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The man behind the MediaOne merger

Behind AT&T's bid for MediaOne is one former cable executive who has played both deal maker for Ma Bell and deal breaker for Comcast.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
Behind AT&T's bid for MediaOne is one former cable executive who single-handedly brought Ma Bell to the broadband bargaining table in searching for better value.

Now Amos Hostetter, who created and led the cable company that still forms the core of MediaOne, is parlaying his cable holdings into a seat on the board of one of the most powerful telecommunications companies in the world.

It's a huge step up for Hostetter, who will go from being a minority shareholder in MediaOne to the No. 2 executive in AT&T's new high-profile cable operation. But Hostetter's rise is also a sign of how quickly the old-school telco world is reshaping itself to meet the markets' new broadband mandates.

Until 1996, Hostetter was the CEO of Continental Cablevision, the cable firm that formed the core of what is now MediaOne.

That year, the US West Media Group, then still a part of US West, bought Continental as part of a drive to expand. The $10.8 billion deal gave the Baby Bell control of about 4.7 million cable subscribers, and left Hostetter in nominal charge of the company's cable group.

But Hostetter still answered to superiors at the telco's Media Group. And a year later, when US West decided to move its cable operations to Denver, Hostetter quit his role as CEO, leading to a tense relationship with his successors.

"He was less than satisfied with the managerial focus of the properties shifting west," said Gary Farber, a financial analyst who covers the cable industry with SG Cowen. "That move probably set in motion what was not the greatest of relationships."

US West spun off its cable group as MediaOne in 1998, eventually leading to Comcast's attempt to merge with the newly independent operation in March.

A recent filing with federal financial regulators outlines Hostetter's catalytic role in foiling Comcast's attempt to buy his former company.

Just three days after Comcast and MediaOne agreed to merge, Hostetter--who still owns close to 10 percent of the company's stock--sent a terse letter to the board of directors criticizing the deal as being unfair to MediaOne shareholders. He asked that he be allowed to pursue a better deal.

"Your duty was and is to be especially active and diligent to get the best price for MediaOne stockholders," he wrote. "Although time is limited, I believe that you have a duty under these circumstances to permit me to seek superior value and terms."

The MediaOne board, which had already committed itself to paying Comcast $1.5 billion if they reneged on their original merger deal, agreed to let Hostetter troll for better bids. And in the course of a month, he succeeded.

According to the SEC filing, Hostetter began talking with other parties, including AT&T on April 1. By April 21, he was to the point of talking about details of a MediaOne buyout with the long distance giant.

Two days later, CEO C. Michael Armstrong sent his own letter to the MediaOne board outlining the AT&T's offer, which MediaOne tentatively accepted this weekend.

In return for his pivotal role, Armstrong said Hostetter would win a seat on AT&T's board of directors, and become "non-executive chairman" of the company's Broadband & Internet Services unit.

In that role, he will work with Leo Hindery, the former Tele-Communications Incorporated executive that now heads up AT&T's cable unit. Despite the possible clash of aggressive personalities, analysts say the potential partnership is likely to add strength to AT&T's new division.

"It doesn't look like it will be a problem," Farber said. "It looks like they've got a pretty good relationship."

Hostetter's role is contingent on AT&T's bid for MediaOne remaining successful. Comcast still has several more days to make a counter offer.