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Matt Stump
Last week I wrote that the AT&T-MediaOne-Comcast fight would be the battle of all battles in the cable industry. I couldn't have been more wrong.
Perhaps there were a few moments where the entry of AOL or Microsoft or even MCI WorldCom was possible. But within days after MediaOne had accepted AT&T's bid, AT&T and Comcast had reached an agreement that Comcast's Brian Roberts said was a win for everybody.
What happened? Nothing more than business common sense mixed in with an ability to see what the other side really wanted/needed out of the deal.
Faced with losing all of MediaOne to a deep-pocketed competitor, Comcast did just fine. Brian Roberts will eventually get more than 2 million subscribers from MediaOne's 5 million subscriber pot, instead of getting nothing.
He becomes the largest cable operator in Michigan, plus the dominant operator from northern New Jersey down through Washington, D.C. Message to President Clinton: You've got a new cable operator in town. And Roberts gets to manage Suburban Cable, the Lenfest property outside of Philadelphia Comcast has long coveted.
Roberts also gets an AT&T telephony deal that's as good as Time Warner's. Although he doesn't get all of MediaOne, his eventual 8 million subscribers, the best phone deal possible, the $1.5 billion breakup fee, and retention of control over Comcast puts the MSO in the big leagues with AT&T and Time Warner. It's the big three, the next tier of Adelphia, Charter, Cablevision and Cox, and everyone else.
AT&T's Michael Armstrong has now secured telephony deals with two of the next big three MSOs on his list. Cox, Adelphia and Cablevision Systems Corp. remain outstanding. Even without them, AT&T has phone deals serving upwards of 60 million homes passed, or 60% of the U.S. Cox, Adelphia and Cablevision would push that figure to 78 million homes. Wow.
No wonder Sprint and MCI are buying up MMDS companies. AT&T has moved fast to secure the nation's cable plant for local/long distance phone deals.
The next issue is Microsoft. What promises were made to Bill Gates behind the scenes to keep him out of any deal?
There's logic to reports that Microsoft will make a $5 billion investment into AT&T. That would help solidify Microsoft's position in the DCT-5000 and other advanced digital set-tops AT&T wants to deploy.
The old TCI was very worried about Microsoft controlling the box into the home. AT&T, with its telephony bent, may not be as worried.
AT&T's phone lines into the home may not necessarily pass through the set-top box. Many of the new, and unproven, applications Microsoft wants to exploit on the set-top will have little to do with local phone or long-distance telephony revenue. Even cable modem type revenue may not flow through Microsoft software. In Michael Armstrong's mind, he can probably draw a clear line between AT&T-type revenue, and the more speculative, add-on revenue Microsoft might enjoy, so perhaps a Microsoft deal isn't dangerous after-all, especially since AT&T vows to enter only into nonexclusive, open software deals.
A Microsoft buy into AT&T could move along the next area of resolution: /RoadRunner.
AT&T will now have an ownership interest in RoadRunner. A likely scenario is a merger of the content and backbone structures of the two companies. Microsoft, Time Warner and Compaq could likely join 's owners AT&T, Cox and Comcast, and other smaller MSOs, in owning the service.
Who's left out? AOL and the RBOC, to start. The deal will add fuel to AOL's rhetoric about broadband access. And it will cause the RBOC to decry AT&T's plan to put itself back together.
But regulators want local phone competition, and will have to pay this price to get it: AT&T's consolidation in the cable industry. And only time will tell whether AOL will receive enough underdog sympathy to cause the government to mandate open broadband access
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