AT&T's unsolicited bid for MediaOne last week threw the cable industry into a flurry of back-room negotiating, as Comcast struggled to find a way to make its previously accepted bid for MediaOne more attractive.
"People almost sense Comcast's desperation. There's no way they're going to top AT&T's offer without a partner," said Philip Wohl, a telecommunications analyst with financial publisher S&P Equity Group.
Although MediaOne is the nation's No. 3 cable TV operator, battle lines are being drawn around the future of high-speed Internet access. By acquiring MediaOne, AT&T would gain a stake of close to 40 percent in Road Runner, the No. 2 cable Net access firm, and bring the long distance giant one step closer to offering a nationwide, all-in-one Internet, video, and voice communications service.
A source close to the companies confirmed that AOL has started negotiations with the cable companies. Reports say that Microsoft, which already has a $1 billion stake in Comcast, also may be interested in helping its cable partner regain MediaOne's favor.
A Microsoft spokesman declined to comment on possible negotiations with MediaOne or Comcast.
But the increasing interest of the Net leaders in broadband--and the long-shot odds of their bidding success--underscores how much they have been sidelined in the high-speed race, as traditional cable and telephone companies take the lead.
AOL craves cable access
AOL has been the most prominent advocate over the last six months for opening up cable lines to access by outside ISPs like itself, but has so far been rebuffed by cable companies and regulators.
Analysts say that AOL fears it will be shut out of the cable Internet market, which is likely to be the most successful consumer Net access technology well into the next decade. Jupiter Communications predicts that about 12 percent of U.S. Net subscribers will use cable modems by the end of 2002, while only about 6 percent of Net access will be though DSL, or digital subscriber lines.
AOL has made sure it retains a presence in the DSL world, striking deals with Bell Atlantic and SBC Communications to carry its service over their wires. But to date, it has still been almost completely shut out of a direct presence in the cable world.
Analysts say a bid to help Comcast regain the upper hand in its pursuit of MediaOne could give AOL the cable foothold it badly needs.
"They need to play in the high-speed access space," said Jupiter analyst Abhi Chaki. AOL made a questionable business decision selling its own network to WorldCom in return for CompuServe, and would be well served by gaining access to the cable industry's infrastructure, Chaki said.
But others note that AOL needs to partner with the high-speed "pipe keepers" to stave off competition from lower-cost Internet access inspired by so-called bundled services by companies such as AT&T.
"I think they're nervous because they don't have access to the pipes," Wohl said. "This is a company that does not control its own destiny. I think they realize they have to partner with somebody who has the wires."
But AOL, even with its market capitalization of nearly $150 billion, can't independently beat out AT&T's offer of close to $60 billion for MediaOne. "They can't do it by themselves," Chaki said. "They would have to structure a deal with Comcast."
The company could risk angering AT&T if it helps Comcast thwart the long distance giant's bid--a situation that would certainly make it more difficult for AOL ever to gain access to the AT&T-controlled @Home cable Net service.
But that calculated risk may be worthwhile, if by helping Comcast AOL can gain a foothold in the Road Runner cable network, which is working to keep pace with @Home, Chaki said.
Redmond's broadband plan
For its part, Microsoft's desire to play in the broadband arena is no secret.
The company has made a string of investments in cable operators and competing DSL providers, aimed at getting its software and technologies into more corporate and consumer hands via faster data connections.
But some question whether the company would stand to gain much by coming to Comcast's rescue.
"Microsoft's interest has never been in owning cable properties. It's interest is in having a foot-in-the-door with these companies to promulgate or pursue whatever strategy they have for cable, such as getting the Windows CE [operating system] into cable boxes and that sort of thing," said David Simons, managing director at Digital Video Investments.
"It doesn't make a lot of sense that Microsoft would want to come to the aid of Comcast to keep MediaOne from falling into the clutches of AT&T," he added.
But Simons said Microsoft could easily have bought a cable operator outright long ago, but has simply chosen instead to make equity investments. "They could have gone on a rampage the way [Charter's] Paul Allen has, but they probably would have by now," he said.
A MediaOne spokesman also declined to discuss the negotiations, and Comcast did not return calls for comment.
Microsoft's interests in aiding a Comcast effort to counter AT&T's bid was first reported by the Wall Street Journal.