Case: Comcast Corporation's Merger With AT&T Broadband
1. Why does Comcast want or need to acquire/merge with AT&T Broadband? Over the years since Comcast was founded it managed to achieve a reputation as arguably the industries best operator. But after the declaration from the Congress about a legislation in 1996 the cable market entered into a high competitive mode. This legislation allowed a competitive distribution technologies such as wire based, wireless telephony and wireless cable to compete with traditional cable and direct satellite broadcast. Which led to significant investment and consolidation in the industry. To new era of the world brought increased demand of value added services such as video-on-demand, interactive TV and telephony. Though the costs concerning these services were high still the operators were slow to provide them to the customers. Though until 2001 AT&T broadband stayed as ranked 1 company with 13.8 million subscribers while Comcast remained to be ranked 4, still the target AT&T had to fulfill were huge. The difficulty begin by the Telecommunication Act in 1996 which can be best understood from the FCC chairman William Kennhard's prediction, "Phone line would carry TV shows, cable lines would carry phone calls, and viewers would be showered with new competition, more channels and lowers prices. Multiple pipes is no dream" In the meantime AT&T was facing the mission of becoming an any distance company from a long distance company. Which was another competition they entered. The spending of a $100 billion by the new CEO of AT&T to assemble the cable business did not assist AT&T very much to face the price war of the market rather they had to face the meltdown of the industry with fellow telecom companies. AT&T's market valued faced tremendous drop by $90 billion in between 1998 and 2000. Their debt rose by $30.5 billion dollars.
Moreover AT&T broadband was underperforming the rest of the industry. AT&T Broadband had operating margins of approximately 20% in 2000 compared to an industry average of 40%-42%. Along with these Disney, Viacom and News Corp. were using their increasing power to charge cable companies higher fees for the programming they carry. In addition to that cable companies faced emergent threat from satellite companies.
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So in a market like this all companies were looking onto mergers that might keep them running with the survival issue. Comcast believed that AT&T Broadband would give them the necessary scale and leverage to face the already threatened and demanding market. Comcast came to this assumption from AT&T's highly attractive assets which were well-clustered, adjacent to Comcast's system and possessed striking demographic appeal for advertisers. With AT&T's situation they also needed to come back from all these issues. The merger was to happen and Comcast was the one who won the bid to acquire it in market for the time being.
2. Make an argument for Comcast NOT going forward with this acquisition? (Give some reasons why it may be better for Comcast not to merge with AT&T) AT&T was a telecom service provider company. Though the 1996 Telecom Act introduced the merger of data network and voice together in the sake of keeping cable and phone together, still AT&T had their soul business to be as telephone service providers. Comcast on the other hand Comcast was cable service provider. So there has to be this likely dissimilarity in the technological architecture.
On the other hand form the point of telecom and broadband market around 1996 after the Telecom Act being passed AT&T was in a great deal of difficulties as they are explained in the answer to question no 1. Comcast should not have merged with a company which was already in a meltdown point like that. As Comcast might need to make more investment to combine the two companies engineering architecture which does not promise to bring a certain success in future.
3. How would you gauge the success of this merger? (What factors or measurements would you evaluate to declare the merger a success?) AND 4. Are there any technology challenges with this merger? If so, how would you manage them?
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A merger should be done with respect to the two companies similarities. Still from the business point of view this merger was good for AT&T as they might come to a tax free transaction that would be merged with Comcast forming the AT&T Comcast Corporation. AT&T shareholders gets a 56% economic ownership where Comcast owns 42% of the share. But the greatest Technology challenge in this case is the difference the service that the two companies are providing. A telecom service provider may need the broadband but people would not accept TV services on phone very fast. For that the hardware has to be designed a accordingly. On the other hand AT&T can provide good phone services to homes through the Comcast cable lines. I would have made plans to provide customers various program deals which they might used get through cable on their phone . As Comcast already has various deals with programmers like Disney, Viacom, News Corp, these services can be extended to the phone so that subscriber does not always need to access the cable for it. Also through the Comcast cable I would design a reliable telephone network for AT&T which will end up to people's houses and provide them a landline which will provide them the same amenities in concept of voice transfer that they are being provided with wireless phones. As such voice over data services are good in price with wireless phones but comes up in higher price when it comes to question of landline. If the two companies can figure the engineering architecture like this merger can end up to be a successful one.
5. How did the US governments change in public policy affect the competitive nature of the cable industry? (Hint: Review the Telecom Act of 1996 for clues!) In the 1996 US government's change in Public Policy opened the wireless market for every as it was Local phone service market was made open for everybody to join Independent phone companies can join long distance calls
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Cable companies could offer local phone services
This actually indicated that the telecom and cable market does not belong to the particular telecom providers or cable providers. One company can offer all these services at the same time. As mentioned in the answer in question 1 that the FCC chairman William Kennhard's explained the scenario in this way, "Phone line would carry TV shows, cable lines would carry phone calls, and viewers would be showered with new competition, more channels and lowers prices. Multiple pipes is no dream" This needed a huge technological change in engineering the network and also engineering the hardware development. The demand in subscribers raised in great extent in such a short time with which the telecom industry could not cope up rapidly. There was a an entire convergence between voice and data network that took place due to this change which needed great technological innovation. The competition was skyscraping. All the companies were facing the same tremendous pressure and loss which forged them to think of mergers to similar companies to keep up with the trend of the market. This also included a incredible amount of capital investment in the market.
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