It was only a very small report on the front page of last Thursday’s issue of USA Today, but it indicated a tremendous change not only for America’s telecommunications market, but also for its society as a whole. In a small box between headlines about the crisis in Kosovo the interested reader could find out that AT&T had announced to purchase cable giant MediaOne and that software producer Microsoft was about to invest $5 billion in AT&T shares. This huge move won’t let the video distribution market unchanged and many experts believe that this merger has triggered a lot of new developments in all kinds of fields.
This paper deals with the competition between traditional wired cable (as we know it since the beginnings of television) on the one hand – and newer services like direct broadcast satellites (DBS) and video and data distribution via telephone lines. While the first part will mainly cover the latest developments in the telephony business (focusing on the breathtaking AT&T deal), the second part will compare the benefits of cable and DBS in detail.
It lies in the nature of the subject that the playing field can change in a couple of weeks (if not even in a couple of hours). Therefor it is very important to rely on up-to-date information and literature. Especially literature from before the 1996 Telecommunications Act, which allowed cross-ownership between cable and telephony and the like, can’t be considered too useful and was used only to get a historic idea of the subject matter. In doing research in this field one also has to be especially careful not to rely on sources that are heavily influenced by either the cable or the DBS lobby. Both groups naturally try to present the facts in a light that makes them look better and emphasizes the advantages of their particular system over the ones of the competition.
AN ALLIANCE OF TITANS – THE AT&T DEAL
It seems like a horror scenario for people concerned about concentration and monopolies in the telecommunication marketplace: Telephone giant AT&T who just had bought up the cable company Telecommunications Inc. (TCI) for roughly $32 billion last summer now adds another huge cable player to its stash – MediaOne, the fourth largest cable company. Adding to the fear of dominant mega-corporations is the investment software company Microsoft is about to make in AT&T stocks: $5 billion (which equals 66.7 million shares) and an option to acquire another 40 million shares in three years. If Microsoft exercises this option it would end up with about 3.4% of AT&T’s stock (Anonymous 1999b).
Just six weeks ago everything had looked completely different: At the end of March Comcast, so far the third biggest MSO in the nation had announced plans to purchase MediaOne, after this cable company had to abandon its plans to buy out Comcast. Experts didn’t believe that any of the other cable or telephony players would intervene with the purchase but a bidding war emerged and finally AT&T topped Comcast’s initial $53 billion bid with an offer about $58 billion (Fabrikant 1999, C1).
Comcast doesn’t have to walk away as a complete loser, whatsoever. It will buy up to two million of AT&T’s cable subscribers, mainly on the East Coast where Comcast already is dominating the market. To pay for the customers the company can partly use the $1.5 billion fee that MediaOne has to pay for backing out of the original contract. Comcast will also take over management control for another two million of AT&T’s cable subscribers. This concentration on the area between Philadelphia and Washington gives Comcast the advantage of having a pretty clustered system and the ability to sell local advertisement much better than a widely spread-out system (Fabrikant 1999, C9).
- Quote paper
- Christoph Koch (Author), 1999, Direct Broadcast Satellite, Telephone / Traditional Cable, Munich, GRIN Verlag, https://www.grin.com/document/3946