Liberty Media Chairman John Malone, a cable industry luminary and major investor in AT&T, told Liberty Media shareholders gathered at the company's quarterly investor meeting Friday in New York that AOL Time Warner has offered to purchase AT&T Broadband, according to a report by financial Web site TheStreet.com.
Malone said AT&T has two bids for its cable unit--the previously announced bid by Comcast and another by AOL Time Warner.
Representatives for AOL and AT&T declined to comment. Liberty Media, an AT&T Broadband spinoff that sells TV programming to cable operators, could not immediately be reached.
A senior executive-level cable industry source believes AOL's reported interest is "not so real" and speculates that Malone may be trying to "stir the pot." Another media industry source speculates that Malone's intentions are self-serving, and that he hopes for a bidding war.
Thus far, Comcast, a Philadelphia-based rival cable operator, is the only confirmed suitor for AT&T Broadband. Comcast made an unsolicited $45 billion bid in July. Other companies rumored to be interested in AT&T Broadband include Disney and Microsoft. A Comcast representative couldn't be reached for comment.
A potential merger of AT&T Broadband and AOL Time Warner would likely draw intense scrutiny from the Federal Communications Commission. AT&T, the largest U.S. cable operator, is up against a cap on the number of the nation's households it is allowed to serve. A combination with Time Warner Cable, the No. 2 cable company, would put the merged company well over the limit.
Besides scrutiny from the FCC, the deal would likely face more serious regulatory concerns by the Federal Trade Commission or the Department of Justice. When AOL acquired Time Warner, both the FTC and the FCC imposed restrictions on the deal.
"I think Steve Case is smart enough about Washington to know that it?s one battle he either cannot win, or the political cost of winning is way too high," said Blair Levin, a communications analyst at investment banking firm Legg Mason.
But the two companies have a variety of similar interests and links, including their high-speed Internet ambitions, a desire to offer local phone service over cable networks, and AT&T's ownership stake in Time Warner Entertainment. There also is a history of opposition between AOL and Excite@Home, the AT&T-controlled cable modem service, over broadband Net access regulations.
If AT&T Broadband were to be sold, the new owner would assume a majority voting stake in Excite@Home. A spokeswoman for Excite@Home declined to comment on the AOL-AT&T Broadband rumor.
News.com's Dawn Kawamoto and Jim Hu contributed to this report.