Comcast and MediaOne Soon to be One

Eventually, a few multinational conglomerates will own 90% of the world's businesses. Case in point: Cable companies Comcast and MediaOne, already among the largest in their field, made a move in that direction last week when they announced a merger valued at between $53 and $60 billion. Comcast will acquire MediaOne, described by the New York Times as "the sole surviving independent cable company." The resulting company will be the nation's third largest.

Several observers note that the merger has less to do with television than with providing high-speed Internet access to millions of customers. With hundreds of billions of dollars in revenue and profits at stake in the coming century, cable providers are competing intensely with telephone companies to win Internet customers.

Announced in New York with the approval of Time Warner Chairman Gerald Levin, the merger follows AT&T's $55 billion acquisition of Tele-Communications Inc. earlier this year. MediaOne owns 25% of Time Warner Entertainment.

Regional telephone companies have already begun offering high-speed Internet connections in key cities and will expand their offerings nationwide this year. Cable modems are said to be the fastest of several digital-transmission technologies, but they are not yet widely available. The positioning scramble by telecommunications companies in anticipation of near-universal Internet usage in the near future has prompted alliances that would have been unthinkable just a few years ago.

In the effort to provide Internet access, "Size is everything," according to Howard Anderson of Yankee Group, a media consulting firm. "There is a race to be first to offer Internet access and, ultimately, telephone service to the upscale neighborhoods that will buy it first," Anderson says. "It's the 'first-move advantage.' If customers go with the phone companies, it will be hard, if not impossible, to lure them back to cable. So cable companies want to get big so they have as much cash flow as they need to build their Internet business."

The combined Comcast/MediaOne company will serve more than 10.5 million customers in the Northeast and Mid-Atlantic states. In addition, it will likely see improved cash flow due to lowered operating costs, including the elimination of approximately 1700 jobs from a combined workforce of 34,000. Both Comcast and MediaOne increased their subscribers' rates about 5% last year.