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UPDATE 1-Time Warner Cable, Cox talk swaps, alliance-sources
September 13, 2010 / 8:14 PM / in 7 years

UPDATE 1-Time Warner Cable, Cox talk swaps, alliance-sources

* Time Warner Cable, Cox talk California swap - sources

* Cable systems valued at $2 bln - source

* Time Warner, Cox also broached broader alliance - source

* Talks now on hold, expected to resume - sources (Adds details on cable systems, Cox ownership)

By Yinka Adegoke and Soyoung Kim

NEW YORK, Sept 13 (Reuters) - Time Warner Cable Inc TWC.N and privately-held Cox Communications have held early talks to swap cable systems in California and also broached the idea of a broader alliance, according to two people familiar with the talks.

The cable systems were valued around $2 billion, according to one of the people. After several months of discussions the talks slowed down in August, but they could return to the negotiating table in the near future, both people said.

The early-stage talks between Time Warner Cable and Cox, the second and third largest U.S. cable operators, were aimed at competing better against larger rival Comcast Corp (CMCSA.O), which is buying NBC Universal from General Electric (GE.N), the sources said.

Time Warner Cable and Cox both declined to comment.

Both firms have various adjacent cable systems in southern California cities like Los Angeles and San Diego.

Cable companies typically prefer to build or acquire cable systems with access to homes in adjacent neighborhoods to systems they already own to help lower operating costs such as customer service.

There has long been an expectation in Wall Street circles that Time Warner Cable, which was spun off from Time Warner Inc (TWX.N) in March 2009, would eventually seek to expand by acquiring cable systems close to systems it already owns.

There has also been a longer-term view that Time Warner Cable would be interested in owning systems which Cox currently holds if the Cox family decides to exit the cable business. The Cox family through its holding company Cox Enterprises also owns media assets like TV and radio stations, websites like AutoTrader.com and newspapers including The Atlanta Constitution.

Lead parties in the discussions between the two companies over the cable system at one time raised the possibility of a broader alliance beyond a cable swap, said one of the people familiar with the talks.

Once publicly traded, Cox was taken private by Cox Enterprises in 2004 at a value of around $6.6 billion.

Cable companies typically seek to expand to reduce the impact of programming costs on their bottom line. The more customers a cable or satellite operator has the better leverage they have to reduce programming fees in negotiations with cable networks and broadcasters.

In the last year Time Warner Cable, despite having more than 13 million customers, has found itself at loggerheads with cable and broadcast network owners like Walt Disney Co (DIS.N) and News Corp (NWSA.O).

Even if Time Warner Cable and Cox were to eventually combine, they would have a total of just under 20 million subscribers, still less than the market leader Comcast Corp (CMCSA.O), which has over 23.2 million subscribers but more than satellite TV operator DirecTV Group DTV.O which has over 18 million U.S. subscribers.

Reporting by Yinka Adegoke and Soyoung Kim; Editing by Bernard Orr

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