Cables Rising Czar: Malone
Media mogul John Malone need not bid for his former company AT&T Broadband to emerge a winner in the hottest cable auction of the new century.
Whether Comcast or some other operator succeeds in wresting cable out of AT&Ts hands, Malone, chairman of Liberty Media, will retain a degree of control over content and conduit that any monopolist would envy. At the same time, he will enjoy finger-wagging rights over his telecom nemesis, AT&T Chairman C. Michael Armstrong, whose $100 billion bet on cable has lost half of its value in only two years.
If his Comcast cable pals Brian Roberts and Ralph Roberts succeed in taking over the worlds largest broadband network, Malones soon-to-be independent Liberty Media will be able to broker favorable content deals not only with Comcast-AT&T, but, by default, with AOL Time Warner, a network that would rank slightly more than half the size of the new cable colossus.
Comcast, based in Philadelphia, offered $41 billion in stock for AT&T Broadband. And Comcast said it would assume the units $13.5 billion in debt.
By publicly acknowledging the Comcast offer last week in Boston, Armstrong signaled that AT&T Broadband, the largest U.S. cable TV business, is available. That sets up a potential auction, with Comcasts lowball bid as the opening ante.
Armstrong said Comcasts offer "recognizes at least some of the value weve created at AT&T Broadband."
Through a Comcast-AT&T combination, Malone would become one of the largest shareholders in the merged entity a position he already enjoys at media baron Rupert Murdochs News Corp., which is now bidding for North Americas largest satellite broadcaster, DirecTV.
While Comcast wants, for now, to take over AT&Ts 25.5 percent stake in rival cable firm Time Warner Entertainment, Comcast President Brian Roberts also said he would ultimately spin off the stake. And what better buyer than Malones Liberty Media, which is now spinning away from AT&T with its finger in virtually every communications medium on Earth?
While analysts such as Cahners In-Stats Gerry Kaufhold doubt Malone is interested in running and, therefore, bidding for the company he built and sold to AT&T then known as Tele-Communications Inc., with rival MediaOne Group added a year later contradictory evidence can also be cited.
If last months $4 billion deal to buy Deutsche Telekoms stake in six regional cable companies closes, Malones Liberty Media will rank as Europes largest cable operator. With 25 million homes worldwide, Malone, who resigned from AT&Ts board a month before he was scheduled to do so, will control a customer base larger than the proposed Comcast-AT&T. And with friendly management at Comcast, Malone will be able to squeeze deals on content on behalf of more than 50 million homes worldwide, leaving AOL Time Warner in a much weaker bargaining position.
While Malone may work behind the scenes in a broadband deal, "Liberty [Media] has no plans to make a bid," said company spokeswoman Julie Gleichmann. "I cant speak for John Malone."
Malones allies will likely include The Walt Disney Co., which most analysts doubt will bid for AT&T Broadband, but which needs friends with big pipelines. Frustrated with its inability to gain favorable deals with Time Warner Cable, Disney went to war with the second largest cable operator last year. Things got so hostile that Time Warner Cable briefly refused to carry Disneys ABC network to 8 million viewers last year. Now, Disney is battling with Charter Communications.
Other Comcast allies will likely include $1 billion-investor Microsoft which also invested $5 billion in AT&T only to have its advanced set-top box operating system for interactive TV spurned.
While The Yankee Group analyst Meredith Rosenberg counts Microsoft among the potential bidders for AT&T Broadband, she said a more likely scenario features Microsoft as a partner in advanced services. "Overall, this is going to accelerate the pace of innovation," Rosenberg said.
Comcasts timing could not be better in terms of regulation, said The Yankee Group analyst Steve Vonder Haar. With federal cable ownership limits struck down by a federal appeals court, "for all intents and purposes, theres an open playing field in the regulatory environment," he said.
"The only group thats going to cry foul in this deal are the competition," Rosenberg said, though consumer groups have also raised alarms about what Rosenberg called "a bigger, badder Comcast."
The heavy debt Comcast is willing to swallow with AT&T Broadband also reduces the potential bidders, Vonder Haar said. Cox Communications and Microsoft co-founder Paul Allens Charter are among the likely cable contenders.
An AT&T Broadband sale will leave AT&Ts Armstrong wealthy but red-faced. While AT&T Wireless successfully left the mother ship last week, a separate AT&T Broadband business now looks unlikely. Indeed, Armstrongs entire partition plan appears doomed. Without the broadband and wireless divisions, AT&T is left with business and consumer services, including the declining long-distance "core business" from which Armstrong wanted to distance himself.
Rosenberg sees a chance for AT&T to regain its focus as a communications company that does not muddle its brand strategy with too many moving parts. But with MCI now splitting from parent WorldCom, a merger of AT&T Business with WorldCom or AT&T Consumer with MCI looks doable, she said. "This does logically put AT&T Business and AT&T Consumer into play," Rosenberg said. "I think it should absolutely be considered that AT&Ts core business could be acquired in the near future."
Should that transpire, Armstrong will likely be remembered as the executor of the late Ma Bells estate.