Sanford Bernstein on Initial Telecom Implications from AOL-Time Warner: Positive for AT&T,
Negative for RBOCs
Tod Jacobs January 10, 1999
<<...OLE_Obj...>>
HIGHLIGHTS:
1. AOL deal with Time Warner, bolsters our thesis that cable is ahead
in the broadband race
2. Deal a strategic negative for the RBOCs, some of whom had hoped AOL
linkup would help decide the pending battle of the consumer bundle. Deal
also clear negative for @Home and RoadRunner, who will likely be usurped by
any broad AOL/Cable relationship.
3. Deal a likely positive for AT&T relative to the RBOCs; we would
expect TWX-AOL-AT&T phone deal (though merger activity could potentially
delay implementation); deal should also take steam out of open access
battle.
4. Among RBOCs, SBC (which has a resale DSL deal with AOL) and BLS most
exposed to Time Warner, followed by Bell Atlantic (which also has an AOL
resale deal). See Details below.
5. Relative to Bell Atlantic, while company squares off against Time
Warner in NYC, we believe BEL is equally if not better upgraded in NYC for
DSL than is Time Warner for cable modem; thus, Bell Atlantic should retain a
time to market advantage in the NYC market, strongly minimizing direct
impact of the deal.
INVESTMENT CONCLUSION:
We continue Outperform ratings on AT&T, Bell Atlantic, WorldCom and Sprint;
SBC, USW and GTE continue at marketperform
DETAILS:
Relative to RBOC exposure to Time Warner: SBC is most exposed, as nearly
half of TWX subscribers lie in SBC territory; BellSouth is next, hosting
about a third of TWX subs in its region. Bell Atlantic (pro forma for GTE)
has slightly more than a fifth of the TWX subs, with heaviest exposure in
Manhattan. USW has nearly no exposure. Cut a different way, of RBOC
subscribers, about a third of BLS's customers are also Time Warner
customers, a bit less than 30% of SBC's customers are Time Warner customers,
and only about 20% of Bell Atlantic's customers are TWX customers; USW has
nearly no exposure. |
