"AT&T Corp., the nation's largest telecommunications
company, and media giant Time Warner Inc. have
formed a joint venture to offer phone service over Time
Warner's cable television wires in 33 states, the
companies said Monday.
The partnership, widely anticipated since last July, will be
77.5 percent owned by AT&T and 22.5 percent owned by
Time Warner.
The pact follows AT&T's proposed $48 billion agreement
to buy cable television giant Tele-Communications Inc. .
The two deals will allow AT&T to reach more than 40
percent of U.S. households. AT&T aims to provide local
phone service over the cable companies' networks
instead of using traditional copper phone lines.
''Today's announcement with Time Warner will
significantly advance AT&T's ability to offer end-to-end
'any distance' communications services to American
consumers and businesses,'' AT&T Chairman C. Michael
Armstrong said in a prepared statement.
The joint venture will offer multiple phone lines per
household, along with features such as conference
calling, call waiting, call forwarding, and individual
message centers for family members.
The two companies expect to offer the service in pilot
programs in one or two cities by the end of 1999 and to
begin broader commercial operations in the year 2000.
They have also agreed to jointly market communications
services and develop other services, such as video
telephony.
AT&T will fund the joint venture's negative cash flow, but
after three full years of operation the partnership should
have positive cash flow and be making a profit with
annual revenues of $4 billion, the companies said.
The venture will have exclusive rights to offer residential
and small-business telephony services over Time
Warner's cable systems for 20 years. It will pay $15 to
Time Warner for each home its network reaches. The
payment, which will be made in two annual installments,
is expected to total about $300 million.
The venture also will pay a monthly fee of $1.50 per
telephone subscriber, rising to $6 per month over a
six-year period. AT&T said this fee, even at the highest
level, is far below the best rate offered by incumbent
local telephone companies for leasing the wires to
people's homes.
Time Warner will be responsible for upgrading its cable
systems to support phone service. It expects the
upgrade to be 85 percent completed by the end of the
year and finished by the end of the year 2000.
AT&T will be responsible for the joint venture's capital
expenditures, including the cost of powering the system.
AT&T will also pay for the cost of adding the
communications equipment to people's homes, which
will cost $300-$500 per home, depending on whether
the customer already subscribes to Time Warner's video
service.
AT&T is expected to forge similar pacts with Comcast
Corp., Cablevision Systems Corp. and other cable
companies as it tries to provide local phone service to
the entire U.S. using cable telephone lines."
[Reuters 2/1/99] |
