News Essay, Research Paper

n an effort to become the nation’s largest cable operator, AOL Time Warner (news/quote) proposed late last week to merge its cable operations with AT&T (news/quote)’s, executives close to the negotiations said yesterday.

While AOL has not yet made a formal merger offer for AT&T’s cable business, which is called AT&T Broadband, the proposal is the first signal that AOL is earnestly pursuing a deal.

AOL’s proposal was precipitated, in part, by the Bush administration’s decision last week to drop demands for the breakup of Microsoft (news/quote), potentially improving the prospect that regulators would approve an AOL-AT&T Broadband deal, the executives said.

In addition, the changing mood in Washington over regulation of large media companies also provided an impetus for AOL to make its approach.

On Friday, a federal appeals court signaled its intention to strike down two regulations that for decades have prevented the nation’s biggest broadcasters, cable companies and media conglomerates from expanding by taking over local television stations.

AOL has been discussing the possible merger of its cable operations with AT&T Broadband since July, when the Comcast Corporation (news/quote) made a unsolicited offer for AT&T Broadband that was rejected.

But Comcast’s offer put AT&T Broadband in play and now AT&T’s board must decide whether to proceed with its original plan to spin off the company or sell it to a competitor.

AT&T has also held talks with Cox Communications, which has yet to make a formal bid but is still discussing several possibilities, as well as The Walt Disney (news/quote) Corporation and Charter Communications (news/quote), according to the executives.

AOL’s proposal calls for AT&T to merge AT&T Broadband with AOL’s cable business, the executives said. AT&T shareholders would own about 60 percent of the combined company, while AOL’s shareholders would own about 40 percent, the executives said.