AT&T and Malone: Could history repeat?

The year is nearly over, and I have let the 10-year anniversary of one of the biggest acquisitions in telecom history pass without comment. It's time to rectify that. It has been 10 years since AT&T acquired then-cable TV giant TCI in a deal worth more than $50 billion (the acquisition was actually announced in 1998, but was completed in 1999).

The AT&T-TCI deal was the hallmark of an era in which telcos were obsessed with buying out their biggest competitors in the embryonic broadband services market. This was before AT&T and other telcos made big, expensive commitments to drive their own fiber toward homes. At the time, it was seen as a crowning move in AT&T's effort to change its corporate identity and put distance between itself and other telcos. In retrospect, it appears to have been both premature and misguided, though also a learning experience which influenced how the new AT&T (not to be confused with the old AT&T) and other telcos would come, during the present decade, to tackle the TV service markets and the later phases of the broadband market evolution.

Within five years of the AT&T-TCI deal, the telco spun off TCI's Liberty Media and sold AT&T Broadband, which encompassed many of the TCI assets, to Comcast. Ten years later, Liberty Media continues to be one of the key cable TV programming companies, and Comcast has emerged as arguably AT&T's most significant competitor on a TV, Internet and home telephone basis.

The guy who sold TCI to AT&T was cable TV cowboy John Malone. More on him in a moment.

Ten years after the AT&T-TCI deal, we are hearing about the possibility that the big telcos could be interested in acquiring a TV service provider of another kind: DirecTV, the satellite TV giant. DirecTV just named a new CEO [1], former Pepsi Co. executive Michael White. He is being seen as someone who could steer DirecTV into new international markets, as well as the executive who could potentially help drive the satellite firm to be acquired by AT&T or Verizon Communications. DirecTV has become a very important TV and triple play partner to both companies.

White's hiring was one piece of recent news from DirecTV, but it may have obscured a related headline from a few days prior. In mid-November, DirecTV shareholders approved the company's merger with Liberty Media, a transaction which many observers believe will speed DirecTV toward acquisition by a telco. Liberty Media also is spinning off its Liberty Entertainment properties as part of this deal. Liberty Media is controlled by John Malone, who is also now chairman of DirecTV.

So, Malone has again, within just 10 years, positioned himself as the salesman who would sell the telco world [2] the key competitive game piece it supposedly needs to defeat the cable TV industry at its own game. Last time, it didn't work out. Will it work out this time, and can telcos trust Malone?

In the past, I have felt that satellite TV-telco partnerships didn't have much of a future if the telcos' own TV efforts continued to grow rapidly. However, those efforts have been slowing a bit. It seems like satellite TV could continue to be an important part of the telco arsenal--though even DirecTV itself has admitted that its own gains from telco partnerships also have slowed this year. Whether AT&T or Verizon take the chance on acquiring DirecTV could depend on how much life they feel satellite TV can have as a core telco offering and also how desperately they view their competitive situation against a cable TV company like Comcast, which is set to grow its control of the TV programming universe through a possible deal with NBC Universal [3].

The situation is a particularly daunting one for AT&T. If AT&T looks seriously at acquiring DirecTV, no one would blame the company for treading carefully.

-Dan [4]

P.S.-- I have been slowed the last few days by a nasty cold, so to those of you who have been awaiting contact about end-of-the-year wrap-ups, my home network special report and other stories, I will try to respond to everyone within the next few days. Thanks for your patience.