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Comcast will let AOL use network
America Online, the nation's largest Internet provider, will be able to sell its online service over Comcast Corp.'s fast-Internet cable network as part of a complex deal announced yesterday.
The arrangement is part of a transaction under which Comcast and AT&T Corp. will dispose of a $9 billion financial albatross: AT&T's 27.6 percent stake in Time Warner Entertainment, a division of AOL Time Warner Inc. that includes cable-TV systems, the HBO cable network, and the Warner Bros. film studio.
Philadelphia-based Comcast agreed to buy the Time Warner Entertainment stake in December in conjunction with its acquisition of AT&T's cable and high-speed Internet division, AT&T Broadband. Comcast vowed at the time to turn around and sell the Time Warner Entertainment stake - probably to AOL Time Warner - as quickly as it could, but talks involving AT&T and AOL Time Warner dragged on for months.
The deal will lighten Comcast's debt load while providing it with another potential revenue stream in the form of millions of possible AOL fast-Internet subscribers.
"This is a terrific agreement for all parties," Comcast president Brian L. Roberts said in a statement. "As stated when we announced the merger with AT&T Broadband, monetizing the [Time Warner Entertainment] assets has been a major priority."
Under yesterday's deal, when Comcast and AT&T Broadband close their $52.7 billion merger toward the end of the year, the merged company - AT&T Comcast Corp. - will gain control of AT&T's interest in Time Warner Entertainment.
AT&T Comcast will get $2.1 billion cash from AOL Time Warner, plus $1.5 billion worth of AOL Time Warner stock (as valued when the deal announced yesterday closes, likely in the first half of 2003).
Also, AT&T Comcast, which will have 22 million cable-TV subscribers of its own, will get a 21 percent equity stake in an AOL Time Warner cable company serving 10.8 million subscribers, to be called Time Warner Cable Inc.; shares of that company will be offered to the public once the restructuring of Time Warner Entertainment is completed.
AOL, in turn, will gain the ability to sell its online service over AT&T Comcast's high-speed cable network; most of AOL's 34 million subscribers currently use slower dial-up modems.
AOL Time Warner spokeswoman Tricia Primrose said the company was not yet announcing retail pricing for its AT&T Comcast Internet service. However, AOL's digital subscriber line, or DSL, high-speed service, provided over the phone networks of Verizon Communications Inc. and SBC Communications Inc., costs about $55 a month.
Analysts have estimated the total value of the complex transaction at $9 billion.
AT&T and Comcast said they intended to place their AOL shares and the Time Warner Cable interest in a trust. They will eventually be able to sell both; Roberts indicated that the Time Warner Cable stake would be sold.
A Comcast spokesman said yesterday that Comcast was not immediately disclosing its plans for the AOL stock.
The agreement came as a relief to investors and company officials alike because it will significantly lighten AT&T Comcast's debt load, which without a sale would be about $31 billion. Comcast's stock rose $3.08, or nearly 15 percent, to close at $24.25 yesterday.
The deal also will simplify AOL Time Warner's corporate structure, making it easier for investors to analyze the company, and it will reduce AT&T's debt. AOL shares rose 97 cents to $14.33, and AT&T shares were up $1 at $12.18.
"We view it as a positive all the way around because it lifts an overhang on all three stocks," said Robb Parlanti, senior portfolio manager for Turner Investment Partners Inc. in Berwyn.
"If Comcast and AT&T can close this deal by year end, it will clear an overhang on the cable industry in general," Parlanti said.
Cable stocks have been pummelled this year, particularly after the accounting scandal at Adelphia Communications Corp., which is based in Coudersport, Pa.
Yesterday's deal means Comcast's fast-Internet service will likely be open to at least two national Internet service providers eventually: AOL and the Microsoft Network, or MSN. When Microsoft Corp. agreed in December to invest in AT&T Comcast, the merged company agreed to give Microsoft access to the company's network for MSN subscribers.
Contact Akweli Parker at 215-854-5986 or aparker@phillynews.com
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