MEDIAONE KEY IN AT&T, TIME WARNER DEAL
November 2, 1998
Electronic Media via NewsEdge Corporation :
AT&T Corp. may be intensifying its
negotiations with Time Warner to provide
high-speed telephony services to its 12
million subscribers, but the cable giant's
partner, MediaOne, may hold the deciding
vote on any deal.
While Time Warner and AT&T wrangle over
their shared revenues, investments and
equity interests in a telephony venture,
sources are asking what the companies will
have to offer MediaOne for its pivotal
support.
MediaOne, whose former corporate parent
was regional telephone player US West, has
a 25 percent stake in Time Warner
Entertainment, a subsidiary that holds 10
million of Time Warner's cable subscribers.
But, Time Warner and MediaOne have equal
votes in determining key business matters.
''We've looked at doing telephony alone and
other ways. If we can realize the full value of
our upgraded systems in a telephony deal
with AT&T, we'll do one,'' said one high-level
Time Warner source.
MediaOne declined comment on the fluid
talks, but sources at the company said they
did not want Time Warner to take the ''path
of least resistance.''
Time Warner Chairman and CEO Gerald Levin
heightened speculation about a broad-
ranged telephony deal recently when he
publicly acknowledged that the complex
discussions with AT&T are in high gear and
an agreement ''is near.''
The stumbling block is economics: how much
AT&T will invest in a venture of its branded
telephony services and the percentage of
revenues.
Time Warner is considered the linchpin in
AT&T's aggressive effort to sign all major
cable operators for telephony services.
Sources say AT&T also is far along in its
telephony negotiations with Comcast Corp.
and with smaller TCI affiliates like Lenfest
Communications and Bensnan
Communications.
A symbiotic deal
A telephony arrangement is as strategically
important to AT&T as it is to Time Warner. It
is one of the few competitive situations to
arise in which each has something critical the
other needs, and from which everyone can
profit. AT &T has the branded telephony that
cannot be developed by cable operators,
whose upgraded digital systems can be
turned into money-printing machines offering
high-speed data, video and telephone
services.
TCI's 12 million cable subscribers give AT&T
only one-third of the U.S. households where
lucrative telephony, high-speed data and
digital video businesses services will
mushroom as cable transforms its analog into
a digital platform over the next year. Only 11
percent of TCI's plant has been sufficiently
upgraded, and many systems are in rural
locations.
Tom Wolzien, analyst at Sanford C.
Bernstein, estimates telephony services can
generate $500 million in annual pretax profits
for Time Warner in five years.
More than one-third of all U.S. homes are
expected to get their telephone service
through cable within 10 years. The AT&T
brand will attract twice as many local phone
service customers for cable operators, he
said.
Digital telephony
''At the heart of the AT&T -TCI merger is
Internet Protocol telephony-digital phone
service over cable,'' Mr. Wolzien said, ''a
key element that will permit AT&T to protect
its long-distance service by bundling it with
local service.''
For AT&T, offering telephone services to
TCI's cable base could generate a $2 billion
windfall, offsetting 10 percent of TCI's
purchase price, he said.
Other analysts estimate cable operators
could see 15 percent margins from telephony
services within the first five years and add
17 percent to cable valuations as early as
next year.
Cable's high-speed connections will provide
more immediate, clear digital connections to
the Internet for e-mail and other Web-based
services.
That is why others, such as America Online is
in discussions with Time Warner about
providing faster service than is currently
provided through conventional telephone
lines and personal computers. (Story, Page
3.)
Analysts say Time Warner's talks with AT&T
and AOL are just the tip of the iceberg where
sweeping and lucrative broadband deals are
concerned, deals that will fuse, cable,
telephone and Internet companies. |
