Moving In On Ma Bell

Brian Roberts was seated so close to the basketball court that he could have read the inscriptions tattooed on Allen Iverson, the Philadelphia 76ers superstar. Unlike many of the stylish fans in the money seats, the CEO of cable-giant Comcast was dressed in a subdued blazer that looked like an off-the-rack bargain. Roberts seemed unruffled even though Comcast is majority owner of the Sixers, who were entering the final game of the NBA's Eastern Conference championship tired and bruised. But his calm proved justified as the Sixers went on to win. Days later, however, the scrappy team fell to the overpowering Lakers in the NBA championship.

Now the unflappable Roberts is gunning for even bigger game. Last week Philadelphia-based Comcast, the industry's best-run company, made a $58 billion hostile bid for AT&T's cable business, known as AT&T Broadband. Over the past three years AT&T spent $100 billion on a cable-buying binge, positioning itself as a one-stop supplier of Internet access, phone calls and cable TV. But the strategy failed. For one thing, AT&T needed to spend billions more modernizing its cable systems. Meanwhile, AT&T's rivals ate away at its core long-distance phone business. The phone giant's financial performance deteriorated. AT&T chairman Michael Armstrong hatched a recovery plan that called for breaking up the company into four parts.

AT&T investors have reacted favorably to the Comcast overture. By the end of last week AT&T's stock price had risen by $15 billion. Still, the outcome is uncertain. What's certain is that some of the world's most-powerful media moguls, including industry kingpin John Malone, a large and disgruntled AT&T shareholder, will have a voice in the resolution. Speculation already anticipates rival bids from the likes of Disney, Microsoft and AOL Time Warner. The companies declined comment.

Already, the unfolding saga is rife with intrigue, ego and hunger for power. In trying to first strike a friendly deal with AT&T's beleaguered chairman, NEWSWEEK has learned, Comcast floated the idea of letting Armstrong, who is nearing retirement age, run the combined Comcast-AT&T Broadband for the first 18 months before yielding to Roberts. "It was clear that Armstrong wanted an important role," said one source, adding that Comcast was "open-minded to a transitional arrangement." But the talks collapsed over the issue of management control and Comcast quickly positioned itself to make the unsolicited offer. For instance, to work on its breakup plan AT&T was on the verge of locking up some key Wall Street advisers Comcast was eager to hire for its own takeover bid. By hastening the unsolicited offer, NEWSWEEK has learned, Comcast was able to retain the advisers.

NEWSWEEK also has learned that last week AOL Time Warner initiated discussions with Comcast about how it might be affected by the takeover deal. AOL has substantial interests at stake. AOL controls No. 2 cable operator Time Warner Cable, in which AT&T holds a 25 percent stake. By succeeding with its AT&T offer, Comcast thus could end up with the 25 percent stake in Time Warner Cable. There are conflicting accounts of some of the talks. Some sources contend AOL said it wouldn't seek to frustrate Comcast's offer with a rival bid. Others say AOL made no such commitment. AOL also quizzed Comcast on whether it would open its cable systems to rival Internet providers, such as AOL.

Roberts, 41, is a veteran of the industry's tumultuous dealmaking and regulatory battles. At the age of 8, he began making the rounds on Saturday mornings with his father, Ralph, in the family cable business. Many years later Ralph dispatched his son to Flint, Mich., to help run the Comcast system. Over time the younger Roberts earned a reputation as a financial whiz, helping Comcast execute a series of complex acquisitions. In 1997 Roberts persuaded Bill Gates of Microsoft to invest $1 billion in Comcast, a transaction that validated cable, not phone lines, as the preferred pipeline into homes.

With other potential bidders lurking in the wings, Wall Street is eagerly awaiting Roberts's next move. AT&T says it will seriously consider the bid, but it has suggested that Comcast's offer doesn't reflect the value of AT&T's cable holdings. Comcast is widely expected to eventually increase its offer, although for now Roberts will only say, "We've made as compelling a bid as possible." While other bigger players may try to shove Comcast off the court, don't count Roberts out. Like Iverson, he's got game, so don't be surprised if AT&T's cable business ends up in Comcast's trophy case.