Report: Microsoft ups stake in AT&T Broadband

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By By Laura Rohde

(IDG) -- In it's effort to prevent AOL Time Warner from gaining control of AT&T Broadband, Microsoft is now backing competing bids for the division from rival cable system owners, according to newspaper reports on Tuesday.

AOL Time Warner, Comcast, and Cox Communications all submitted new bids on Monday for AT&T's Broadband business, while Microsoft made side deals with Comcast, Cox, and with AT&T itself to keep AT&T Broadband out of the hands of AOL Time Warner, according to reports Tuesday in The Wall Street Journal and The New York Times. Both cite sources close to the negotiations. (AOL Time Warner is the parent company of CNN.com.)

AT&T's board will meet Saturday to review the bids and may make a decision as early as next week, though that decision may be one to keep the cable business independent, the reports said.

UK representatives at Microsoft and AOL Time Warner declined to comment, while officials at AT&T, Comcast, and Cox could not immediately be reached for comment.

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Microsoft has offered to financially back both Cox and Comcast, depending on which cable company can formalize a deal with AT&T, but has also considered making a direct investment of about $4 billion in the division, which is believed to be the reason behind AT&T's consideration to keep the broadband division an independent company, both reports said.

Though terms of the individual deals were not revealed, The New York Times reported that Comcast's new bid now includes the value of some of AT&T's other businesses, including its minority share in Time Warner Entertainment.

Cox's bid included an offer to AT&T CEO and Chairman C. Michael Armstrong to include him in the management of the new cable operation, an offer that was matched by Comcast, the reports said.

AOL Time Warner's offer calls for AT&T to spin off its cable division and simultaneously merge it with AOL's Time Warner Cable business. AOL Time Warner also submitted a backup bid, should the first one prove unworkable due to tax reasons, whereby AOL Time Warner would simply buy back AT&T's stake in Time Warner Entertainment, the Journal report said.

As of September 30, AT&T Broadband had 924,000 broadband telephony customers, 1.4 million high-speed data customers, about 3.2 million digital video customers, and a total of 13.7 million cable subscribers, according to a company statement.

AT&T's plans to spin off the broadband unit as an independent company in 2002 have already seen a number of reversals and challenges.

In July, after several months of negotiations, Comcast made AT&T a very public offer for the division but the $58 billion bid was rejected by AT&T's board later that same month.

Comcast is the third-largest cable company in the United States, with 8.4 million subscribers, according to the company's Web site.

For its part, AOL Time Warner has been trying to come to some sort of agreement with AT&T, especially over AT&T's 25.5 percent limited partnership in Time Warner Entertainment.

In March, AT&T requested that AOL Time Warner -- along with AT&T -- convert its stake in Time Warner Entertainment into a corporation, so AT&T could then sell that stake to the public and reduce its debt, while AOL Time Warner was looking to simply buy the shares back from AT&T. The companies have been unable to reach any formal agreement and negotiations were reported to have stalled over pricing.

Time Warner Cable has 12.7 million analog cable TV subscribers and, as of the end of 2000, 946,000 high-speed Internet customers, according to the company's Web site.

In September, AOL Time Warner was reported to have made another bid for AT&T's cable holdings, creating a merged company with around 25 million customers, almost a third of the U.S. cable market. It was a move that was immediately opposed by The Walt Disney Co., which threatened to ask regulators to force AOL Time Warner and AT&T to shed holdings such as the Warner Brothers movie studio and cable channels such as CNN and TBS, should any deal be finalized between the two.

Disney itself was also reported to be looking into a deal with AT&T and had proposed investing $4 billion in the company.

Laura Rohde is a London correspondent for the IDG News Service, an InfoWorld affiliate.