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Wednesday, May 5, 1999 Published at 13:47 GMT 14:47 UK

Business: The Company File

Comcast concedes defeat

AT&T has the firepower to outbid Comcast

US cable company MediaOne has accepted a $56bn (£35bn) takeover bid from US telephone giant AT&T, terminating its previous agreement to merge with cable rival Comcast.

The deal was a "superior proposal" to Comcast's $46.9bn all-share bid, the MediaOne board said.

[ image: The cable operator could lose out]
The cable operator could lose out
Late on Tuesday Comcast decided not to contest the bid, but to accept a deal where it could acquire an additional 2 million cable customers from AT&T.

Under the deal, AT&T will give Comcast 750,000 cable homes in areas where it has a strong presence, while Comcast has the option to buy an additional 1.25m cable homes for a total of $9.2bn.

The agreement ends Comcast's hopes of creating a third force in the US cable industry, rivaling Time Warner and TCI.

Instead AT&T, which has already taken over TCI, looks set to become the biggest cable operator and phone company in the United States.

The company, known as Ma Bell, was forced to spin-off its local telephone services in the 1980s. This created seven regional companies, known as Baby Bells, to encourage competition.

What remained of AT&T is now staging a decisive comeback.

Bandwidth wars

AT&T, the leading long-distance telephone operator in the United States, is keen to acquire cable television companies in order to launch new high-speed data transmission services directly to homes.

The company plans to provide Internet services, telephone calls, and TV through fibre-optic cables with a huge bandwidth, stealing a march on its regional telephone rivals.

Through its acquisitions and joint ventures it will have the ability to reach half of all US households with broadband services.

TCI already operates a high-speed online subsidiary known as @home, while MediaOne is a partner with Time Warner Cable in a rival system known as Roadrunner.

Rivals routed

Both America Online and Microsoft, which has a $1bn stake in Comcast, had been investigating the possibility of a rival bid for MediaOne.

But analysts say that they were unlikely to have the firepower or the desire to take on AT&T.

"I don't know if it's a battle that makes sense to fight right now. AOL and Microsoft might be better off to look for ways for people to co-operate rather than battling," said Brian Adamik of the Yankee Group.

Competition issues

The US telecommuncations industry is rapidly consolidating, with two other mega-mergers in the pipeline.

Regional rival SBC is taking over Ameritech for $61bn, while Bell Atantic is merging with long distance carrier GTE in a $53bn deal.

But US regulators have warned that any deal must not limit access to broadband services.

Federal Communications Commission chairman William Kennard said he wanted to see "more competition in the market for broadband services, not less" as a result of the merger activity.

America Online has been particularly worried that the new high-speed Internet connections will bypass their existing networks, and has been arguing for open access to the new broadband services.

The AT&T-MediaOne deal will be subject to regulatory approval.

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