Saturday September 16, 11:25 am Eastern Time
ATT Faces Smorgasbord of Strategy Options
NEW YORK (Reuters) - The next few weeks will be a crucial test for AT&T Corp. and its
chairman, Michael Armstrong, as the nation's largest telephone and cable TV company seeks
to reverse flagging fortunes.
During a two-day retreat next week, AT&T's board will weigh spin-offs, tracking stocks or
mergers, with each decision triggering a markedly different chain reaction. Depending on
which course it follows, the surviving AT&T entity may no longer even be a telephone
company.
AT&T has been in talks to merger various units with companies such as U.S. wireless carrier
Nextel Communications Inc and British Telecommunications Plc , Britain's largest telephone
company, sources familiar with the talks said.
AT&T may merge its wireless telephone arm, AT&T Wireless, with Nextel, the last independent U.S. wireless company with a
coast-to-coast network, sources said.
But disputes remain over price and which company would control the combined entity, sources said.
Merging with Nextel would give AT&T access to Nextel's wireless data services and a strong management team. Nextel would
benefit from AT&T Wireless's extensive spectrum licenses.
Among other options, AT&T may deepen its relationship with BT, but a complete merger is unlikely due to the potential antitrust
objections to combining the largest U.S. and British telephone companies, sources said.
AT&T and BT already have a joint venture, called Concert, that provides communications services to multinational companies.
AT&T and BT have discussed possibly combining their wireless telephone businesses, or formally merging their corporate
communications units, sources said.
Some U.S. analysts speculated that AT&T and BT could combine their corporate units with the Concert joint venture and spin
that entity off as a separately traded company.
The talks with Nextel and BT come as AT&T is re-examining its entire business structure. AT&T must decide by December
whether it will shed some of its cable subscribers or investments.
Regulators approved AT&T's summer acquisition of cable television company MediaOne Group Inc on the condition it shed some
cable assets.
AT&T has the option of divesting its 25.5 percent interest in the Time Warner Entertainment (TWE) partnership with Time
Warner Inc, or shedding programming interests including Liberty Media Group and others.
And AT&T could sell interests in other cable systems serving more than 9.7 million subscribers. Analysts doubt AT&T would
shed any cable subscribers since its strategy to provide voice, data and television services over cable wires depends on it having
the broadest reach possible.
AT&T will likely choose between selling TWE or Liberty Media, analysts said, and neither option is attractive.
Shedding Liberty Media could trigger tax penalties.
Liberty Media, which trades as a tracking stock of AT&T and operates separately, is a holding company with investments in
entities such as E! Entertainment Television, USA Networks Inc, and Courtroom Television Network.
AT&T is exploring the idea of combining Liberty with the
consumer voice business, sources said.
A stock tracking the consumer business on its own may have a tough time attracting investors since consumer revenues are
shrinking by about 7 percent a year. Still, that unit generates about $8 billion in annual profits and controls more than half of the
long-distance market.
Shedding the TWE stake could prove troublesome since AT&T may be pressured to sell out at fire-sale prices. AT&T believes its
TWE stake is worth nearly $20 billion, while Time Warner wants to pay a quarter of that, sources said.
Federal regulators' ongoing scrutiny of Time Warner's planned merger with Internet service provider America Online Inc
also clouds AT&T's options.
AT&T and Time Warner have a complicated relationship in which they are partners in TWE and competitors in the Internet
market. AT&T controls ExciteAtHome, which is seen as a small but growing rival to AOL.
AT&T may launch a tracking stock of its Solution unit, which provides computer network consulting and integration services for
business.
But analysts said it may be hesitant to do that since its earlier effort to create a tracker stock for its wireless unit proved
unsuccessful.
AT&T Wireless in recent months has traded below its initial public offering price of 29-1/2 in April.
In addition to the potential tracking stocks or spin-offs, AT&T also must meet its growth goals. AT&T aims to provide
cable-based telephone service to 400,000-500,000 customers by year-end and repair its business communications unit, which lost
customers earlier this year as the company became distracted by its restructuring.
The potential restructuring raises questions about whether all of AT&T's businesses would retain the famous brand name, what
operations would continue to trade under the T stock symbol, and whether the stock, once a stable holding for widows and
orphans, would continue to pay dividends. |
