Copyright 2002 Globe Newspaper Company The Boston
Globe
November 14, 2002, Thursday ,THIRD
EDITION
SECTION: BUSINESS; Pg. C1
LENGTH: 1413 words
HEADLINE:
AT&T-COMCAST DEAL OK'D MASS. CUSTOMERS EXPECTED TO GET FASTER ACCESS TO
VIDEO ON DEMAND
BYLINE: By Peter J. Howe, Globe
Staff
BODY: The $51 billion takeover
of AT&T Broadband by Comcast Corp. gained its key approval yesterday from
the Federal Communications Commission, paving the way for hundreds of thousands
of Massachusetts cable customers to see by this winter their fourth cable
provider in just five years.
The FCC approved the
combination by a 3-to-1 vote, setting only the condition that the new AT&T
Comcast put its 25 percent interest in Time Warner Entertainment into a special
trust and sell it by 2007, a condition that AT&T and Comcast had already
agreed to.
For area cable
subscribers who will soon be served by AT&T Comcast after dealing with prior
providers such as Continental Cablevision, MediaOne, Cablevision, Time Warner,
and most recently AT&T Broadband, analysts said the biggest change may be a
quicker rollout of so-called video on demand services. Those services would
allow subscribers to order movies or premium TV shows like HBO's "The Sopranos"
to watch whenever they want. Comcast may also be more aggressive than AT&T
Broadband in providing specialized business data services, analysts said.
Licensing authorities in all but 11 of the 212 Bay State
cities and towns served by AT&T Broadband have approved transferring the
local franchises to AT&T Comcast, according to the state Department of
Telecommunications and Energy. DTE spokesman Rob Wilson said the agency has
rejected denials in six of those communities, saying they did not have valid
legal grounds to oppose the transfers, and is "working through" remaining
denials by Bedford, Barnstable, Cambridge, Lakeville, and New Bedford. AT&T
and Comcast hope to close the merger as soon as next week.
AT&T Comcast will serve about 22 million customers in 41 states,
including more than 2 million in Massachusetts and New Hampshire. While some
critics said the company will become a media juggernaut able to dominate TV
programming and high-speed Internet services, the FCC said the new company will
represent under 30 percent of the total pay-TV market after divesting the Time
Warner stake. Justice Department antitrust prosecutors also signed off on the
deal.
"The benefits of this transaction are
considerable, the potential harms [are] negligible," FCC chairman Michael K.
Powell said. "The merger serves the public interest, convenience, and
necessity."
Powell said he and the two concurring FCC
commissioners agreed that by merging and cutting overhead, a combined AT&T
Comcast will be able to roll out advanced television, Internet, and phone
services more rapidly than the two companies could have separately. Comcast
plans to slash 1,700 jobs at AT&T Broadband's Colorado headquarters, with
further layoffs likely at the 60,000-person company.
"There are no merger-specific public interest harms that would result
from the transaction," the FCC declared.
FCC
commissioner Michael Copps, the only Democrat on the commission and the only
vote against the merger, warned that AT&T Comcast could exert monopoly power
over TV programming and high-speed Internet services.
"Any public interest benefits that may potentially issue from this huge
consolidation of commercial power are vastly outweighed by the potential for
significant harm to consumers, the industry, and the country," Copps said. He
also noted that AT&T Comcast made no promises about cutting rates as a
result of operating efficiencies.
Jeffrey Chester of
the Center for Digital Democracy, a Washington advocacy group that opposed the
AT&T Comcast deal, blasted the FCC for creating a "new industry giant that
will be able to exert unprecedented control of both the cable TV and broadband
Internet sectors.
"With its dominance of more than 30
percent of the cable TV marketplace, and a stranglehold on an equally large
portion of the broadband Internet [market], the new entity will have the power
to shape the entire multichannel, digital TV, and broadband marketplace."
Chester said the FCC should have added as a binding
condition a requirement that AT&T Comcast open up its cable modem
networks to other Internet service providers, along the lines of the four "open access" arrangements AT&T Broadband has signed
with ISPs in Massachusetts under a deal that staved off a proposed 2000 state
ballot question mandating open access.
In a joint
statement, AT&T Broadband and Comcast said they "have repeatedly stated on
the rec ord that they have not and will not restrict their subscribers from
accessing any content available on the Internet."
Bruce
Leichtman, principal analyst with Leichtman Research Group in Durham, N.H., and
a former executive with Continental Cablevision, said: "Video on demand is the
one thing that consumers in Boston are likely to see much sooner than they would
have under AT&T. Comcast is the most aggressive player in the whole cable
industry in rolling out VOD," which typically gives subscribers anytime access
to 1,000 or 1,500 hours of movies.
A related service
called "subscription VOD," offered by Comcast and others, enables people who pay
for premium cable channels to watch popular shows like "The Sopranos" or "Sex
and the City" any time of the week. AT&T Broadband has made only faltering
efforts at conducting trials of video on demand in its Atlanta and Los Angeles
markets, while Comcast has steamed ahead with VOD across most of its markets in
Greater Philadelphia, Florida, and elsewhere.
In terms
of other advanced cable-based services, Leichtman said Greater Boston is already
well ahead of most of the country in availability of high-speed Internet and
phone service provided over cable lines, and AT&T Comcast has much more work
to do in other areas of the United States upgrading cable systems for those
services.
Patti Reali, a Philadelphia-based Gartner
Dataquest analyst, said Comcast is much more aggressive than AT&T Broadband
at identifying and rolling out cable-based services, including specialized
high-speed data services for small and medium-size businesses that use the
fiber-optic portion of the cable TV distribution network.
"They have a SWAT team with a blueprint that will come in and turn up
new services in 30 to 60 days after announcing them," Reali said. "They want to
hit the ground running."
Reali also predicted the
merged companies, under Comcast leadership, will move quickly "to slough off
non-strategic assets," which is probably not an issue in Greater Boston because
it is one of their best penetrated and largest markets.
One huge win for AT&T Comcast, analysts said, is that it will be
allowed 5 1/2 years to sell the stake in Time Warner Entertainment, which could
be worth billions of dollars more if the stock market rebounds and battered
cable TV stocks recover. AT&T Comcast is being required to put the Time
Warner stake in a "disposition trust" the day the merger closes and exert no
influence on Time Warner programming decisions.
FCC
media bureau chief Kenneth Ferree said that "rather than try to force
essentially a fire sale on the parties in today's market conditions, the
commission decided to allow them a number of years in which to fully divest . .
. an inordinately large and complex asset."
Even in
today's depressed market for cable properties, Ferree said the AT&T stake in
Time Warner - a relic dating back to early 1990s investments in cable by phone
company US West, which later bought MediaOne - is worth "in the neighborhood of
$10 billion."
The deal calls for Comcast to pay about
$30.2 billion of its stock for AT&T Broadband and assume $20 billion in
AT&T Broadband debt. Microsoft Corp., which held a $5 billion convertible
preferred stock interest in AT&T Broadband, is converting that to shares of
AT&T Comcast. The Comcast stake will be spun out to existing AT&T
shareholders as AT&T Wireless was last year, although the precise ratio has
not been disclosed, and AT&T plans a 1-for-5 reverse stock split of the
surviving AT&T phone company shares to boost their share price over $10.
As the FCC's approval was widely anticipated, the ruling
had little impact on Wall Street yesterday. Comcast shares fell 70 cents to
$23.30 in Nasdaq Stock Market trading. Shares of AT&T - reflecting both the
cable unit and the traditional long-distance and business phone services company
- dropped 39 cents to $13.47 in New York Stock Exchange trading.
Peter J. Howe can be reached at howe@globe.com. SIDEBAR: CABLE READY
PLEASE REFER TO MICROFILM FOR CHART DATA.
