Cable Guys Lining Up For AT&T Broadband

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Chairman of the Board and Chief Executive Officer of AT&T, C. Michael Armstrong

Like any doting father, C. Michael Armstrong didn’t want to marry off AT&T Broadband just yet — and maybe not ever. But as daddy’s little cable girl prepares to elope (with the full encouragement of the AT&T board) Armstrong only wants the best for her — or at least the best price.

Improvements in the division, Armstrong says, are "not future conjecture, but really… today's reality." He said the company is breaking even in its high-speed Internet business and expects to have more than 20 percent of AT&T's cable customers signed up for cable modem service by 2005. It has firm plans to improve its balance sheet with cost-cutting and price hikes, and has already slashed 10,000 jobs in the past year (with 3,000 more on the way). And although they’re still anemic by industry standards, profits are up slightly from last year’s figures — no mean feat in this barren economic season.

Of course, daddy’s little cable girl isn’t quite ideal wife material yet. AT&T Broadband is chunky with debt ($13 billion at least), gets some of the lowest profit margins in the business, and her cable lines are a little on the immature side — only 70 percent upgraded to carry Internet, phone and digital-TV services, as opposed to 94 percent at No. 2 AOL Time Warner (parent company of this writer).

But a girl with 13.7 million cable customers doesn’t hit the market every day, and so, with the full encouragement of the AT&T board — which after rejecting Comcast’s $40 billion-plus-debt offer as an insulting lowball effectively put the division up for sale — the suitors are swarming.

First there was AOL, the rich friend of Father’s (the two already share in the Time Warner Entertainment partnership) swooping in on the heels of the Comcast offer to discuss a glorious scenario in which AOL and AT&T form anything from a semi-monogamous dating arrangement to a full-blown marriage.

Now Disney is pricing diamond rings too, mulling a group effort with cable little-guys Cox Communications and Charter Communications to put it back in the front lines of the content-and-cable combination sweepstakes.

But does anyone really want to take this plunge? AOL, for one, is salivating over a combination (minority-owned for tax purposes but effectively controlled by the Dulles boys) that would create a cable behemoth with some 25 million subscribers, 3 million high-speed Internet-access customers, and a hell of a lot of train tracks for all that content (yours truly included). How big a behemoth? Comcast’s 8.5 million subs would be a very distant second.

Would the regulators go for it? Bush’s FCC is willing to listen to reasons why cable dominance could be good for bringing more customers into the world of broadband, an industry that desperately needs them, and AOL could certainly promise that. But the prospect of a far-and-away dominant cable company — and one that already owns a hefty share of the all content under the sun — could be daunting to any regulator worried about the possibility of monopolistic pricing in a deregulated industry. And the way the Bush trustbusters haven’t quite let go of the Microsoft case is not a good sign (unless it’s a sign of the power of AOL’s lobbyists).

For Disney and its gang — and Comcast, not to be counted out by any means — the upside of a marriage is pretty much the same: all of Lord Armstrong’s lands and a big step up on the ladder to the content-and-technology, one-stop-shopping convergence heaven everybody swears is the future of broadband.

But wanting AT&T Broadband and actually paying the $70 billion Armstrong supposedly requires are two very different things — and with regulators standing ready to give the deal a thorough going-over, the honeymoon could be over before it begins. And as the nation’s most eligible cable bachelors line up to pitch woo, one has to wonder who really thinks they can handle the purchase and who’s just there to make sure the other guys go home empty-handed.

Which means this flirting frenzy could die down without Armstrong ever getting the Comcast-topping offer he’s primping for — but then again, he never wanted a son-in-law in the first place.