San Jose Mercury News article about MediaOne, msft, aol, Comcast at sjmercury.com
Posted at 8:56 p.m. PDT Friday, April 30, 1999
AOL, Microsoft may back
Comcast in MediaOne battle
New York Times
America Online Inc. and Microsoft Corp., concerned about AT&T
Corp.'s cable television ambitions, may back Comcast Corp.'s efforts to
acquire cable giant MediaOne Group Inc.
MediaOne said Friday that America Online, the No. 1 Internet service
provider, and Microsoft, the No. 1 maker of personal computer software,
had entered into confidentiality agreements with the company.
That would give the technology giants access to MediaOne's secret
internal financial information as part of due diligence in deciding whether
to assist Comcast in buying MediaOne, against a rival bid from AT&T.
Executives close to the negotiations added that Paul Allen, who was a
founder of Microsoft but left that company in 1983, is among the other
parties who have expressed interest in joining Comcast.
Comcast, one of the nation's biggest cable operators, needs help because
its agreement to acquire MediaOne for $53 billion in stock is in serious
jeopardy. Last week, AT&T tried to break up that deal with its own
unsolicited offer to acquire MediaOne for $58 billion in stock and cash.
AT&T wants to build on its recent acquisition of Tele-Communications
Inc., the No. 2 cable television provider, and its stake in the @Home
Corp. high-speed cable Internet access company, by acquiring MediaOne.
With the addition of MediaOne, AT&T would be able to offer consumers
across the United States integrated packages of television, telephone
service and high-speed Internet access and services over cable lines.
If AT&T, already the nation's biggest phone company, were to succeed
in acquiring MediaOne, it could end up with cable links to as many as 60
percent of the nation's homes.
That prospect is especially worrisome to America Online.
No obligation
Cable television carriers, unlike local phone companies, are not obligated
to open their networks to outsiders (except local broadcast television
stations). This means that as AT&T begins to deliver high-speed Internet
access to millions of homes using cable systems, the company is under
no obligation to share those connections with such rivals as America
Online.
America Online and other Internet companies are trying to persuade
Congress and regulators in Washington to change the rules, but that
initiative is not moving quickly.
For now, AT&T is winning the battle of influence at the Federal
Communications Commission by saying that it will not spend the billions
needed to upgrade cable systems to deliver advanced services if it then
has to share those systems with others. Moreover, AT&T is promising to
use the upgraded cable networks to deliver not just Internet service, but
local telephone competition as well.
So for America Online, the reasons to help Comcast fight AT&T are
clear. If a combined America Online-Comcast succeeds in acquiring
MediaOne, America Online will get a guaranteed channel for selling its
services to consumers over cable modems. (Even if America Online does
not end up participating in a bid for MediaOne, it will still get high-speed
links to millions of homes through its deals with local Bell phone
companies.)
The problem for America Online may be that Comcast needs cash. While
Comcast's standing offer for MediaOne is all stock, AT&T has offered
most of an AT&T share plus almost $31 in cash for each share of
MediaOne.
Comcast does not have that kind of financial firepower, and America
Online may not either. At the end of the last quarter, America Online had
only $1.8 billion in cash on hand. Even if it could raise a few billion more,
it would still not be in AT&T's league.
A solution
One obvious solution for America Online would be to use its stock, which
has given the company a market value of about $130 billion. But
MediaOne's shareholders may have qualms about taking America Online
shares, which trade at about 400 times estimated earnings. Valuations of
that nature may not be sustainable, especially if America Online becomes
part owner of a cable company, since cable companies are generally
valued much more conservatively.
Microsoft has almost $22 billion in cash on hand, but does not seem to
have an obvious strategic reason to go to war against AT&T. Microsoft
would like to sell software for high-speed Internet connections, but
Microsoft and AT&T could find many mutually profitable ways to work
together. Microsoft has invested $1 billion in Comcast, but that alone
would not seem reason enough to make a strategic enemy of AT&T.
Allen may be the most intriguing candidate for Comcast. He has already
invested heavily in the cable television industry, and he may not care
about working with AT&T in the future.
Mercury News Staff Writer Jon Healey contributed to this report. |
