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United Pan-Europe Communications NV

United Pan-Europe Communications NV

Boeing Avenue 53
1119 PE Schiphol-Rijk
PO Box 74763
1070 BT Amsterdam
The Netherlands
Telephone: ( + 31) 20-778-9447
Fax: ( + 31) 20-778-8419
Web site: http://www.upccorp.com

Public Company
Incorporated:
1995 as United and Philips
Communications
Employees: 11,385
Sales: EUR 1.01 billion ($942.6 million) (2000)
Stock Exchanges: Euronext Amsterdam NASDAQ
Ticker Symbol: UPC; UPCOY
NAIC: 513210 Cable Networks; 514191 On-Line Information Services

Not content with becoming one of Europes largest cable television companies, with more than seven million subscribers, United Pan-Europe Communications NV (UPC) intends to become a triple play provider of broadband Internet and telephony services. The Amsterdam-based company has constructed a largely cable-based network spanning 17 countries in Europe as well as Israel. In total the companys cable network has a potential reach of 14 million households. UPCs many subsidiaries and diversified activities are structured into three primary divisions: UPC Media, which also includes its chello broadband Internet access subsidiary; UPC Distribution, which provides content production and distribution to the companys cable network; and Priority Telecom, the companys telephony services group, which provides fixed and wireless telephone access to the residential and consumer markets. Much of UPCs Triple Play strategy is based around its set-top television devices; the companys plans hit a snag, however, when the da Vinci set-top box being developed in conjunction with Microsoft (which also holds an 8 percent share in the company) was delayed. After an extraordinarily fast growth sprint in the late 1990sthe company made more than 16 acquisitions in just five yearsUPCs high debt-load of more than EUR 8 billion, coupled with the collapse of the high technology stock market, left the company gasping for breath. From a high of EUR 80, the companys stock tumbled, reaching a low of just 25 Euro cents and threatening the companys continued listing on the Euronext Amsterdam exchange. CEO Mark Schneider, who is also the son of Gene Schneider, the U.S. cable television pioneer, resigned in April 2001; by the end of that year, much of UPC had come under the control of Liberty Media and its chief, John Malone, after that company gained control of UPCs parent, UnitedGlobalCom. UPC has since been led by John Riordan, who previously served as the companys president. In March 2002, UPC averted complete collapse by starting negotiations with its chief debtors for a debt-for-equity swap.

Old World Cable Television Pioneer in the 1980s

Gene Schneider had already brought cable television to the western United States when he began amassing cable television interests in Europe in the 1980s. Beginning in 1952, Schneider expanded throughout much of the American West, acquiring cable television franchises and existing companies, as well as merging with others, such as LVO Corporation in the late 1960s, until Schneiders empire had grown to become the eighth largest cable television operator in the United States. The company, now called United Cable Television Corporation, had also built up a small portfolio of international holdings, including cable television operators in Sweden, Norway, and Israel.

In 1989, Schneider merged his company into United Artists Communications, which was then a subsidiary of Tele-Communications Inc. (TCI), then led by John Malone. The new company was renamed United Artists Entertainment Company, with Schneider acting as chairman of the board until UAEs merger into TCI in 1991. As part of the initial 1969 agreement, TCI, which was focusing on building its North American operations, agreed Schneider and other executives of United Cable could keep the companys international cable television holdings. These were then placed into a new company, United International Holdings (UIH), later to be known as UnitedGlobalCom. UIH also contained a number of Blockbuster Video rental store franchises; these, however, were sold in the early 1990s.

Cable television remained a minor segment in the European television market in the late 1980s, although a few countries, such as the Netherlands, had already switched over nearly all of their television broadcasting to cable-based systems (in some parts of that country, cable-based television reached nearly 100 percent of the market). A number of the continents largest markets remained largely undeveloped; such was the case in France and Germany. Nonetheless, the potential of cable televisionand the potential broadening of cable-based services, such as Interactive Television and a nascent interest in consumer-oriented online networks, represented by America Online, CompuServe, and Prodigybecame clear by the middle of the 1990s.

UIH continued to build up its European holdings, buying minority interests in cable television franchises in Hungary, Ireland, Spain, and Malta, as well as controlling shares of cable television franchises in the Czech Republic and Portugal. In the mid-1990s, Schneider returned to the formula that had succeeded in building his former United Cable Television Corporation. In 1995, UIH reached an agreement with Philips Electronics to combine the two companies cable television interests into a new company, UPCwhich at that time stood for United and Philips Communications.

Under the terms of the merger, Philips added its three cable television holdings, Austrian Cable TV systems; Citécable, based in France and extended into Germany, Spain, and Portugal; and the Netherlands KTE, the countrys largest cable operator. For its part, UIH, in addition to its cable television holdings, added $75 million in cash, gave $50 million of its own stock to Philips; and placed a $133.6 million convertible note to make up the difference in value between the Philips and UIH holdings. The deal, formalized in July 1995, gave Philips and UIH each 50 percent of UPC.

Much of UPCs initial holdings were no more than minority interests in the companies involved. UPC worked quickly to correct this situation, beginning a buying spree that was to span five years and bring more than 15 cable television systems under the companys control. By the end of July 1995, the less than one-month-old UPC had launched its first acquisition, acquiring 50 percent of Dutch cable television operator A2000, which had recently acquired the cable television franchise for Amsterdam and a number of outlying towns from Philips.

In September 1995, UPC boosted its share in KTE to more than 96 percent. UPCs acquisition trail continued into 1996, taking the company to Norway, where the company boosted its 8 percent share of Norkabel to 100 percent. In Hungary, UPC boosted its participation in that countrys Kabelkom to 50 percent, while in Sweden it acquired a 25 percent sharelater soldin a cable operator there. Meanwhile, UPC was also reshuffling its holdings, moving to sell off its Citécable franchises beginning in 1996.

Rising Convergence Star in the Late 1990s

Gene Schneider turned over the leadership of UPC to his son, Mark Schneider, that same year. The younger Schneider sought to go his father one better. Recognizing the potential of building a cable network to offer a full palette of integrated and interactive services, Schneider embraced the convergence fever then catching on across the telecommunications industry. The company began investing in replacing its existing cable networks with new fiber optics-based, broadband-ready systems.

In the meantime, Schneider stepped up the companys expansion. In January 1997, UPC bought 70 percent of Janco, which operated the cable television system in Oslo. UPC then merged Janco with Norkabel to create Janeo Multicom; UPCs share of the new company stood at 87.3 percent (increased to 100 percent in 1998). By then, UPC had already built up Europes largest network of cable television subscribers. At the end of 1997, the company, together with parent UIH, moved to take full control of UPC, buying out Philips 50 percent share. UPC was now renamed United Pan-Europe Communications.

The new name revealed the breadth and depth of UPCs growing ambitions. As Internet use at last began to take off across western and central Europe, new technologies were promising high-speed data transmission. The number of so-called broadband applications appeared unlimited and companies raced to position themselves in what many anticipated would soon be a booming market. UPC now announced its intention to pursue a Triple Play strategy, with the goal of offering its customers services ranging from television programming to broadband Internet access to telecommunications services. As part of its strategy, UPC also began building up its own production division, including a planned EUR 30 million studio based in Amsterdam and capable of providing programming in 22 languages.

At the beginning of 1998, UPC acquired Combivision, which controlled the cable television franchise adjacent to the companys KTE subsidiary near Amsterdam. These companies were then merged, forming CNBH. UPC followed a similar pattern in Hungary, where it acquired the remaining 50 percent of Kabelkom from Time Warner Entertainment, then merged that company with Hungarian rival Kabeltel, to form Telekabel Hungary. UPCs share of the new company topped 79.25 percent.

Company Perspectives:

Our mission is to create shareholder value by providing the most comprehensive and highest quality broadband network services for residential and business customers and to do so at lower costs and better service levels than our competitors.

The companys mergers and acquisitions drive continued through 1998. In August of that year, the company agreed to form UTH, combining all of its Netherlands-based broadband cable systems with the broadband and telecommunications holdings of newly formed energy company NUON. UPC acquired full control of UTH at the beginning of 1999. By then, UPC increased its shareholdings in Israel and Malta, then briefly gained a position in the Irish cable television market. At the end of 1998, UPC had added to its Hungarian interests, buying Monor Communications Group from UIH, gaining its telephone network in Hungarys Monor region and 75 percent of Tara Television. Parent company UIH also sold UPC its interest in Spains IPS, a provider of programming to the Spanish and Portuguese markets.

Schneider had developed the basis of a new set-top system, dubbed da Vinci, which would be capable of providing the triple-play convergence of entertainment, communications, and television that UPC sought. Da Vinci seemed to be coming closer to reality when Microsoft, eager to join in on what was by then widely considered the future of not only the Internet but also of television, acquired 6 percent of UPC and agreed to develop the set-top box.

Boom to Near Bust: Early 2000s

The time was ripe for UPC to spread its wings. In February 1999, Schneider took the company public with listings on the Amsterdam and NASDAQ stock exchanges, with an IPO price of EUR 29 per share. UIH retained 62 percent of UPC; Microsoft stepped up its holding to 8 percent.

Following the IPO, UPC began to put its Triple Play strategy into place. In March 1999 the company launched the chello broadband internet service in the Netherlands, Norway, France, Belgium, and Austria, before rolling it out to the rest of its European network. The company also prepared to launch chello as a separately listed public company. At the same time, UPC boosted its cable network, acquiring 100 percent of Time Warner Cable France, which had operations, in Paris, Lyon, and Limoges.

After the introduction of its broadband Internet service, UPC put the next piece of its triple play strategy into effect, launching Priority Telecom, offering telephony services to the Netherlands market based on its UTH subsidiarys backbone. Meanwhile, the companys cable business continued to grow with the purchase of a cable television provider in Bratislava, from Siemens, for $41 million. The company also entered Poland in 1999, buying that countrys ©Entertainment, a provider of cable, direct-tele vision, and programming, including ownership of local sports channel Wizja. In France, UPC expanded its network with the acquisition of Videopole and Réseaux Cables de France, giving it the fourth and fifth largest cable television companies in that country. Throughout 1999, UPC added a number of other acquisitions to its belt, including Stjärn TV in Sweden and 13.3 percent of SBS Broadcasting, as part of a partnership agreement to develop joint-programming initiatives.

Paying for this activity was a EUR 1.5 billion bond offering, the largest ever in Europe; a secondary offering of 13.5 million shares, at EUR 59.75 per share; and a private debt offering of $1 billion in senior discount notes. At the same time, UPC teamed up with Microsoft and Liberty Media to form a joint-venture content and distribution partnership for the European market.

UPC appeared unstoppable as it rounded into the new century. At the end of 1999, the company announced its 50,000th chello subscriber (or, in UPC parlance, revenue generating unit, as each customer represented the potential for multiple revenue streams depending on the number of UPC services to which they subscribed). In January 2000, the companys Priority Wireless division launched a broadband fixed wireless access network in Norway, marketing telephony and Internet services under the Priority and chello brand names. The company then increased its position in the Netherlands, buying K&T Group for $1.15 billion, and Telecal, a cable television provider, for $77 million.

After increasing its position in SBS Broadcasting, UPC made an offer for a full takeover of that company in March 2000 (abandoned soon after, however). That partnership meanwhile was preparing to launch a new series of themed television channels. At the same time the company completed the acquisition of Intercom France, and EITele Ostfold and Vestfold in Norway. Meanwhile, UPC appeared to be finally making headway in its effort to break into the all-important German cable market, which had been dominated by Deutsche Telekom, when it announced its acquisition of EWT/TSS. The company also made its entry into the United Kingdom, with the acquisition of 25 percent of Telewest. UPC had, in addition, boosted its telecom branch, announcing its acquisition of global network services provider Cignal Global, based in the United States. The company also announced a plan to merge chello with fast-rising [email protected] in order to create internationally operating broadband access and content provider Excite chello.

UPC appeared to be riding high at the turn of the century. Yet by the beginning of 2001, the company was beginning to unravel. Saddled by a debt load topping EUR 8 billion, the companys shares were hammered by the collapse of the technology sector in general and an economic slowdown that appeared to be heading towards a new recession. Meanwhile, the companys da Vinci set-top had been delayed by Microsofts inability to complete a product that workedUPC was forced to abandon that system temporarily in favor of a different system. Yet set-top services had failed to excite the subscriber basethe company signed just 50,000 customers among a pool of more than seven million.

Key Dates:

1989:
United International Holdings (UIH) is formed as a holding company for European cable television assets of former United Cable Television Corporation.
1995:
UIH merges its cable television holdings with those of Philips Electronics, forming United and Philips Communications (UPC); UPC begins aggressive acquisition campaign to become European cable television leader.
1997:
UIH acquires full control of UPC from Philips Electronics, renaming the company United Pan-Europe Communications; now led by Mark Schneider, UPC begins expansion into broadband Internet and telecommunications sectors.
1999:
UPC goes public.
2001:
Mark Schneider resigns as companys share price collapses due to high corporate debt, the collapse of the technology sector, and a troubled economy.
2002:
Company announces intent to restructure its debt.

UPC had added problems at its fast-growing chello broadband Internet service, where Internet access speeds were increasingly becoming bogged down by an oversaturated network (that problem was shortly to be solved by the introduction of the DOCSIS protocol). But chellos dream of going public was forced on hold as the stock market continued to reject technology stocks. The company did go through with a public offering of 16 percent of Priority Telecom in order to comply with requirements involved with its Cignal Global purchase.

UPC restructured its operations at the beginning of 2001, combining its transactional television and broadband Internet operations into a single division, UPC Media, alongside its UPC Distribution and Priority Telecom divisions. The company began to show signs of rising sales by the end of the first quarter of that year; but it was too little too late for Mark Schneider. With the company announcing net losses of more than EUR 750 million, Schneider resigned from his CEO position.

UPCs fortunes continued to slip through the year. By the end of 2001, UPCs share price had dropped to just 25 Euro cents. The company was forced to abandon its plan to merge with Excite when that companys stock too had lost its value. By the end of 2001, UPC had gained a new majority shareholder, as John Malone-led Liberty Media once again bought out a Gene Schneider company. Taking control of UIHand a major share in UPC as wellLiberty Media was building on its newfound interest in the European broadcasting and communications market. With John Riordan, a former associate of Malone, placed in the CEO spot at UPC, the two companies relationship was certain to strengthen as the future unfolded. In the meantime, UPC, which faced financial ruin at the beginning of 2002, managed to stave off collapse as it entered negotiations with its major creditors to convert its massive debtits legacy from its explosive growth in the 1990sinto restructured equity.

Principal Subsidiaries

©Entertainment, Inc. (Poland); ©Entertainment Programming, Inc. (U.S.A.); A2000; BESY Praha s.r.o. (Czech Republic); chello broadband Australia Pty Ltd; chello broadband Chile Ltda; chello broadband do brasil Ltda; chello broadband GmbH (Austria); chello broadband S.A./N.V. (Belgium); chello broadband SRL (Argentina); chello broadband USA Inc.; Cignal Global Communications; Cignal Global Communications (Bermuda) Ltd.; Cignal Global Communications Australia Pty Limited; Cignal Global Communications Austria GmbH; Cignal Global Communications Belgium S.A.; Cignal Global Communications Canada Holding, Inc.; Cignal Global Communications Canada U.L.C.; Cignal Global Communications Carrier Services, Inc. (U.S.A.); Cignal Global Communications, Inc. (U.S.A.); Cignal Local Communications, Inc. (U.S.A.); Czech Link s.r.o. (Czech Republic); DattelKabel (Czech Republic); Dattelkabel a.s. (Czech Republic); ElTele stfold/Vestfold (Norway); Eneco K&T Group; Gelrevision; INNET, spol. s.r.o. (Czech Republic); Intercomm Holding (France); Kabel Haarlem B.V.; Kabel Net Brno A.S. (Czech Republic); Kabel Plus A.S. (Czech and Slovak Republics; 95%); Kabel Plus Tel a.s. (Czech Republic); Melita Cable P.L.C. (Malta; 50%); Poland Communications, Inc.; PrimaCom AG (Germany; 25%); Priority Telecom (84%); Sat Net spol. s.r.o. (Czech Republic); SBS (13%); StjarnTVnatet AB (Sweden); Tebecai; Telekabel Graz Gesellschaft mbH (Austria); Telekabel Klagenfurt Gesellschaft mbH (Austria); Telekabel Wien Gesellschaft mbH (Austria); Telekabel-Fernsehnetz Region Baden Betriebsgesellschaft mbH (Austria); Telekabel-Fernsehnetz Wiener Neustadt/ Neunkirchen Betriebsgesellschaft mbH (Austria); Tevel Israel International Communications Ltd. (47%, ); UCI Enterprises, Inc. (U.S.A.); United International Investments GP (U.S.A.); UPC Belgium S.A.; UPC Ceska republika a.s. (Czech Republic); UPC Germany; EWT/TSS Group (Germany); UPC Magyarovszag Kft (Hungary); UPC Romania, Inc. (U.S.A.); UPC Sport s.r.o. (Czech Republic); UTH; Videopole (France).

Principal Divisions

UPC Media; UPC Distribution; Priority Telecom.

Principal Competitors

British Sky Broadcasting Group plc; Deutsche Telekom GmbH; Digitale Telekabel AG; France Telecom SA; Globo Cabo S.A.; Inmarsat Ventures plc; Matav-Cable Systems Media Ltd.; New Skies Satellites N.V.; PrimaCom AG; Telewest Communications pic; Yes Television plc.

Further Reading

Baker, Stephen, Mark Schneider, United Pan-Europe Communications, Business Week, February 7, 2000.

, A Triple Play for Control of Europes Net, Business Week, December 13, 1999, p. 64.

Bickerton, Ian, UPC Begins Critical Talks to Avoid Collapse, Financial Times, February 3, 2002.

, UPCs Rapid Rise and Fall, Financial Times, December 12, 2001.

Blau, John, The Son Also Rises, tele.com, February 21, 2000.

Borowski, Christopher, UPC out of Index and Near All-Time Lows, Reuters, February 14, 2002.

M.L. Cohen

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