More than it can swallow?

Jim Robbins has closely studied AT&T Broadband's operation, spending four ultimately futile months angling for a way to beat out Comcast Corp.'s hostile pursuit of the MSO.

Losing the fight was a big disappointment to the Cox Communications chairman. AT&T Broadband has the largest, perhaps the best collection of urban and suburban clusters in the business, dominating such markets as San Francisco; Chicago; Seattle; Portland, Ore.; Denver; and Cox's hometown of Atlanta. And they've been terribly managed since AT&T entered the cable business in 1999, a prime turnaround situation.

These are assets Robbins covets, and he stretched mightily to persuade the Cox family that it would be worth issuing hundreds of millions of shares and absorbing billions in in debt.

Now that the prize has gone elsewhere, he has a very simple assessment of how difficult it will be for Comcast to turn around AT&T's ailing operation: "I think a blind man could fix the AT&T properties."

That pretty much sums up Comcast Corp.'s position as well. President Brian Roberts and his team see AT&T's operation as so damaged by mismanagement that they can readily boost the unit's woeful cash-flow margins up to industry standards. Comcast executives blame layers of management so tangling that decisions are made slowly and badly, bleeding away cash flow.

The promise to Wall Street seems modest: Take the margins of AT&T's cable properties to about 35% within three years, a goal set when AT&T Broadband's margins were around 25% or so.

Comcast Cable President Steve Burke likes to talk about how much better Comcast runs the systems it bought from AT&T. He points to one Michigan property it took over last year. "We've taken it from 24% up to a 40% margin," he told a group of institutional investors in March. "The major way we've done it here is revenue. In a lot of the old TCI systems, the difference tended to be undermarketing. The sales centers were not used in a sales-oriented way. We haven't cut people, we've added people."

But there's a growing cloud of skepticism that Comcast's journey is not going to be quite as easy as it seemed when the MSO launched its hostile takeover of the AT&T's cable unit last July. No one seems to doubt that Comcast can turn the systems around: Comcast's senior team is well-respected, and, for years, that company has led the industry in increasing efficiency.

But AT&T Broadband is big, and it is broken. No one has ever done a cable acquisition on this scale before, The systems in 41 states nearly tripling Comcast's size and AT&T has managed to halve the margins of its cable systems from the industry-standard 40%-45%.

And the properties aren't being fixed as quickly as Comcast executives had expected. Margins are slipping again, the company lost basic subscribers during the first quarter, and supposedly one-time restructuring costs have been recurring.

Even fans of Comcast and the ex-Continental Cablevision executives brought in to clean up AT&T's cable unit say Roberts and Burke's job may go more slowly than expected.

Amos Hostetter, former Continental Cablevision CEO whose old systems wound up in AT&T's hands, cautions that Comcast executives' pride in running an ultra-lean shop may be misplaced. "It's a huge bite. They're going from 8 million to 22 million subs," said Hostetter, a large AT&T shareholder who was a key player in the takeover fight. "They don't have the management depth now to do it."

He rails against AT&T's bloated staffing habits but also noted that Comcast probably needs more weight in corporate areas like legal, engineering, public affairs and government affairs. "These are no longer two-person offices."

Roberts and Burke declined interview requests, saying they don't want to talk about the operations in detail while the transaction is so early in the review by regulators. But they have discussed the merger in several recent presentations to investors, and other Comcast, AT&T and industry executives offered further insight.

One of those insights is that Comcast's initial plan isn't going well. Roberts and Burke expected dramatic improvement in AT&T's systems during the year-long regulatory review, a revival led by AT&T Broadband Chairman Bill Schleyer.

In the middle of the hostile takeover campaign, Armstrong cleverly axed cable Chairman Dan Somers and replaced him with serious talent, former Continental Cablevision President Schleyer and two lieutenants. The immediate effect was to help prompt Roberts into increasing his bid out of fear Armstrong might go it alone. But it also meant that, once Comcast cut its deal Dec. 21, Roberts had like-minded cable veterans digging AT&T out of its problems.

Schleyer has indeed moved quickly, first focusing on decentralizing functions like marketing to let the systems and regions make the first call on pricing, packaging and promotion. He has particularly worked to energize the customer-service operation, which in some ways was worse than even when the notoriously lax Tele-Communications Inc. owned many of the properties.

"AT&T was running it as a national business. What it really is is an aggregation of local businesses," Schleyer said. "We've accomplished some very significant things. We put the company on a path to be a real cable company."

But Schleyer's team can do only so much in their year. The unit unexpectedly lost 179,000 subscribers during the first quarter, many of whom had been signed up at a 50% discount last summer when Somers was desperate to show growth.

And, after rising from the teens to 25%, from as low as 15% at one point last year, AT&T Broadband cash-flow margins are heading back down, dipping to 19% in the first quarter, including restructuring costs from axing more headquarters employees.

The first-quarter results startled Comcast executives. "We were disappointed that subscriber growth went backwards," Roberts told investors at the Bank of America Securities media conference in New York last week. He added that Schleyer's crew is "doing a fine job of flushing out some of the problems and doing what they have to do to begin the cleanup process." However, "frankly, they are six people": Schleyer, two senior executives and three new regional executives.

Another Comcast executive expressed more frustration. "It was naïve for anyone to believe that Bill or anyone could revive this with six people. Right now, I'm only looking for them to flatline it. I think they had overstated subs before Schleyer go there. I'm not sure they've found all the problems."

So what will Comcast do? Burke describes the process used in prior acquisitions. He hands the manager of, say, a newly acquired 500,000-subscriber suburban system the budget of a similar-size Comcast system. Line by line, they study where the manager's system underperforms and how to get it up to Comcast standards.

"You'd be surprised how fast the local management will move to address those anomalies," Burke said. "Brian and I like to think we run the company, but it's really these 200 executives that work for us. Many of those people have been through five or seven or 10 integrations in the past five to 10 years."

The Comcast executives point to the systems they've already acquired from AT&T, a 1.4 million-subscriber package mostly in Michigan. On average, properties that were generating 31.6% cash-flow margins should do 40.6%. Cash flow per subscriber should jump 45% over two years from $179 each to $262.

Comcast executives remain confident that they can deliver. "If the first two quarters are good, the market will be fine," one operations executive said. "The trick is to nail those first two quarters."