If the all of the rumors become reality, AT&T Corp would achieve its long-sought entry into the local telecoms market by merging its internet arm with those of the big three cable companies. The way Wall Street Journal tells it, AT&T is willing to invest $1bn plus its internet arm WorldNet in a new venture which would result from the proposed merger of high speed internet access over cable company @Home Network Inc and Time Warner Inc’s Roadrunner internet subsidiary. @Home confirmed that the companies were in negotiation about such a deal, but would not comment further. A merger between @Home and Roadrunner would bring the three major US cable internet access players together, since US West Media Group’s MediaOne Express subsidiary is due to merge with Roadrunner later this year. The combined company would be a significant driver in the US internet industry. It could provide high speed internet service to 75 million households, or 70% of the US market. However price may be the hang up; @Home is currently valued at $2.74bn, yet has only 50,000 customers. AT&T, which is looking for a strategic play to get its long term growth back on track, is already in the process of allying with the cable companies via its $11bn acquisition of Teleport Communications Group Inc (CI No. 3,222), which is 66% owned by cable companies Tele-Communications Inc, Comcast Corp and Cox Communications Inc that will become minority shareholders of AT&T in the share-swap deal. Stymied from getting into local markets by its wrangling with the regional bells and their desire to get into AT&T’s long-distance markets, cable companies look to be plausible partners for AT&T’s ambition.
ADSL threat
Driving this reported merger mania is the threat from a cheap and simple way of conducting high speed data transfer over existing- copper wire technology called Asynchronous Digital Subscriber Line (ADSL) which has been endorsed by Microsoft Corp, Compaq Computer Corp, Intel Corp and five Baby Bell telephone companies (CI No 3,330). ADSL is the second major consumer broadband initiative supported by Intel, Microsoft and Compaq; as in 1997 they teamed on speeding the development of a standard for fast cable modems called the Data Over Cable Service Interface Specification (DOCSIS). Of the two technologies, ADSL is beginning to look more attractive for customers, as linking to ADSL networks appears simpler than installing cable modems. That’s because the existing telephone lines ASDL uses already pass by 80% of US households unlike the cable companies which must invest billions of dollars to upgrade their lines and equipment to support two way data transport. The easier upgrade path to ADSL and stiffening competition from the Bells is one reason that might drive cable companies into the arms of AT&T. A stumbling block might be cable giant Tele-Communications Inc’s reluctance to give up its 40% controlling interest in @Home for a smaller, non-controlling, stake in a larger venture.
