block. Another factor, sources say, was a rocky relationship between Bell Canada and Jones.

The deal would give Comcast close to 5.5 million subscribers.

Combining the operations of Comcast and Jones would ultimately result in the largest cable “cluster” in the Baltimore-Washington area, with nearly 900 million subscribers.

The cable industry needs large, contiguous groups of subscribers to make further investments economical.

The industry has not introduced a new product in two decades, but recently the prospect of fresh sources of revenue has accelerated bidding wars for key properties and drawn investors into the business, including Microsoft Corp., which put $1 billion into Comcast, and Microsoft co-founder Paul Allen, who recently bought Marcus Cable.

The Comcast-Jones deal has “the most attractive price of all the recent deals,” said Bilotti. “This one is at the lower end of the range not because of the quality of the systems but because Comcast is willing to live with the complexity.”

Brian Roberts, chief executive of Comcast, said the deal will require patience because it is both inconvenient and would give Comcast only a passive stake at first.

But Roberts said that also prevented a bidding war from driving up the price, and he added that his father, Ralph Roberts, the founder of Comcast, has known Glen Jones for more than 20 years and is comfortable with a partnership.

Comcast has subscribers in Simi Valley, Santa Barbara, Orange County and San Bernardino; Jones owns systems in Oxnard and Palmdale.

Under the deal, Comcast would also buy Jones’ programming operation, which owns Knowledge TV.