Hope we get to utilize Time Warner as a partner moving forward.
2/1/99
AT&T, Time Warner in Joint Venture for Phone Service (Update3)
AT&T, Time Warner in Joint Venture for Phone Service (Update3) (Adds company comments in 5th paragraph. Updates share activity.)
New York, Feb. 1 (Bloomberg) -- AT&T Corp., the largest U.S. long-distance phone company, said it formed a joint venture with No. 1 cable provider Time Warner Inc. to offer local telephone services over Time Warner's cable network in 33 states.
AT&T will own 77.5 percent of the venture and pay Time Warner about $300 million for exclusive rights to offer phone services on its network. In three years the venture is expected to have $4 billion in sales and earn a profit, the companies said.
The joint venture follows AT&T's agreement last July to buy No. 2 cable provider Tele-Communications Inc. for $61.6 billion to break into the residential local phone market. The Time Warner agreement will allow AT&T to reach to more than 40 percent of U.S. homes, up from about 33 percent with TCI and its affiliates, when the purchase is completed. ''The cable strategy is one where you need coverage,'' said Daniel Zito, an analyst at Legg Mason Wood Walker Inc., who rates AT&T ''outperform.'' ''This is a move in the right direction.''
AT&T and Time Warner said the venture will begin offering service in one or two cities by year's end. The venture will cause a ''very minimum'' dilution to AT&T's earnings, Chairman and Chief Executive C. Michael Armstrong, said on a conference call.
AT&T shares rose 1 7/8 to 92 5/8 in midmorning trading. Time Warner rose 1 3/16 to 63 11/16.
Exclusive Rights
New York-based AT&T expects to enter more joint ventures to give it access to 60 percent of homes to compete nationwide against local phone companies. Armstrong had expected to reach agreements with as many as two cable companies by the end of last year. ''Time Warner is very important strategically,'' said Robert Wilkes, an analyst at Brown Brothers Harriman & Co. ''This gets the two biggest cable companies on board.''
The joint venture gives AT&T exclusive rights to sell phone services over Time Warner's network for 20 years. AT&T said it will pay Time Warner $15 for each home reached by the network, or about $300 million. AT&T will also pay Time Warner $1.50 a month, increasing to $6 over six years, for each subscriber who signs up for the service.
Time Warner's network reaches 20 million homes, with 12.6 million customers currently subscribing to the company's cable-TV services. The cable company will cover expenses of getting its network ready for phone services.
The company expects about 85 percent of the upgrade to be completed by the end of this year and the remainder by the end of 2000.
TCI President Leo Hindery will oversee the venture after AT&T's purchase of TCI is complete, expected later this quarter. AT&T and Time Warner said they expect to complete the joint venture agreement in the second half of 1999.
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