Many Comcast Corp. cable systems are geographically close
to MediaOne Group Inc. operations, but the merging MSOs have several strategic technology
differences that they'll have to resolve.
In categories ranging from digital-set-top-box choices to
investments in high-speed online services, the companies are at varying development stages
and, in some cases, they have pursued different strategies with differing levels of
success in deploying advanced services.
While Comcast has moved faster than MediaOne has in
deploying digital cable, MediaOne is miles ahead in offering cable telephony and
high-speed Internet access.
At the same time, Comcast has done a better job dealing
with back-office issues related to growth of new services, such as consolidating customer
call centers and updating billing systems, than MediaOne, which has been dealing with
legacy systems from predecessor Continental Cablevision Inc.
"At the end of the day, Comcast has been a very strong
operator," said one industry analyst who asked not to be named. "I think that
it's positive for the entire industry that these assets are coming under their
Some changes may come quicker than others. One of the most
talked about, even before the merger, is a potential combination of @Home Network, of
which Comcast is a major affiliate, with Road Runner, which is partly owned by MediaOne.
There's some logic to creating a unified, national
high-speed backbone, as well as providing a lot more customers for each service's
There has been widespread agreement on the merits of
unifying the data platforms, and the services' respective backers had extensive talks on
merging a little over a year ago, but they were unable to reach terms on an outright
The combination concept may gain steam again, as both Road
Runner and Comcast are partly owned by Microsoft Corp.
Comcast's ties to @Home got stronger last week, as @Home
signed an affiliation deal with Prime Cable, a 430,000-subscriber MSO that Comcast is in
the process of acquiring control of. Jones Intercable Inc., which is also being sold to
Comcast, already signed an @Home affiliation deal.
Complicating the picture is Comcast's exclusivity deal with
@Home. It comes into conflict once Comcast buys MediaOne. And Microsoft has the right,
beginning June 4, to demand that Comcast end its exclusivity.
That move would cost Microsoft dearly, though. Comcast
would be forced to return unvested shares in @Home stock, and Microsoft would have to make
Comcast whole. Comcast got its stock for 50 cents per share, so if it had to return 7
million unvested shares, that would probably cost Microsoft at least $700 million.
While Comcast executives sidestepped the
data-service-conflict issue last week, analysts continued to insist that the rationale for
an @Home-Road Runner deal is so compelling that it almost is a foregone conclusion.
"To the degree that in Comcast, we have a company that
has a tremendous propensity to get deals done, I've got to think that the likelihood of a
merger happening has increased nicely as a result of the MediaOne deal," Goldman,
Sachs & Co. cable analyst Lou Kerner said.
But while Comcast and @Home may be driving forces in a
backbone merger, MediaOne has been out in front in actually selling high-speed Internet
The operator last week reached 100,000 customers for its
three-year-old MediaOne Express service, which has merged with Road Runner and which will
be marketed as a unified service starting in April. Comcast had 60,000 @Home customers as
of last month.
MediaOne is also ahead on cable-telephony deployments -- an
area where Comcast is still dipping its toe in the water -- with some 10,000 customers
using its circuit-switched systems in six markets.
"How you run services off the rebuilt network -- these
are evolving with very early initiatives in telephony," Comcast president Brian
Roberts said at a news conference in New York announcing the deal. "I think that
we're going to learn a lot from what MediaOne has done so far."
Comcast is widely expected to make its big telephony foray
through an affiliation with AT&T Corp. Comcast was already negotiating with AT&T
in tandem with MediaOne and Cox Communications Inc., so the acquisition should only
solidify those mutual interests further.
Digital programming is another matter. Aided by its more
advanced rebuild, Comcast has signed up 100,000 digital-cable customers, while MediaOne
has yet to launch the service beyond its inaugural Detroit market. MediaOne had planned
two more launches by midyear.
MediaOne also took a divergent path with its February order
for open conditional-access-system digital set-top boxes based on the Digital Video
Broadcasting platform that is prevalent in Europe, instead of the General Instrument
Corp./Scientific-Atlanta Inc. platform that dominates the U.S. market.
Although MediaOne also got GI to agree to incorporate the
international open system into the equipment that it is supplying to the MSO, some
observers said the marriage with Comcast could limit the post-merger inroads that
DVB-oriented manufacturers would make with the company.
"Comcast is going to be driving the technology
platforms going forward," Kerner said. "I think that they'll give a judicious
review to what MediaOne is doing, but without a compelling reason, they'll stick with what
Comcast is doing."