AT&T Broadband Shops for Subs

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AT&T Broadband — fresh off a deal to sell 320,000 subscribers in Montana, Wyoming and Colorado to Bresnan Communications Inc. — is now in the market for smaller systems, an effort to avoid a potential tax hit from that sale, sources said last week.

After a nearly two-year auction process, Bresnan — the MSO controlled by cable pioneer Bill Bresnan — agreed to buy 320,000 subscribers from AT&T in April for $735 million.

Because AT&T sold the systems for cash, it faces a potential tax liability — which some estimate could range between $200 million and $300 million — unless it buys systems with an equal value within the next six months.

AT&T executives declined to comment on the potential tax liability.

While the tax liability is an issue, it's small compared to the relative size of AT&T Broadband, which will count 13.2 million subscribers after the Bresnan sale, and took in $9.8 billion of revenue in 2001.

Sources said AT&T could opt just to take the tax hit. But thanks to Broadband's pending merger with Comcast Corp., it likely wants to clear potential problems from its balance sheet, sources said.

Under the merger deal announced in December, Comcast already has agreed to take on about $20 billion worth of AT&T Corp. debt.

While a $300 million tax liability is minuscule by comparison, it is an added burden that Comcast may not want to take on, if it doesn't have to.

ON SHOPPING LIST

Sources said AT&T is already looking for systems, including properties owned by RCN Corp. in the Princeton, N.J., area and some in the Lansing, Mich., suburbs owned by Millennium Digital Media.

Sources say no deal is imminent, but time is a factor.

"The clock started right after they announced the Bresnan deal," said one source familiar with the situation. "They [AT&T] have been looking in a lot of places."

Sources said the RCN and Millennium properties make sense, because they are located near existing AT&T or Comcast properties.

RCN received the Princeton properties from predecessor C-TEC Corp., after C-TEC completed a restructuring that split it into three separate companies — RCN, Cable Michigan Inc. and Commonwealth Telephone Enterprises — in 1997. The Princeton properties have about 80,000 subscribers.

RCN also could use the money. Its stock, once traded as high as $72 in 2000, has been languishing under $2 since February. It closed at $1.75 on May 7.

Officials at RCN did not return phone calls seeking comment.

Millennium spokesman Peter Smith declined comment.

The Millennium systems are located in the suburbs surrounding Detroit and Lansing, where AT&T and Comcast also own systems.

Millennium purchased the Michigan systems from Horizon Cablevision in May 1999. At the time, the properties had about 42,000 subscribers.

Millennium also has about 44,000 subscribers in the Seattle area — an AT&T overbuild acquired from Summit Communications Inc. in May 1999.

Millennium also owns a Comcast overbuild in Anne Arundel County, Md.

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