AT&T May Sell Internet-Access Lines
To AtHome for $1 Billion in Stock
By KARA SWISHER and REBECCA BLUMENSTEIN
Staff Reporters of THE WALL STREET JOURNAL
AT&T Corp. is considering selling its Internet-access business to
AtHome Corp., including its WorldNet consumer dial-up service,
in an attempt to improve its competitive position against America
Online Inc., people familiar with the situation said.
Under terms of the deal being discussed, these people said, AT&T
would still have control over WorldNet via another, far larger deal
it is now completing.
In a potential deal for WorldNet,
AtHome would pay $1 billion in stock to
the long-distance leader to take over the service. AtHome, a
Redwood City, Calif., high-speed access service that just agreed to
buy Excite Inc., would take over WorldNet's 1.3 million residential
customers and nearly one million business customers. WorldNet
had acquired the business customers from its recent $5 billion
acquisition of International Business Machines Corp.'s global
network.
But the people familiar with the negotiations cautioned that any
deal was contingent on a much larger deal pending for AT&T, its
$40.9 billion acquisition of cable giant Tele-Communications Inc.,
expected to close in mid-February. Any deal for WorldNet, one of
a number of options being considered by AT&T, isn't expected to
be finalized until the TCI acquisition is complete, they said.
Such a deal would leave AT&T with substantial influence over the
WorldNet service, because TCI is a controlling shareholder in
AtHome. But shifting WorldNet to an independent company
could help AT&T to get an Internet-style valuation for that
business while removing WorldNet expenses from its financial
statements.
AT&T would continue to operate the communications network
used by WorldNet and would jointly market it with AtHome,
these people said.
Role of Excite
Excite, a popular Internet search and directory service, would
provide information services and other programming to the
former WorldNet customers, assuming its purchase by AtHome is
completed.
Representatives for AtHome and AT&T declined to comment on
the matter.
The talks are the latest in a whirlwind round of deal making by
major companies with Internet interests, which are trying to boost
their audiences and stake out valuable turf ahead of rivals. People
familiar with the matter said the possibility of acquiring WorldNet
was an important consideration in AtHome's deal for Excite,
valued at $6.7 billion when first announced.
AtHome, specializing in delivering Internet access over cable TV
lines using special modems, now has only 330,000 customers. It
could immediately boost its total customer base by acquiring
WorldNet, and later persuade customers to upgrade its
cable-based service.
For AT&T, such a transaction could reduce its involvement in the
consumer-access business, a field that has proved less lucrative
than many telephone companies expected, while advancing its
other Internet goals. Though WorldNet is the No. 2 online
service, it lags well behind AOL, which has 15 million customers.
AT&T Chairman C. Michael Armstrong, noting that AT&T was
late to embrace the Internet, has signaled the company needs to
take more aggressive action. One of the strategies being
considered is placing all of AT&T's online-service interests in
AtHome, a publicly traded company that enjoys the high
valuations being accorded Internet concerns.
High Degree of Control
The deal with AtHome, as envisioned, would leave AT&T with a
high degree of control. When it acquires TCI, AT&T will assume
TCI's 58% share in voting stock of AtHome. Currently, TCI holds
roughly 28% of AtHome's common shares, though if warrants
and options outstanding of employees are exercised, AT&T could
see that fall to about 21%. Both the voting and economic interest
could be diluted further by the deal to buy Excite, people familiar
with the situation said. But it is expected that after the TCI deal,
AT&T will continue to have voting control of AtHome.
AT&T, which held preliminary talks with AOL last year about
buying that company, views TCI's cable assets and AtHome as
giving the telecommunications company an inside track in the race
to expand high-speed online access to consumers.
Mr. Armstrong was consulted about the purchase of Excite
throughout the negotiations, people familiar with the matter said.
Indeed, AT&T is a party in the voting agreement that TCI signed
to broker the Excite deal.
In a statement on the day the deal was announced, Mr. Armstrong
said, "On its own and when integrated with the broad range of
AT&T communications services, the AtHome and Excite
combination will provide the consumer with a compelling
interactive experience."
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