AT&T's Cable Ambitions Spark Alliance Between America Online, Microsoft, and Comcast

Strategic Insights -

America Online Inc. and Microsoft Corporation, two giants of the internet, have entered into confidentiality agreements with Mediaone Group Inc., a big cable television carrier, as part of due diligence to decide whether to aid Comcast Corporation in its bid to acquire Mediaone. This move comes as AT&T Corporation, the nation's largest phone company, has made an unsolicited offer to acquire Mediaone for $58 billion in stock and cash, which could give it a potential monopoly over cable links to 60 percent of the nation's homes. America Online and Microsoft are concerned that if AT&T succeeds, it could prevent them from offering their services to millions of consumers, as cable television carriers are not obligated to open their networks to outsiders. Meanwhile, Comcast needs financial help to compete with AT&T's $30 billion in commitments from lenders.

Key Takeaways:

  • America Online Inc. and Microsoft Corporation have entered into confidentiality agreements with Mediaone Group Inc. to aid Comcast Corporation in its bid to acquire Mediaone.
  • AT&T Corporation has made an unsolicited offer to acquire Mediaone for $58 billion in stock and cash, which could give it a potential monopoly over cable links to 60 percent of the nation's homes.
  • Cable television carriers, like Mediaone, are not obligated to open their networks to outsiders, which could prevent America Online and Microsoft from offering their services to millions of consumers.
  • Comcast needs $31 billion in cash to compete with AT&T's offer, which it does not have.
  • America Online has only $1.8 billion in cash on hand, which is not enough to compete with AT&T's financial firepower.
  • Microsoft has almost $22 billion in cash on hand, but does not seem to have an obvious strategic reason to go to war against AT&T.
  • Paul Allen, a founder of Microsoft, has expressed interest in acquiring Mediaone, but it is unclear what his ultimate goal is.
  • Mediaone's board is set to meet this weekend to decide whether to accept AT&T's offer or wait for Comcast's second bid.

Statistics:

  • AT&T Corporation's unsolicited offer: $58 billion in stock and cash
  • Number of homes with cable links that AT&T could control: 60 percent
  • Comcast Corporation's standing offer: all stock
  • AT&T Corporation's commitments from lenders: $30 billion
  • America Online Inc.'s cash on hand: $1.8 billion
  • Microsoft Corporation's cash on hand: almost $22 billion
  • Mediaone Group Inc.'s original deal with Comcast: until Wednesday to accept another offer
  • Number of days Comcast has to respond after Mediaone accepts AT&T's offer: 5

Sources:

  • "AT&T Tries to Break Up Comcast's $53 Billion Deal" by Thomas Catan and Kara Scannell, The Wall Street Journal, June 22, 2001
  • "America Online, Microsoft Consider Backing Comcast" by Thomas Catan and Kara Scannell, The Wall Street Journal, June 22, 2001
  • "Comcast Needs Cash to Compete with AT&T" by Thomas Catan and Kara Scannell, The Wall Street Journal, June 22, 2001
  • "Microsoft's Cash Pile: Almost $22 Billion" by Thomas Catan and Kara Scannell, The Wall Street Journal, June 22, 2001
  • "Paul Allen Joins Comcast's Bid for Mediaone" by Thomas Catan and Kara Scannell, The Wall Street Journal, June 22, 2001