Report: Microsoft ups stakes in AT&T Broadband battle

In its effort to prevent AOL Time Warner Inc. (AOLTW) from gaining control of AT&T Broadband Inc., Microsoft Corp. is now backing competing bids for the division from rival cable system owners, according to newspaper reports on Tuesday.

AOLTW, Comcast Corp. and Cox Communications Inc. all submitted new bids on Monday for AT&T's broadband business, while Microsoft made side deals with Comcast, Cox and with AT&T itself to keep AT&T Broadband out of the hands of AOLTW, according to reports Tuesday in The Wall Street Journal (WSJ) and The New York Times. Both cite sources close to the negotiations.

AT&T's board will meet Saturday to review the bids and may make a decision as early as next week, though that decision may be one to keep the cable business independent, the reports said.

U.K. representatives at Microsoft and AOL Time Warner declined to comment, while officials at AT&T, Comcast and Cox could not immediately be reached for comment.

Microsoft has offered to financially back both Cox and Comcast, depending on which cable company can formalize a deal with AT&T, but has also considered making a direct investment of about $4 billion in the division, which is believed to be the reason behind AT&T's consideration to keep the broadband division an independent company, both reports said.

Though terms of the individual deals were not revealed, The New York Times reported that Comcast's new bid now includes the value of some of AT&T's other businesses, including its minority share in Time Warner Entertainment Co. LP.

Cox's bid included an offer to AT&T Chief Executive Officer and Chairman C. Michael Armstrong to include him in the management of the new cable operation, an offer that was matched by Comcast, the reports said.

AOLTW's offer calls for AT&T to spin off its cable division and simultaneously merge it with AOLTW's Time Warner Cable business. AOLTW also submitted a back-up bid, should the first one prove unworkable due to tax reasons, whereby AOLTW would simply buy back AT&T's stake in Time Warner Entertainment, the WSJ report said.

As of Sept. 30, AT&T Broadband Inc. had 924,000 broadband telephony customers, 1.4 million high-speed data customers, about 3.2 million digital video customers and a total of 13.7 million cable subscribers, according to a company statement.

AT&T's plans to spin off the broadband unit as an independent company in 2002 have already seen a number of reversals and challenges.

In July, after several months of negotiations, Comcast made AT&T a very public offer for the division but the US$58 billion bid was rejected by AT&T's board later that same month. [See "UPDATE - Comcast proposes merger with AT&T Broadband," July 7, and "AT&T board unanimously rejects Comcast offer," July 18.]Comcast is the third-largest cable company in the U.S., with 8.4 million subscribers, according to the company's Web site.

For its part, AOLTW has been trying to come to some sort of agreement with AT&T, especially over AT&T's 25.5 percent limited partnership in Time Warner Entertainment.

In March, AT&T requested that AOLTW -- along with AT&T -- convert its stake in Time Warner Entertainment into a corporation, so AT&T could then sell that stake to the public and reduce its debt, while AOLTW was looking to simply buy the shares back from AT&T. The companies have been unable to reach any formal agreement and negotiations were reported to have stalled over pricing.

Time Warner Cable has 12.7 million analog cable TV subscribers and, as of the end of 2000, 946,000 high-speed Internet customers, according to the company's Web site.

In September, AOLTW was reported to have made another bid for AT&T's cable holdings, creating a merged company with around 25 million customers, almost a third of the U.S. cable market. It was a move that was immediately opposed by The Walt Disney Co. which threatened to ask regulators to force AOLTW and AT&T to shed holdings such as the Warner Brothers movie studio and cable channels such as CNN and TBS, should any deal be finalized between the two.

Disney itself was also reported to be looking into a deal with AT&T and had proposed investing $4 billion in the company.

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