I've got news for you: The marriage of
broadband unit is great for consumers -- and it's a darn good deal for both companies' shareholders to boot. Not now, not tomorrow, but over the next three to five years, these guys are going to be a force in the big and profitable (for the incumbents, at least) business of residential local telephony services.
I hate to say it -- simply because the man has really destroyed a once-great company with bad investments and bad direction -- but AT&T's CEO Michael Armstrong... knows... voice. (Ouch, that really did hurt!) And Comcast's founders, the Roberts family, have proved beyond doubt that they know cable. Comcast has been a hugely successful and well-oiled cable machine.
Yin-Yang Management Fit
Though I can hardly believe the two will be able to bear each other, I can see potential for a real mindset fit between Armstrong and Comcast CEO and President Brian Roberts, when you view it from a yin-and-yang perspective. By leveraging Armstrong's voice
(ouch again) and Roberts' cable vision, the new
could really make waves.
Make no mistake: These guys are serious about getting into voice. Way up at the top of their press release, they state, "AT&T Comcast Corporation will begin life with a clear mandate to aggressively expand the availability of those services throughout its service areas, including plans to bring a choice in local telephone service to more than 38 million homes passed by its cable systems."
To drive the point home, they quote Roberts as saying, "We are particularly excited about the telephony prospects. The size of our telephony footprint, combined with AT&T's expertise and leadership in the telephony space, will enable us to accelerate the deployment of telephone services to many new markets." The combined companies will have the balance sheet, critical mass and savvy to make such a vision reality.
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AT&T to Merge Cable Unit With Comcast
The residential local service is a terrible business to be in -- unless you own your own connection to the home. The competitive local exchange carriers', or CLECs', world of unbundled loops for residential services is hardly ever profitable, often even when long-distance services are tied in on top of it. The incumbent local exchange carriers, or ILECs, will remain a residential local voice monopoly for the next few years, as cable telephony still has technological and marketing work to do before it's anywhere near being viable on a broad scale. Now don't get me wrong. I'm not wavering in my bullish stance on the ILECs as the biggest winners of the overall telecom service marketplace. (Note that I don't qualify that statement with "residential.")
Examining the Numbers
On top of it all, AT&T did a surprisingly good job of maximizing shareholder value with this deal. However, I thought a potentially misleading statement was included in the press announcement: "Accounting for nonstrategic assets that have been, or will be, sold, AT&T originally paid about $4,100 per subscriber for
, largely in AT&T stock. Today's announcement values AT&T's cable systems at approximately $4,500 per subscriber based on today's closing price of Comcast stock and gives AT&T shareowners majority ownership of the nation's leading broadband services company with an initial total aggregate value of approximately $120 billion."
I've played with the numbers that AT&T paid for those subs a lot over the years when writing business plans, and, without some serious manipulation, it's very difficult to get to that $4,100 figure. Rather than coyly trying to convince shareholders that its cable binge numbers turned out so well, the company should've admitted that it made a mistake by paying so much over the past few years for the subs. But, hey, we're still talking about Mr. Ego, I mean, Mr. Armstrong here, and I'm sure he's not about to admit that he lost money for shareholders along the way.
Regardless, given the current circumstances that AT&T finds itself in, there's little doubt in my mind that it's done all right by shareholders here.
The best news any of us consumers have seen in a long, long time is this merger. With AT&T Comcast assuming a driver's seat, we'll finally -- at last -- see some competition in the residential telephony marketplace.
Cody Willard is president of TelEconomics Consulting, a financial and technology consulting firm. He is also founder of
TelEconomics.com, a Web site devoted to news and analysis of telecommunications stocks. Previously, he was senior analyst for a venture development company, and before that was a partner at the Lanyi Research division of CIBC World Markets. At time of publication, Willard had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Willard appreciates your feedback and invites you to send it to