SNS in the News - December 21, 2001

CABLE MERGER RAISES QUESTIONS ; AT&T-COMCAST DEAL MAY POPULARIZE BROADBAND, BUT SOME FEAR PRICE RISE

Dan Richman, P-I reporter
21 December 2001
Seattle Post-Intelligencer

The proposed $72 billion merger of giant AT&T Broadband and Comcast Corp., announced Wednesday night, raised myriad questions yesterday among analysts and consumers.

The joining of the No. 1 and the No. 3 cable companies would create AT&T Comcast Corp., a behemoth with 22.3 million customers, offering high-speed Internet connections, local phone service, and cable television to one-fifth of U.S. households.

Some key questions:

How will the merger affect the pricing and availability of cable and digital-subscriber-line services?

Will AT&T Broadband customers be forced to suffer through yet another painful transition?

How will the deal affect Microsoft Corp.?

What effect will it have on Microsoft co-founder Paul Allen's Charter Communications cable company?

The answers will no doubt become clearer during the nine months to a year before the deal closes, assuming it withstands scrutiny by antitrust regulators. Some preliminary responses:

The merger could popularize cable services and cut their cost, said Mark Anderson, publisher of Strategic News Service newsletter.

"It could drive up the market values for all the big cable companies, giving them access to funds so they can continue building their networks," Anderson said. "That means consumers will see broadband sooner."

It will also put pressure on the phone companies to expand DSL, a competing broadband offering.

And because the cable companies offer local phone service over their networks, phone companies will get increased competition in that arena, too. That will force them to improve service, cut costs or both, Anderson said.

The new company will give consumers "greater choices at very competitive prices," AT&T Chairman and Chief Executive Michael Armstrong said. "This just couldn't be better for the consumer."

But the deal was condemned by consumer advocates. They said they doubt prices will go down, because they fear the deal puts too much control in the hands of a single company.

Jeff Chester, executive director of the Center for Digital Democracy, said the merger will give one company leverage over too many consumer communications needs.

"Americans should be very worried about how this new combination will affect what they pay each month for cable and Internet service," Chester said.

Also likely to be leery of the deal are Seattle-area consumers, thousands of whom were burned by AT&T Broadband's transition earlier this month to its own network from bankrupt Excite@Home.

AT&T Broadband spokesman Steve Kipp said yesterday that about 650 Seattle-area customers still lack satisfactory Internet and e-mail service.

"I hope it's not a nightmare," said Dale Whitethorn, a Boeing Co. manager who said he finally got reconnected Wednesday after a fourth visit from an AT&T Broadband technician.

Kipp predicted that the transition will be gradual and controlled, unlike the abrupt transition from Excite@Home caused by that company's bankruptcy. And "Comcast has a pretty good reputation for customer service," said Thomas Weisel Partners analyst Ray Schleinkofer.

Fine, but will customers have to change e-mail addresses again?

"While I can't address that issue, there's a great deal of sensitivity about it," AT&T Corp. spokeswoman Eileen Connolly said.

She said the questions won't be answerable until closer to the merger date.

One sure winner in the deal is Microsoft, analyst Anderson said. The company saw its archrival, America Online, lose to Comcast. It instantly converted its $5 billion investment in the parent AT&T Corp. - which wasn't producing the hoped-for boom in Microsoft-based set-top boxes - into 150 million shares, or 5 percent, of the merged company.

Microsoft expects to work with AT&T Comcast in delivering interactive television, high-speed Internet access and software services to its 22.3 million customers, Microsoft spokeswoman Katy Fonner said.

Despite assurances from AT&T and Microsoft that Microsoft derived no other benefits from the deal, it really may have, Anderson said.

"I am skeptical there were no side agreements," he said. "I would assume there will be something in this that gives them either preferential or guaranteed access" to the merged companies' network.

The creation of a juggernaut such as AT&T Comcast Corp. led to widespread speculation that other big cable companies - among them Paul Allen's Charter Communications - might expand to compete, or might sell out.

Comcast paid $4,500 per subscriber, a large premium over the industry average of $3,700. That led Paul Latta, an analyst with McAdams, Wright Ragen in Seattle, to conclude that Charter is undervalued at $3,650 per subscriber.

He predicted, however, that investors won't be attracted to Charter, because Allen owns more than 90 percent of the voting stock and holds options he could use to more than double his equity in the company in the event of a takeover attempt.

"It ain't gonna happen without Paul Allen saying yes," Latta said.

But Rob Martin, a cable analyst at Friedman Billings & Ramsey, said Allen might be in a mode to expand his company.