AT&T finally accepts Comcast’s bid to dance

In what probably is unintentional timing, Comcast concluded what it started during the Independence Day holiday just prior to Christmas as AT&T announced it accepted Comcast’s ardent pursuit--and $72 billion in stock and debt assumption--to merge into a new company called AT&T Comcast.

“The best part of this transaction is we all get to have a good holiday,” said Brian Roberts, Comcast’s president who will become the chief executive officer of the combined company. “We appreciate resolving it and having at least today and tomorrow where people run off for their well-deserved holidays to talk about the new company and to go into some more details about the hopes and aspirations we have.”

There will be plenty to talk about. When it closes in about a year--pending regulatory and shareholder approval--the merger creates the world’s largest multiple system operator [MSO] with 22 million subscribers and a major presence in 17 of the top 20 U.S. markets. By comparison, the second-largest MSO, AOL Time Warner, has about 13 million subs. AOL Time Warner, along with Cox Communications, also bid for the AT&T broadband unit.

That transaction also brings to a close AT&T’s plans to spin off its troubled cable unit by putting it into the hands of arguably one of the cable industry’s first families, the Roberts--Comcast Chairman Ralph and his son, Brian.

Interestingly, one of the reasons why it appeared AT&T might proceed with the spin-off--the installation of a new broadband management team--was a selling point in getting Comcast to increase its bid between 10% and 15%, to about $4,500 per subscriber, said Brian Roberts.

“The changes and the enhancement to the management team that they’ve made with Bill Schleyer [president-CEO of AT&T Broadband] … gave us the conviction to go for it,” Roberts said.

Under the new structure, Brian Roberts will be CEO, and AT&T Chairman/CEO Michael Armstrong will serve as chairman, instead of retiring in May 2003 as he had planned. The company will be headquartered in Philadelphia--Comcast’s traditional base--with executive offices in New York City. AT&T shareowners will own 56% and about a 66% voting interest in the new company. The Roberts family will control one-third of the new company’s outstanding voting interest.

Comcast also assumes AT&T’s 25% share in Time Warner Entertainment [TWE] and $20 billion in AT&T debt. Microsoft’s $5 billion share in AT&T broadband will be converted into shares of the new company. That contribution, in fact, played a key role in making the deal happen, said Brian Roberts.

“Microsoft converting the $5 billion was a huge financial benefit that enabled our balance sheet to have the heft … creating AT&T Comcast without any burden,” Roberts said. “There was no single opportunity as quick and dramatic as converting the pre-existing no-new-money from Microsoft, which is a total win-win … to turn it into equity from the get-go.”

While the combined company will include a lion’s share of traditional cable operations, high-speed data services and entertainment content, including electronic commerce such as QVC Network, Roberts said he was especially enthused about the possibilities for telephony. AT&T has been rolling out service, and has more than a million customers, using traditional circuit switches over broadband networks. Comcast has been more cautious, following an IP telephony route that has yet to mature.

“There is no greater revenue opportunity than the $100 billion-a-year local phone business,” Roberts said. “This company, when we sat down and rethought it, has a bigger footprint than any single RBOC. To not even try seems insane.”

AT&T will continue to roll out phone services during the time when the deal closes, Brian Roberts said. The eventual brand is still up in the air.

“Obviously, this is AT&T Comcast,” said Armstrong.

If that company wants to use AT&T’s platform to offer telephony, “then we’ll have to negotiate with AT&T for the use of that brand and get a license or commercial arrangement,” Armstrong said. “Or we may use another platform to take that service to the marketplace.”