AT&T and Time Warner Form Strategic Relationship to Offer Cable Telephony
PR Newswire - February 01, 1999 07:25
NEW YORK, Feb. 1 /PRNewswire/ -- AT&T (NYSE: T) and Time Warner (NYSE: TWX) today announced the formation of a significant strategic relationship that will include a joint venture to offer AT&T-branded cable telephony service to residential and small business customers over Time Warner's existing cable television systems in 33 states. The two companies expect to pilot the service in one or two cities by the end of 1999 and to begin broader commercial operations in the year 2000. The two companies also agreed to jointly market communications services and to develop other broadband communications services, such as video telephony.
AT&T Chairman and Chief Executive Officer C. Michael Armstrong said, "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.
"Together with our merger with Tele-Communications, Inc. (TCI) and agreements with five TCI affiliates, the Time Warner joint venture will enable AT&T to reach more than 40 percent of U.S. households over the next four to five years. In addition, we look forward to working with Time Warner in the delivery of next-generation broadband communications services."
Time Warner Chairman and Chief Executive Officer Gerald M. Levin said: "Our strategic relationship with AT&T reflects the shared awareness that fiber-optic cable networks are the surest, quickest route to the digital future. Together, along with using this platform to bring real competition to local phone markets, we have exciting opportunities for cross-marketing and cross-promoting our companies' respective programming and communications services.
"The partnering of Time Warner and AT&T -- the world's leading media and entertainment company with the world leader in telecommunications services -- is a competitive milestone in bringing the benefits of broadband technology to America's homes and businesses. For Time Warner, it's one major component of our strategy for deriving the maximum return on the multi-year investment we're making in our cable systems. With 85 percent of our cable plant expected to be upgraded by the end of this year, our cable rebuild is already delivering significant dividends, allowing us to offer the enhanced services that consumers are so eager for. These include digital television, high-speed data via the Internet, and with today's transaction, local telephone service."
The joint venture's services will be priced competitively and will feature multiple phone lines per household, along with timesaving features such as conference calling, call waiting, call forwarding, and individual message centers for family members.
Under the terms of the agreement, AT&T will own 77.5 percent of the joint venture and Time Warner will own 22.5 percent. AT&T will fund the joint venture's negative cash flow. However, it expects the joint venture to have positive cash flow and net earnings after three full years of operation. AT&T also expects the joint venture to have annual revenues of $4 billion in the same time period.
The joint venture will acquire exclusive rights to offer residential and small business telephony services over Time Warner's cable systems for 20 years. In return, the joint venture will make a payment of $15 to Time Warner per home passed as systems are upgraded. The payment, which will be made in two annual installments, is expected to total about $300 million.
In addition, the joint venture will pay a monthly fee of $1.50 per telephony subscriber, scaling up to $6 per month over a six-year period, with guaranteed minimum penetration levels. AT&T estimates that even in the later years of the agreement, the monthly fee is far below the best rate offered by incumbent local telephone companies for leasing the wires between their switching centers and people's homes. In addition, the cable dedicated to communications can support multiple lines into each home.
AT&T President John D. Zeglis, who heads the company's Consumer Services unit, said: "We plan to give consumers in Time Warner cable territories more than a choice in local service -- as important as that is. We're going to combine the information carrying capacity of cable with our own networking expertise to give families an easy-to-use suite of 'any distance' communications services. We'll give them individual lines for different family members and flexible call-handling features such as conferencing, call forwarding, and personal messaging services."
The AT&T and Time Warner joint venture will report to Leo Hindery, Jr., president of TCI, who will head AT&T's cable service operations once the AT&T-TCI merger is complete.
Hindery said: "Time Warner brings more than households to our joint venture -- even though they pass 20 million of them. They also bring a vision of how we can use broadband media as a platform to improve communications services in the communities we serve. We share that vision and I look forward to working with Time Warner management and their dedicated employees across the country in making it a reality."
Time Warner Inc. President Richard D. Parsons said: "On every level, cable customers are the winners in this combination. In addition to our existing cable systems' capacity to provide high-speed Internet delivery, cable programming and digital services, this venture will provide customers with telephony services through the same architecture. Going forward, the working partnership of Time Warner and AT&T in developing and deploying broadband communications also ensures that our customers will be among the first to enjoy new digital services, such as video telephony."
The joint venture's communications services will be offered to the 20 million homes passed by Time Warner's cable systems, whether or not they are currently Time Warner cable customers. Time Warner owns and manages cable systems serving 12.6 million customers, with 80 percent of its customers in systems of 100,000 subscribers or more. Time Warner's cable systems serve many of the country's largest metropolitan areas, including parts of New York City, and Tampa, Houston, Orlando and Raleigh Durham.
Time Warner Cable will remain responsible for upgrading its cable systems to support two-way communications. 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, and, as customers sign up for the service, the cost of adding communications equipment to cable nodes and in people's homes. AT&T estimates those latter costs will eventually range from $300 to $500 per home, depending on whether or not the customer already subscribes to Time Warner's video service.
In addition to their joint venture, AT&T and Time Warner plan to establish several market "laboratories" in 1999 to develop and test a range of broadband communications services such as video telephony. The companies will work with each other in the development and deployment of these applications.
The companies said they expect to finalize their agreement within 90 days and to close the joint venture in the second half of 1999. They noted that the transaction is subject to certain conditions, including definitive documentation and various approvals.
AT&T (NYSE: T) (http://www.att.com) is the world's premier provider of voice and data communications, with more than 80 million customers, including businesses, government and consumers. AT&T runs the world's largest, most powerful long-distance network and the largest wireless network in North America. The company is a leading supplier of data and Internet services for businesses and the nation's largest direct Internet service provider to consumers. AT&T also provides local telephone service to a growing number of businesses.
Time Warner Inc. (NYSE: TWX) (http://www.timewarner.com), the world's leading media company, consists of four businesses: cable networks, publishing, entertainment and cable.
The foregoing contains "forward looking statements" which are based on management's beliefs as well as on a number of assumptions concerning future events made by and information currently available to management. Readers are cautioned not to put undue reliance on such forward looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside AT&T and Time Warner's control, that could cause actual results to differ materially from such statements. For a more detailed description of the factors that could cause such a difference, please see AT&T's and Time Warner's filings with the Securities and Exchange Commission. AT&T and Time Warner disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
SOURCE AT&T
/NOTE TO EDITOR: NEW YORK NEWS CONFERENCE -- AT&T and Time Warner will
discuss these announcements in a news conference at noon (US EST) today at
AT&T's world headquarters at 32 Avenue of the Americas in New York City. AT&T
Chairman and CEO C. Michael Armstrong and Time Warner Chairman and CEO Gerald
M. Levin will make remarks and take questions. Reporters who cannot attend
can participate by calling in prior to noon at 1-800-260-0712 in the United
States or 612-288-0318 elsewhere. No access code is required. Trouble
number: 1-800-932-1100 for U.S.; 612-334-6983 elsewhere. A replay of the
news conference will be available beginning at 6 p.m. EDT today at
1-800-248-7600 in the U.S. and 1-402-493-8905 elsewhere. The replay will be
available until 6 p.m. Thursday, Feb. 4.
SATELLITE COORDINATES -- A satellite feed of the noon EDT news conference
in New York is available at the following coordinates: Ku band satellite,
Telstar 5, transponder K19. Downlink polarity, vertical; downlink frequency,
12053 Mhz; satellite location, 97 degrees./
/CONTACT: Adele Ambrose, office, 908-221-6900, or pager, 888-602-5420, or
Eileen Connolly, office, 908-221-6731, or pager, 888-602-5417, both of AT&T;
or Edward Adler of Time Warner Inc., office, 212-484-6630/
/Web site: timewarner.com
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