Microsoft Offers Backing to Rivals for AT&T; Unit

Microsoft Corp. is playing all angles in the bidding for AT&T; Corp.’s cable business.

The software giant has offered to invest $3 billion in the AT&T; Broadband unit and allow it to remain independent. Microsoft also has offered to put the same value behind two rival bids--from Comcast Corp. and Cox Communications--to keep the nation’s largest cable operator out of the hands of its archrival, AOL Time Warner Inc., according to sources close to the situation.

Microsoft, analysts say, needs a cable partner to sell high-speed access for its MSN Internet service. If AOL Time Warner wins the AT&T; cable business, Microsoft may never have a chance to compete for those customers.

Microsoft is eager for its operating system to be as pervasive in TV set-top boxes as its software is in personal computers where it enjoys a 90% market share.

Neither AT&T;, nor any of the four bidders, would comment on the offers that were due Monday night. The offers will be reviewed by AT&T;’s board Saturday.

But neither the Cox nor Comcast bid for AT&T;’s cable business proposes using money from Microsoft, industry sources say. Neither company is eager to agree to Microsoft’s terms--including a certain percentage of Microsoft operating systems in cable set-top boxes, according to these sources.

“For Cox and Comcast, their first option would be to avoid having to use Microsoft software,” said Tom Eagan, a cable and satellite analyst at UBS Warburg.

Microsoft, in extending its offers to Cox and Comcast, is hoping to avoid the embarrassing mistakes it has made in past cable deals. In 1997 Microsoft invested $1 billion in Comcast, looking for distribution of its software on cable set-top boxes. Two years later the software titan put up $5 billion to help finance the biggest acquisition in cable history--AT&T;’s $56-billion purchase of MediaOne Group.

AOL Time Warner is proposing to merge its second-ranked cable system with AT&T;’s cable business and set up a separate company. But AOL’s bid poses regulatory hurdles that may be too risky for AT&T.; Nevertheless, Microsoft wants to eliminate any possibility that AOL could more than double its cable business through such a merger.