AT&T to attempt outflanking the Baby Bells
"AT&T Seen in Deal for Cable Giant"
June 24, 1998
By SETH SCHIESEL
The AT&T Corporation is close to an agreement to
acquire the nation's second-largest cable
television
operator, in a deal that could sharply expand AT&T's
ability to provide Internet access and local telephone
service, an official who was informed of the
discussions said Tuesday night.
A deal between AT&T and Tele-Communications Inc. could
be worth more than $20 billion. It could be announced
as soon as today, the official said.
AT&T is seeking to acquire only Tele-Communications
cable properties, not its programming unit, said a
person close to Tele-Communications.
A merger would be the biggest sign yet that trying to
deliver high-speed access to the Internet and other
advanced services is one of the strongest imperatives
in today's business world.
In recent years, the Internet has emerged as a new sort
of media that could rival radio and television in its
impact on the nation's economy and culture. The
technological bottleneck that has kept cyberspace from
becoming a true mass media has been the difficulty in
transmitting large amounts of digital data to everyday
homes.
Average consumers gain access to the Internet at speeds
a mere fraction of those available to people in modern
offices. That has kept the process of linking to
cyberspace a relatively awkward procedure in some ways
akin to using a ham radio.
But by acquiring Tele-Communications, which serves 14.4
million homes, AT&T would gain direct access to homes
and apartments for the first time since the company
spun off its local telephone operations in 1984.
Although new telecommunications carriers boast more
advanced networks, AT&T retains a vast capacity to
transmit information of all sorts from coast to coast
at lightning-quick speeds.
By merging with Tele-Communications, which is known as
TCI, and gaining its many wires into homes, AT&T would
acquire an ability to bypass its ornery progeny, the
Baby Bell local phone companies. That could allow AT&T
to create an end-to-end network that would allow the
company to deliver not only Internet data but also
everyday phone calls.
The technology to transmit phone calls over cable
television networks is not fully mature. The technical
obstacles to creating such a system on a mass basis
would be formidable. But many technology experts
believe that allowing people to talk through their
television system is a goal well within the reach of
companies with the financial muscle of AT&T.
With their control of the copper wires that stretch
into most every home and apartment, the Bells have
appeared to have an advantage in some ways over
long-distance companies like AT&T and the MCI
Communications Corporation.
The Telecommunications Act of 1996 cleared the way for
the Bells to enter the long-distance market once they
convinced regulators that they had opened their local
networks to potential competitors. Likewise,
long-distance telephone companies won the right to
compete in local markets.
The Bells have not yet won approval to offer
long-distance service, but were they to gain the
go-ahead, they could be expected to win large chunks of
the long-distance market away from traditional
long-distance carriers by buying long-distance capacity
in bulk and reselling it at a profit.
Long-distance companies like AT&T, however, would face
the huge cost of building elements of local networks on
their own. Indeed, AT&T agreed in January to acquire
Teleport Commmunications Group Inc., a competitive
local phone company, for $11.3 billion in a bid to
jump-start that effort.
Financial details of the Tele-Communications agreement
were unclear last night. Speculation about a possible
alliance between AT&T and a major cable company has
been rife in the industry for months and caused cable
stocks to rise sharply yesterday.
Tele-Communications rose $3, to $38.6875; Cablevision
Systems rose $7.25, to $62;, Media One Group Inc.
gained $2.125, to a record of $41.25; Cox
Communications increased $1.75, to $46.25, Comcast was
up $2.375 to a record $39.75.
The cable industry has been spending billions of
dollars to upgrade its lines to offer more options at
faster speeds. TCI in particular has been busy
upgrading the capacity and speed of its cable systems.
Its TCI Ventures subsidiary has been testing Internet
services as well as digital wireless telephone
services, known as personal communications services,
through ventures with Comcast, Cox Communications and
Sprint.
The telephone and cable television industries have been
locked in a battle over which sector would be first to
provide high-speed Internet access to consumers.
In many respects TCI is responsible for the evolution
of the nation's cable system into what it is today. The
company traces its roots to 1956, when Bob Magness, a
Texas Panhandle rancher, sold some cattle to build his
first cable TV system. Nine years later Mr. Magness
moved the company to Denver to serve small towns in the
Rocky Mountains and hired John Malone, a 32-year-old
executive at General Instrument, to help him expand.
It grew into a company with more than $7.5 billion in
annual sales.
Copyright 1998 The New York Times Company |
