Thursday, March 1, 2012

Analysis: AT&T and Comcast to join forces

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Analysis: AT&T and Comcast to join forces

Host: NOAH ADAMS, LINDA WERTHEIMERTime: 8:00-9:00 PM

NOAH ADAMS, host:

From NPR News, it's ALL THINGS CONSIDERED. I'm Noah Adams.

LINDA WERTHEIMER, host:

And I'm Linda Wertheimer.

In a deal that reshapes the cable TV and Internet service industries, AT&T and Comcast Corporation plan to merge their cable operations. The combination of AT&T Broadband and the Philadelphia-based Comcast creates a cable giant that will have nearly 22 million subscribers in 41 states. The merged company hopes to finally start delivering on services like interactive video and video on demand that always seem to be just around the corner. NPR's Jack Speer reports.

JACK SPEER reporting:

Perhaps the biggest promise of consolidation in the communications industry has been the idea of so-called bundled service, providing customers with a kind of soup-to-nuts approach where they can buy their Internet access, television and phone service all from one provider. However, for AT&T, which started acquiring cable operations three years ago, that promise went largely unrealized. AT&T was forced to spend large amounts of money to upgrade its cable division. And as investors became increasingly impatient, the company decided to put the operations up for sale. Now Philadelphia-based Comcast has agreed to pay $47 billion for AT&T's cable unit, creating what industry analyst Jeffrey Kagan says will be a huge industry player.

Mr. JEFFREY KAGAN (Communications Industry Analyst): It's like going to sleep one night and waking up the next morning and, you know, being the biggest one in the industry. It's an amazing transformation. So for Comcast, it gives them the clout, it gives them the nationwide presence, it gives them the number-one position, and, you know, it's a very big deal.

SPEER: The merged company would dwarf its next nearest competitor, AOL Time Warner. AOL Time Warner and other cable operators had also been vying for AT&T's cable operations. However, one reason Comcast prevailed is that it had a major backer in its bid, software giant Microsoft.

Mr. SCOTT CLELAND (The Precursor Group): They've got a big grin on their face up in Redmond right now.

SPEER: Scott Cleland is an analyst with The Precursor Group. He says Microsoft, which owns $5 billion in AT&T stock and has a stake in Comcast, did everything in its power to make sure rival AOL Time Warner did not come out on top.

Mr. CLELAND: Microsoft was the hidden 800-pound gorilla in this negotiations, and they threw all of their weight behind anybody that would keep this away from AOL.

SPEER: Microsoft was concerned that had AOL Time Warner won the bidding for AT&T's cable business, AOL would have achieved a lock on Internet access and other services, leaving Microsoft at a huge competitive disadvantage. The merger still needs to be approved by shareholders and regulators, but Josh Bernoff, TV and cable analyst with Forrester Research, says he expects the deal to meet little resistance in Washington.

Mr. JOSH BERNOFF (Forrester Research): It's very unlikely that there'll be any regulatory problems here. The caps that are the basis for preventing so much concentration in the cable industry are starting to fall; the courts don't believe in them; it looks like Michael Powell at the FCC isn't a big backer of these caps; and, unlike the AOL Time Warner merger, there's no real indication here of some sort of skew for anybody's content in particular.

SPEER: The two sides hope to complete their deal by the end of next year. The new company, to be called AT&T Comcast, would be headquartered in Philadelphia. And while some consumer groups have said they are concerned about a merged company being too large, analysts point to the fact consumers will likely benefit, as the company offers not only cable and Internet service, but also local phone service. Jack Speer, NPR News, Washington.

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