For what its worth, yet another opinion:
At Home & RoadRunner merger would be messy but legal
forbes.com
By Charles Dubow
NEW YORK. 04:35PM EST—Speculation has been strong in the past few days about a possible merger between At Home (nasdaq: ATHM) and privately held RoadRunner, the two leading high-speed Internet access providers, as a result of the current battle between AT&T (nyse: T) and Comcast (nasdaq: CMCSA) for ownership of cable operator MediaOne (nyse: UMX).
There are three major questions: One, who will get MediaOne? Two, will At Home and RoadRunner merge? And three, would such a merger be legal?
Ever since MediaOne was put in play by Comcast's $48 billion bid in March, there have been serious doubts about RoadRunner's survival. MediaOne is a significant shareholder in RoadRunner, a joint venture alliance of many technology and publishing entities.
First, a little corporate background to understand who the players are in this high-stakes game: Besides MediaOne's sole ownership of a 25% share in RoadRunner, it owns an another 20% stake in conjunction with Time Warner Entertainment (TWE), a subsidiary of Time Warner (nyse: TWX). TWE along with closely held publishing company Advance/Newhouse holds a 26% stake in RoadRunner. Time Warner, TWE's parent, owns another 9% share of RoadRunner. The remaining portion of RoadRunner belongs other companies including Microsoft (nasdaq: MSFT) and Compaq Computer (nyse: CPQ). The technology giants own 10% each of RoadRunner.
At Home's ownership is equally complicated. AT&T-- through its recent acquisition of cable giant Tele-Communications Inc. (TCI)--owns 39.5%; Comcast and Cox Communications each own 12.4%; Cablevision (amex: CVC) has 8.3%; and Canadian cable operators Rogers (nyse: RG) and Shaw (nyse: SGR) have 1.4% and 1.3%, respectively.
Basically what this means is that regardless of whether AT&T or Comcast ends up with MediaOne, At Home looks likely to wind up with MediaOne's 5 million-plus customers. At Home currently has more than 700,000 subscribers, compared with RoadRunner's approximately 200,000. Although Comcast's exclusivity agreement expires with At Home on June 4, it is unlikely that even if Comcast were to lose MediaOne it would throw itself in with a weakened RoadRunner.
Despite rumors that Microsoft, America Online (nyse: AOL) and private investor Paul Allen--a Microsoft cofounder and owner of cable companies Marcus Cable and Charter Communications--have offered to come to Comcast's rescue, AT&T's chairman, C. Michael Armstrong, yesterday voiced doubts that any offers would beat his unsolicited $54 billion bid.
Here's where the second question comes in: Would there be a merger? If Comcast were to get MediaOne, it is likely to stay with RoadRunner, especially since Microsoft not only owns a piece of the broadband provider but also invested $1 billion in Comcast in 1997. As analyst Cynthia Brumfield of Broadband Intelligence in Bethesda, Md. says: "This power struggle between top cable operators could give Microsoft the firm entrée into the industry that has thus far eluded the would-be cable power. If Comcast wins, Microsoft wins."
If AT&T wins, however, Microsoft loses. Not only would AT&T become the biggest player in the cable market--the combined networks would make its cable systems available to more than 26.5 million U.S. homes and increase its footprint in Boston, Los Angeles and Atlanta, where MediaOne has a third of the market--but it would also get MediaOne's lucrative local telephone access.
The ability to offer telephony over high-fiber coaxial (HFC) cable was also behind AT&T's acquisition of TCI and its pending joint venture with Time Warner Cable, a subsidiary of Time Warner. Using MediaOne's HFC plant, AT&T is shooting for a 30% telephony penetration by 2004.
Moreover, it adds MediaOne's footprint to the number of homes that At Home can reach, giving At Home an even more dominant percentage of the market. At Home's chairman, Thomas Jermoluk, was coy about whether AT&T's acquisition of MediaOne would result in a merger but did say yesterday that it would be a way for the two broadband providers to "harmonize."
He also said that any discussion of a merger between the two would not be discussed until after the MediaOne situation has been resolved.
One thing that is not likely to be an impediment to a merger between At Home and RoadRunner is the legal system. According to Eben Moglen, professor of law and legal history at Columbia University Law School and an expert on antitrust law, the government would not step in to prevent a merger, even though such a deal would create a veritable monopoly on high-speed Internet access. "It's an embryo market," he said. "And broadband is not indispensable, so control of it is not a concern. At least not yet. The FCC always says wait a few years and then does something--maybe. That's the way the regulatory game is played. It raises some interesting questions, such as what if down the road the dominant cable owner also becomes the only supplier of connectivity?"
As Brumfield points out: "It's a sui generis problem. There are no existing precedents."
Whatever the outcome, the company that ends up owning MediaOne is likely to control the broadband cable sector. May the richest company win
Eric |
