France Telecom, Suez Lyonnaise des Eaux link cable TV holdings

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PARIS--France Telecom and Suez Lyonnaise des Eaux have reachedagreement on a plan to pool existing cable TV operations into a new company that will offer TV, broadband Internet services and fixed telephoney to 2.2 million customers nationwide.

The agreement -- contingent on shareholder approval and attraction of a third partner with cable TV experience -- should conclude a longstanding dispute over control of cable lines in Paris and other large municipalities nationwide.

France Telecom was a state-owned monopoly in the 1980s when it installed the country's existing cable network. Suez Lyonnaise des Eaux was chosen as the principal partner for operating cable networks in Paris and other major metropolitan areas, and the two companies split the limited revenues from cable TV operations.

The European Union's gradual liberalization of the telecommunications sector has subjected the partially privatized France Telecom to competition in a host of areas, including Internet access and telephony, from cable TV operators such as Suez Lyonnaise des Eaux.

In light of the new threat posed by its former partner, France Telecom has refused to upgrade its cable network, effectively stalling development of cable TV in favor of digital programming delivered via satellite.

France Telecom had initially sought to sell its cable network to SuezLyonnaise des Eaux, but they couldn't agree on price. Hence the new partnership agreement, which seeks to create value by combining commercial operations and network ownership within a single entity.

Suez Lyonnaise des Eaux will control 50.1% of the new company with France Telecom holding a 49.9% share. France Telecom will be a purelyfinancial investor in the new company, and is likely to progressively divest its stake over the coming three years; first, by selling part of its interest to the third partner, and later through an initial public offering of the new entity on French and international capital markets.

Neither France Telecom nor Suez Lyonnaise des Eaux was willing to comment on the likely identity of the third partner. British cable operator NTL is the likeliest candidate, given France Telecom's existing 10% stake in the company. But discussions are also said to be ongoing with unidentified German and Italian cable operators.

Copyright September 1999, Crain Communications Inc.

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