WASHINGTON, Dec. 20 (UPI) -- After five months of negotiations, AT&T Corp. will sell its broadband business to Comcast Corp. for $72 billion in a controversial deal that will create a cable company with control over one-third of all U.S. cable television customers.
The merger, which has drawn the attention of consumer groups and politicians alike, would create a combined company with 22.3 million cable subscribers, far larger than AOL Time Warner Cable's 12.7 million subscribers. Offers from bidders AOL Time Warner and Cox Communications were rejected by the AT&T board.
Shares of Comcast lost $2.28, or 5.99 percent, to close Thursday at $35.79 on volume of 50.5 million shares traded on the Nasdaq stock market. AT&T shares gained $1.05, or 6.25 percent, to $17.85 on heavy volume of 57.7 million shares traded on the New York Stock Exchange.
Jeff Chester, executive director of the Center for Digital Democracy in Washington, said the new company would rival the clout of the recently combined AOL and Time Warner, "potentially permitting just two companies to control access to the majority of American homes for most TV and digital media services."
Under the deal announced late Wednesday, the new company AT&T Comcast Corp. will assume nearly $20 billion in debt and other liabilities from AT&T and its subsidiaries, as well as $5 billion in preferred securities held by Microsoft Corp.
"AT&T Broadband and Comcast can accomplish more together than we could alone, (and) our shareholders and employees will both benefit from the industry-leading growth we will achieve," said Michael Armstrong, AT&T's chairman and chief executive officer.
The new company would be the world's leading provider of broadband video, voice and data services with annual pro forma revenue of approximately $19 million. The combined company will have a presence in 41 states with approximately 5 million digital video customers, 2.2 million high-speed data customers and 1 million cable telephony customers.
Armstrong will serve as chairman of the new company, instead of retiring from AT&T in 2003 as planned. Brian Roberts, Comcast's president, will be the combined company's chief executive.
New York-based AT&T will spin off its cable division and simultaneously merge it with Philadelphia-based Comcast.
The deal also includes AT&T's 25 percent stake in Time Warner Entertainment.
Cheryl Leanza, deputy director at the Media Access Project in Washington, predicted Comcast would be forced to sell its 25 percent stake back to AOL Time Warner before regulators would approve the deal.
Leanza said the merger would create an "800-pound gorilla in the program purchasing arena" with more power to decide what is programmed on cable systems nationwide.
AT&T shareholders will receive approximately 0.34 share of AT&T Comcast for each share of AT&T they own. Comcast shareholders will receive one share of the new company for each Comcast share they own.
AT&T shareholders will own a 56 percent stake and about a 66 percent voting interest in the new company. The Roberts family, which owns Comcast Class B shares, will control one-third of the company's outstanding voting interest.
The new company will have cable subscribers in 17 of the country's 20 largest metropolitan areas and a presence in 41 states.
In Washington, lawmakers on Thursday expressed concern the merger would lead to higher prices for consumers and announced they planned to hold a hearing early next year into Comcast's bid to buy AT&T.
Sens. Herb Kohl, D-Wis., and Mike DeWine, R-Ohio, ranking members of the Senate Judiciary antitrust subcommittee, said the scale of the merger gives them "serious concerns."
"Consumers already face rising cable bills, and we fear that further consolidation in this industry may only heighten this trend," the senators said.
Despite some skepticism on Capitol Hill, the merger, which is subject to regulatory and shareholder approvals, was expected to close by the end of 2002.
Besides the new company's size, consumer advocates are concerned that AT&T Comcast would have too much influence over programming.
"Americans should be very worried about how this new combination will affect what they pay each month for cable and Internet service," said Chester of the nonprofit Center for Digital Democracy in Washington.
"They intend to place a chokehold over a vital sphere which is the essential foundation for a thriving democracy -- a communications system which supports the free flow of information from diverse sources," he said.
