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Comcast's Lightning Bolt

We all knew it was going to happen eventually. For months, the vine was ripe with mounting speculation that a cable MSO — or a consortium of operators — would go after the beleaguered AT&T Broadband properties, which were merrily on their way toward being spun off into a separate tracking stock, like the other divisions of the corporate parent.

That was the scheme that AT&T Corp. chairman C. Michael Armstrong had envisioned until last week, when Comcast Corp. — on the eve of AT&T's spin-off of its wireless unit — tendered an uninvited bid to relieve the company of its bungled cable broadband operation.

Consequently, AT&T's wireless spin-off division garnered no more than a paragraph here and there, vastly eclipsed by the bold move from the boys from Philly. They offered $53.1 billion, including debt, to acquire AT&T's underperforming cable systems.

That news cheered cable operators who last week seemed genuinely tickled to see Comcast, one of their own, step up to the plate and bollox up AT&T's whole spin-off strategy.

Some of them had already been to AT&T's Basking Ridge, N.J., headquarters to kick the tires. But for a variety of reasons — primarily exhorbitant tax issues, but also access to capital — Comcast remained the most logical bidder.

Enter Comcast's Roberts family, which struck on a sleepy Sunday afternoon with its "hostile" bid. Many in the industry, who were vacationing or returning from long weekends, said they first heard the news on their car radios. Comcast's lightning bolt startled some of the very same MSOs that were already circling the AT&T Broadband wagon.

Surprise nothwithstanding, all of the MSOs last week were bullish about Comcast's ability to pull off this bold move. In its simplest terms, the bid accelerates the timetable for something that was going to happen anyhow: the eventual spin-off of AT&T Broadband. Unfortunately, it forces Armstrong to study the offer at a time when he'd probably rather not.

After all, Armstrong is trying to buy time, banking that the unit's next quarterly financial results — which will be released later this month — would be much stronger than the last quarter, and thus make his spin-off strategy more attractive to institutional investors.

Now Armstrong may not have the luxury of time. Comcast officials are pleading their case with AT&T's institutional investors, who can't turn a deaf ear to the simple fact that Comcast has a great track record in running cable systems and AT&T does not.

One industry executive succinctly summed up the unfolding scenario: "Anyone could improve the operating costs of AT&T Broadband."

Still, if Comcast prevails, it's bitten off a lot. It's offering an attractive price — $4,000 to $4,300 a subscriber — for what it's getting, systems badly in need of an upgrade to offer new revenue-producing services. It will have to throw a lot of capital investment into this stew to make it all work.

Despite Armstrong's protestations that the parent company has already invested heavily in capital expenditures and plant upgrades, it sure doesn't look that way by anyone's else's yardstick.

In fact, most industry observers see AT&T Broadband as a laggard, with a relatively high percentage of its plant still at less than 450 MHz capacity.

If Comcast succeeds with its unwelcome bid, other cable MSOs hope to see their own boats rise higher as well. Even though Wall Street mostly separated AT&T Broadband out of its reports for the cable sector, they say, the unit was a black eye for the whole industry, dragging the entire category down. We'll find out soon enough.