The Tycoon Report

Big Money Texas Hold Em’…the High-Stakes Kind

Deep in the heart of Texas, a corporate Spaghetti western-style showdown left Comcast (SYM: CMCSK) shareholders smiling.

We take you behind the scenes.

 IT WAS JUST LIKE THAT SPAGHETTI WESTERN.

You know which one I'm talking about. The one where Clint Eastwood, Lee Van Cleef and Eli Wallach are all standing a circle waiting to see who draws first. Looks like 100 degrees outside. Everyone is hot, paranoid, tired. Hearts pounding. Pistol finger intching. It's life or death. Whomever walks away gets all the gold.

And then - suddenly - somebody draws first. When the smoke clears Lee Van Cleef's in a grave. Eli Wallach is confused. And Clint Eastwood is smiling. Well folks the corporate version of that Spaghetti Western-style showdown happened this week in Texas.

The one state where the consequences are as big as the belt buckles. Confused yet? Let me explain:

This week, Fallen Angel Stocks recommendation Comcast scored a major "WIN" against Baby Bell Bullys Verizon (SYM: VZ) and SBC (SYM: SBC).

Here's the excerpt from the Wall Street Journal on Tuesday that sums it up:

"Two U.S. phone companies lost a major showdown with cable-TV rivals over telecommunications legislation in Texas, setting a precedent that is likely to slow their efforts to roll out television service across the country. SBC Communications Inc. and Verizon Communications Inc., the two largest phone companies in number of lines, had lobbied aggressively to win new rules in Texas that would help them accelerate the rollout of TV service to millions of households.

The phone companies' loss gives cable companies a head start in the race to offer the most attractive packages of phone, TV and high-speed Internet service."

As soon as I heard the news 2 thoughts entered my mind:

1. Hooray for us sharholders of Comcast! We're more confident than ever that the stock is worth north of $50 per share!

2. The big-wigs at long-distance company AT & T (SYM: T) must be dancing the Macarena while doing shots of Tequila.

What exactly does this week’s ruling in Texas have to do with At & T, you ask? Nothing today. But everything yesterday. And more tomorrow.

Let me explain:

It wasn't too long ago that Comcast bought all of the cable assets of At & T. This was after C. Michael Armstrong, the big-dreaming former Chief of AT & T, decided to get into the cable business in the first place. And get Ma-Bell into cable he did. Without regard for money, he overpaid for TCI cable, saddling Ma-Bell with a ton of debt.

But he had a dream. A dream to offer customers a one-stop shop of all things telecom: cable, phone service and high speed internet - all from one provider. Some call it "Bundled Services." Others call it the "Holy Grail" of business. Get customers to sign up for everything under the sun, make it hard to switch to another provider, kick back and reap the rewards.

Not a bad dream as far as dreams go. But Mike had a small problem. Three, actually. First, he overpayed for TCI's assets. Second, he saddled Ma-Bell with too much debt. And third, his timing was disastrous - almost as soon as he did the deal, the Fed began to raise rates. That made the price of money more expensive. Companies with a lot of debt have a lot of problems when the price of money rises. But that's another story.

The story of today is that C. Michael Armstrong was right. Not right in the sense that Ma Bell won the war against her Baby Bells. Not even close. Right in the sense that when he sold TCI to Comcast - at almost half the price he paid a few years before - he gave the Baby Bell's one last parting shot. The kind of parting shot that you give your enemies because they own Congress and block every regulatory move you make. The kind of parting shot you give your Demonic "Baby Bell Children" when they start to eat their very own "MA".

He gave Comcast the Voice-Over-Internet business that one day could offer local, long distance and international phone service to all of the cable companies customers. And that day is today. Yes, the ruling this week gives Comcast more time to do to the Bells what poor Mike and AT & T simply couldn't - fight fire with fire.

But you know the best part for Comcast? Besides the fact that they have 22 million custies to pitch this to? It's that the ruling this week against the Bells means that the Bells are unable to offer the same services. That's like fighting with one hand tied behind your back. Yup, Ma-Ball threw the grenade right into the Alien den.

Too bad what's left of Ma-Bell - that weird long distance company that's actually living Stephen King's Thinner - won't profit from it. But I have the feeling that somewhere- hiding deep in the cave he calls his office at Comcast - C. Michael Armstrong is smiling. Grinning, actually. That almost makes him more than just a telecom footnote in my book. It makes him the guy who tossed the grenade to the Baby-Bell-Aliens in the shaft just at the right time...

Too bad his career blew up with it.

Remember, you are what you read!