The First Winner in AT&T/TCI Deal Is @Home

Steve Harmon

Internet Stock Report

AT&T’s acquisition of the world’s largest cable operator, TCI,
made investors in another stock quite happy. Shares in cable Internet firm @Home (NASDAQ:ATHM) soared 31% to $51.50 per share as of 3pm EDT on the news. As part of the acquisition of TCI, AT&T would get a 40% controlling interest in the high-speed Internet by cable firm.

AT&T chairman Michael Armstrong told analysts
it was paying $5.5 billion for TCI’s @Home stake; that
implies AT&T is valuing @Home at $13.75 billion, well north of its current market value today.

The deal provides @Home with a wider platform to market
high-speed Internet services, including AT&T’s 100 million customers. @Home
currently has deals with most of the major cable operators in the U.S.,
passing about 5 million homes today with a total potential reach of about 60 million homes when cable operators deploy @Home’s technology.
TCI and several cable firms were the
original investors in @Home, along with venture capital group Kleiner
Perkins Caufield Byers.

As we’ve said all along, @Home is ‘AOL on steroids’ and could eventually be
larger and worth more than AOL, whose market capitalization is north of $20
billion with 12 million members. Notable for this reason:

AT&T’s foray for TCI comes on the heels of rumors that AT&T wanted to
acquire AOL (NYSE:AOL), an offer that the world’s largest online service
provider allegedly rebuffed. Now that AT&T has made its play for TCI, AOL chairman Steve Case hailed the AT&T-TCI, saying he wants to sell AT&T-TCI high-speed Internet services to AOL’s 12 million members.

AOL may find the new AT&T bets on its own @Home service, which can ride the high-speed bandwagon into the future. @Home could very well be the future of TCI itself.

Another reason Microsoft and Compaq invested in Time Warner’s rival cable Internet outfit, Road Runner: highspeed services are the resurrected holy grail of media. It’s not interactive TV this time around, it’s interactive everything with the Internet front and center in the value equation.

TCI shares (NASDAQ:TCOMA) gain 4% to $40.25 while AT&T (NYSE:T) drops 7% to $60.31 per share.

Related story: TCI Buy Gives AT&T Direct Path to Homes

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