AT&T's Cable Ambitions Raise Concerns about Competition

Strategic Insights -

AT&T's rapid expansion into the cable television industry through its acquisition of Mediaone Group Inc. and its pending partnership with Microsoft Corporation has sparked concerns in Washington and the high-technology sector about the prospects for competition in the communications market. With its cable and potential Microsoft deals, AT&T is poised to dominate the communications landscape, raising eyebrows among regulators, competitors, and analysts. The Senate antitrust subcommittee has announced hearings into the competitive impact of AT&T's acquisition of Mediaone, while AT&T's expansion into cable TV has already raised concerns about the speed of local telephone competition.

Key Takeaways:

  • AT&T's acquisition of Mediaone for $58 billion and its pending partnership with Microsoft have raised concerns about the prospects for competition in the communications market.
  • AT&T's expansion into cable TV has raised concerns about the speed of local telephone competition, with the Senate antitrust subcommittee announcing hearings into the competitive impact of AT&T's acquisition of Mediaone.
  • AT&T wants to use cable systems to offer integrated bundles of telephone, television, and high-speed Internet service to millions of consumers.
  • Microsoft is seeking a partnership with AT&T to increase its role as a supplier to AT&T's cable systems and get access to the fast-growing high-speed data network that AT&T is assembling.
  • The partnership between AT&T and Microsoft could become the company's most important vehicle for expanding beyond desktop computers into a new world in which millions of consumers use seamless bundles of phone, TV, and high-speed Internet services.
  • The deal could also raise concerns about AT&T's ability to stifle competition in the cable and video markets.
  • Gregory C. Simon, co-director of the Open Net Coalition, said that AT&T is putting together a cable monopoly that is "beyond the wildest dreams of John Malone" and that the partnership with Microsoft is "locking the network to Microsoft technology inside the set-top box."
  • Under the terms of the deal being negotiated between AT&T and Microsoft, Microsoft is to invest about $5 billion in AT&T in exchange for some sort of preferred stock in AT&T.
  • AT&T would also agree to use Microsoft's software in its integrated packages of voice, video, and data service.
  • Time Warner is likely to look to create accords with AT&T on several fronts, including buying complete control back of HBO and Warner Brothers, and merging its Road Runner high-speed Internet service with AT&T's At Home service.

Statistics:

  • AT&T's acquisition of Mediaone is worth $58 billion.
  • The partnership between AT&T and Microsoft is valued at around $5 billion.
  • AT&T has 10.7 million cable subscribers and 7.6 million wireless customers.
  • Time Warner has 12.6 million cable subscribers and holds a 36% stake in Road Runner, a high-speed Internet service.
  • Mediaone has 4.9 million cable subscribers and holds a 35% stake in Road Runner.
  • Comcast has 5.5 million cable subscribers and holds a 12% stake in At Home.
  • Microsoft has a 100% stake in MSN and a 10% stake in Road Runner.

Sources:

  • Associated Press (pg. C9)
  • The New York Times
  • Business Wire
  • Press release from AT&T
  • Press release from Microsoft
  • Statement from Gregory C. Simon, co-director of the Open Net Coalition
  • Statement from Gerald Levin, chairman of Time Warner
  • Statement from Robert Pittman, president of America Online