• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

AOL Time Warner merger with AT&T to draw scrutiny

Posted on: Wednesday, 10 September 2003, 06:00 CDT

WASHINGTON--AOL Time Warner Inc. and AT&T Corp. would have to undergo a thorough review by U.S. regulators to win approval of a merger of their cable-television operations, which probably would be conditional, analysts said Monday.

AOL Time Warner, the second-biggest U.S. cable-TV provider, is in talks to merge its cable business with that of larger rival AT&T to form a company that would be 60 percent owned by AT&T, people familiar with the discussions said.

The deal would test the Bush administration's approach to merger analysis, which would focus on the new company's power to limit programming choice or to shut out rival cable companies, analysts said. Antitrust reviewers probably would make the merged company open cable lines to rival Internet-service providers.

"The Bush antitrust administration is not going to lay down and go away," said Scott Cleland, chief executive of the Precursor Group, a Washington research firm. Approval is possible, though it has "a very low level of probability."

New York-based AOL Time Warner's shares rose $2.13, or 6.6 percent, to $34.41. The stock had dropped 42 percent in the past year. AT&T fell 5 cents to $17.65. The shares had fallen 25 percent in the past year.

In July, AT&T rejected a $50.6 billion bid from Philadelphia- based Comcast Corp. for its AT&T Broadband cable unit. AT&T has said it was concerned the family of Comcast President Brian Roberts would control as much as 49 percent of the business. Comcast, with 8.5 million subscribers, is the No. 3 U.S. cable company.

"While an AOL-AT&T Broadband [combination] would create more value than a Comcast deal, it would carry much greater antitrust- disapproval risk," Cleland said.

AOL Time Warner wants to merge Time Warner Entertainment with Englewood, Colo.-based AT&T Broadband, which has 13.5 million cable customers, the people said. Time Warner Entertainment is a venture with AT&T that owns cable systems serving about 9 million of AOL's 12.7 million customers, Under the proposed structure, AOL Time Warner would retain 3.7 million cable subscribers. The Justice Department, in its order approving AT&T's purchase of MediaOne Group Inc. last year, said it wanted AT&T and Time Warner to remain competitors.

Regulators would have to examine the structure of the transaction to ensure that it promotes competition, said Deborah Lathen, former cable chief at the Federal Communications Commission.

"Given they faced 12 months of regulatory scrutiny for AOL's purchase of Time Warner, it's a forgone conclusion they would be put under the lights for this transaction," said Charles Crane, strategist at Victory SBSF Capital Management, which owns shares of AOL Time Warner, as Crane does personally. "However, it's a different administration, so perhaps the scrutiny wouldn't be quite as intense."

Bloomberg News

More News in this Category