AT&T to offer phone service over Time Warner TV wires
February 2, 1999
NEW YORK (Reuters) - Reuters: AT&T Corp. ,
the nation's largest telecommunications
company, and media group Time Warner
Inc. said Monday they formed a joint
venture to offer local phone service over
Time Warner's cable television wires in 33
states, giving AT&T greater reach to
compete against the Baby Bell local
phone companies.
Separately, AT&T said it will sell its
prepaid telephone calling cards in
Wal-Mart and Sam's Clubs stores, tripling
the number of retail outlets carrying the
cards since this time last year. AT&T
expects to distribute more than $100
million worth of cards through these
stores over the next 12 months.
The AT&T-Time Warner 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 Tele-Communications
Inc. , the nation's second-largest cable
company behind Time Warner.
AT&T aims to provide local phone service
over the cable companies' networks
instead of using traditional copper phone
lines. Since the break-up of AT&T and
the creation of the Baby Bell local phone
companies in 1984, AT&T lost control of
the local telephone lines that connect
directly into customers homes and
businesses.
Using cable TV wires to provide phone
service, AT&T can bypass the Baby Bell's
phone lines, and the costly access
charges, to reach customers. The Time
Warner and TCI deals will allow AT&T to
reach more than 40 percent of U.S.
households.
AT&T said it aims to complete by mid- to
late-Spring additional deals with other
cable companies to help it reach
two-thirds of the nation.
AT&T declined to discuss the other
potential cable partnerships or
acquisitions, but analysts speculated that
likely candidates included MediaOne Group
Inc. , Comcast Corp. and Cablevision
Systems Corp. and Cox Communications
Inc .
The AT&T-Time Warner 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.
In many markets, the joint venture's local
phone service will save customers up to
25 percent compared with the cost of
service from the incumbent Baby Bells,
AT&T Chairman C. Michael Armstrong said
at a news conference.
The two companies expect to offer the
service in one or two cities by the end of
1999 and to begin broader commercial
operations in the year 2000.
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. AT&T said the joint
venture will minimally hurt its earnings, if
at all.
The venture will have exclusive rights to
offer residential and small-business
telephony services over Time Warner's
cable systems for 20 years, something
that may spark intense regulatory
scrutiny, analysts said.
''The exclusivity of this deal is a
question. Will regulators allow it to
happen? Should other companies be
allowed to use those connections into the
home?...It will probably get a close look,''
said Brian Adamik, a telecommunications
analyst with the Yankee Group.
Under terms of the deal, AT&T will pay
$15 to Time Warner for each home its
network reaches, or 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 the incumbent local telephone
companies for leasing the wires to
people's homes.
Time Warner, meanwhile, 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 2000. AT&T will be
responsible for the joint venture's capital
expenditures and the cost of adding the
communications equipment to people's
homes.
AT&T's move into local phone service is
part of its plan to offer all types of
communication services, including local,
long distance, international and wireless
phone service. AT&T last year agreed to
forge an international joint venture with
British Telecommunications Plc. BT on
Monday confirmed it was considering
linking its mobile telephone unit, Cellnet,
with AT&T's wireless phone operations.
Shares of AT&T closed up $2.8125 at
$93.5621 a share. Time Warner lost 12.5
cents to end at $62.375. Both trade on
the New York Stock Exchange.
REUTERS@
[Copyright 1999, Reuters]
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