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AT&T wins the bidding war for MediaOne

Comcast bails out of efforts to top AT&T's offer for MediaOne while concluding a side agreement with the telephone and cable giant.

Comcast announced it has abandoned efforts to top AT&T's offer for MediaOne while concluding a side agreement with the telephone and cable giant.

In a brief statement, Comcast said it "has decided not to submit a revised offer" for the cable company, meaning AT&T's bid apparently will carry the day. Comcast had agreed to purchase MediaOne for $48 billion in stock on March 22, but last month AT&T made a surprise $54 billion offer of cash and stock.

As previously reported, Comcast and AT&T announced a related agreement whereby the two companies will exchange selected regional cable systems to better cluster each company's networks. As the deal also includes an agreement for Comcast to deliver AT&T phone services, the switch demonstrates Ma Bell's determination to deliver local phone service via cable.

Armstrong and Comcast CEO Brian Roberts painted the deal as an "elegant" outcome that served both company's interests.

"When we looked at MediaOne, there were two basic reasons we got involved," Roberts said. The cable company wanted to grow its subscriber base, he said, and create new geographic clusters that would make it easier to roll out advanced services like cable telephony and high-speed Internet access.

"I think we have achieved both of those goals," Roberts said.

The swap will result in Comcast's gaining more than 750,000 subscribers. Comcast will pay approximately $4,500 per subscriber, or about $3.37 billion in all. Comcast also will receive an option to buy 1.25 million additional subscribers from AT&T, according to AT&T.

Comcast will also receive a $1.5 billion termination fee from MediaOne, the company said.

Strategically, Comcast will be well positioned in certain markets along the eastern seaboard, and will be able to advance its own telephony strategy and compete with the likes of Bell Atlantic, once the local phone giant gets into the long distance telephone market.

As part of the deal, Comcast agreed to offer AT&T-branded telephone services "on an expedited basis" and at the "most favorable terms" AT&T is offering other potential partners. The phone giant has been anxious to compete in local markets, as evidenced by its recently completed acquisition of Tele-Communications Incorporated as well as its bid for MediaOne.

AT&T's embrace of cable, via its acquisition of the former Tele-Communications Incorporated, a telephony agreement with Time Warner, and now Comcast and MediaOne, will allow the company to offer consumers a bundle of services including local and long distance voice, cable TV, wireless communications, and dial-up or high-speed Internet access all on one monthly bill.

AT&T executives said they will soon offer "any distance" phone calls at flat rates that will be 20 percent to 25 percent cheaper than competitors' prices. Armstrong said today that AT&T will begin telephony trial tests "in the next 30 days" in Fremont, California, a former TCI cable system and a frequent testing ground for the AT&T-controlled @Home Network high-speed Net-over-cable service.

Clustering strategy
Many cable companies with networks in geographically disparate regions often swap cable systems with other operators for strategic purposes. Cable operators will literally trade networks in certain areas to "cluster" networks together to cut marketing and management costs.

As part of the AT&T agreement, Comcast's Roberts said that Comcast will give AT&T its systems in Atlanta, Chicago, Pittsburgh, Richmond, Virginia, Sacramento, California, and in portions of Colorado. In exchange, Comcast will get AT&T-owned cable systems in Michigan, Pennsylvania, New Jersey, New Mexico, as well as in Baltimore, Washington, and Naples, Florida, Roberts said.

The swaps will increase Philadelphia-based Comcast's clusters in the eastern United States.

"This is a different outcome than our MediaOne proposal, but it is an elegant win-win result," Roberts said previously in a statement.

With MediaOne being acquired, Comcast will become the nation's third largest cable operator ahead of No. 4 Cox Communications, which claims 4 million subscribers. AT&T will clearly be the largest cable operator after the deal closes, while Time Warner will stay No. 2.

MediaOne's board of directors agreed to accept AT&T's offer over the past weekend, triggering a countdown for Comcast to come up with an improved bid before Thursday. In recent days, the company had been huddling with Microsoft, America Online, and even investor Paul Allen in an effort to salvage its buyout, according to various reports.

MediaOne, for its part, had entered into confidentiality agreements with both the software maker and the leading Internet service provider, as well as AT&T.

Yesterday, AT&T agreed to acquire the half of Philadelphia-area cable operator Lenfest Communications it did not already own, in a stock deal that could top $2 billion. Lenfest has about 1.5 million customers, and is half-owned by the Lenfest family.

The AT&T-MediaOne agreement remains subject to federal antitrust approval.

Microsoft, which has a $1 billion stake in Comcast, could not immediately be reached for comment.