Subject: The Industry Standard's Media Grok - April 23, 1999


Ma Cable: Did You Miss Us, America?

They always seem to come right at dinnertime: those unsolicited calls
from long-distance phone companies, always with an offer sure to beat
the service you have. Who knows, maybe MediaOne Chairman Charles
Lillis was just settling in at the dining-room table when the letter
from AT&T arrived. The pitch: By switching to AT&T, Lillis and
MediaOne shareholders would get about 17 percent more than a $48
billion all-stock bid offered by cable competitor Comcast a few weeks
back. That's because AT&T would deliver cash and stock at a hefty
premium.

Get out your deal-making scorecards: The offer comes just six weeks
after AT&T closed a $55 billion deal for Tele-Communications, Inc. The
offer for Denver-based MediaOne, the fourth-largest cable company in
the U.S., was valued between $58 million and $63 billion. AT&T
promised to keep the price constant, even if its stock dropped.

One of the most interesting takes came from a Wall Street Journal
sidebar by Rebecca Blumenstein. The reporter wrote that AT&T honcho
Michael Armstrong, who turned the telco from a staid blue-chip company
to a high-flying player, now faces pressure to prove the worth of the
company's newly acquired assets. He also must sell the long-term value
of the deals to investors who stand to get hit with substantial
dilution. The Street.com's Alex Berenson echoed that sentiment with a
good lead: "After you've bet the house, why not double down?"

The deal would make the former Ma Bell into Ma Cable, beating Time
Warner as the largest cable company in the land. The move also goes to
the heart of AT&T's strategy to use cable as an end run around the
Baby Bells for the delivery of local phone service.

An unbylined Wired report preferred to look at it as part of AT&T's
broadband play. That take was echoed by Arthur Hogan, chief market
analyst at Jefferies & Co., who told ZDNet: "It's a huge, huge deal.
It's all about bandwidth, it's all about Internet access, [and]
MediaOne certainly is the front-runner in realizing bandwidth is
important."

The Mercury News' Jon Healey said it's all of these things - access to
about 26 million U.S. homes (between the TCI and MediaOne
acquisitions), where it could deliver phone, cable, Net access and
anything else that can move through coaxial cable.

But surely there's more drama here than just cash, stock and couch
potatoes. MSNBC's Emory Thomas Jr. made it personal, painting the deal
largely as payback between two cable titans. Cable pioneer Amos
Hostetter probably hasn't forgotten that shortly after he sold his
baby, Continental Cablevision, to MediaOne in 1996, the new owners
hauled his Boston operation halfway across the country to its Denver
headquarters. When the board ignored Hostetter's protests, he walked.
Now he's helped AT&T craft this offer, and if it flies he'll become
"nonexecutive chairman" of AT&T's Broadband & Internet Services unit.
One guy who probably won't be thrilled with that is Charles Lillis.
The MediaOne chairman is cozy with Comcast, and no doubt is enjoying
its offers and incentives to keep him on board after the marriage.
Hostetter may not be nearly as accommodating - unless, perhaps, Lillis
is willing to move to Boston.

AT&T Wants MediaOne
http://www.wired.com/news/news/business/story/19283.html

AT&T Makes Surprise Bid for MediaOne
http://www.news.com/News/Item/0,4,35540,00.html?st.ne.fd.gif.d

Cash and Stock Proposal Offers a Rich Premium to Existing Deal
http://interactive.wsj.com/articles/SB924814706118967234.htm

AT&T Makes $62 billion MediaOne Bid
http://cbs.marketwatch.com/news/current/umg.htx?source=htx/http2_mw

Execs Scramble in MediaOne Wake
http://www.msnbc.com/news/261943.asp

AT&T bids $58 Billion for MediaOne
http://www.msnbc.com/news/261876.asp

AT&T Bids for Cable Rival
http://www.washingtonpost.com/wp-srv/business/daily/april99/att23.htm

AT&T Bids to be Tops in Cable TV
http://www.sjmercury.com/business/top/048732.htm

Armstrong Steers AT&T Into Uncharted Waters
http://interactive.wsj.com/articles/SB924832290553766241.htm

AT&T on MediaOne bid: What a Deal!
http://www.zdnet.com/zdnn/stories/news/0,4586,2246397,00.html?chkpt=hpqs014


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Intel Seeks a New Net Angle

Chip manufacturer Intel has had Net envy since Netscape's IPO, or
maybe even before. To Intel's credit, it's known it should get into
the Internet game, but has never figured out how to become the Net
company it wants to be. For years, it showcased really fat Web
applications, and told us if we upgrade our processors, we'll have
more fun online. But the truth is a 350-MHz machine can't save you
from the agony of your 28.8 modem.

Now Intel's pitching a new angle, according to the New York Times'
Steve Lohr. He reported that Intel wants to set up data farms - arrays
of servers that make up the backend of data-intensive operations, like
large hosting services or e-commerce operations. As part of Intel's
rationale, Lohr cited the predicted rise in non-PC Internet
appliances, a trend that could bite into the Wintel desktop profit
margin.

Lohr's analysts were mixed. Drew Peck, a managing director of
securities firm S. G. Cowen & Co., just seemed relieved that Intel was
making any kind of a Net play. "This is a stretch, but you have to
give Intel's management credit for recognizing that the world is
rapidly changing around them and trying to do something about it," he
said. But Howard Anderson, managing director of the Yankee Group,
didn't give them credit at all, and wondered why they thought they
could get into this business where other companies were already ahead.

Intel smiled and said, yes, it could do it. Data centers are just "bit
factories," according to executive VP Gerry Parker. And after all,
they already know how to build chip factories. What's the difference?

Intel Planning Big Move Into Internet Services
http://www.nytimes.com/library/tech/99/04/biztech/articles/23comp.html