Two articles of general interest:
From today's IBD:
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Writing a check out to AT&T Corp. will never be the same.
With AT&T's purchase of cable giant Tele-Communications Inc., the long-distance company's customers won't be paying just the phone bill anymore. AT&T plans to sell bundles of voice, Internet, video and wireless services. If the plan works, consumers will be sending AT&T bigger checks down the road.
Combined, TCI and AT&T should do better than ever, says Leo Hindery, chief executive of AT&T's broadband and Internet services. But that doesn't mean the new AT&T will rush out new services, Hindery told analysts at a Merrill Lynch & Co. conference in mid-March.
''It's essential that we build our way thoughtfully into a family's (disposable) income,'' said Hindery, who had been TCI's president. ''Digital cable will be a springboard for other services.''
AT&T and TCI completed their merger March 9, after regulators gave the $48 billion deal the green light. TCI ended 1998 with nearly 11 million customers. Its cable wiring passes about 18 million homes.
With $53.2 billion in sales and a strong brand, AT&T plans to flex its marketing muscle using TCI's cable wiring. A revamped Ma Bell can count on more sources of revenue than ever. TCI's 5.3% sales growth last year outstripped AT&T's anemic 3%.
But it isn't a given that the new AT&T will be so strong it will roll over the competition.
The regional Bells, for one, will try to stick it to their former parent. In 2000, these carriers should start selling long-distance calls and begin chipping away at AT&T's 60% share of the consumer long-distance market.
And the Baby Bells still are miffed over what they say was the Federal Communications Commission's easy approval of the AT&T-TCI merger.
''The commission rubber-stamped - with seemingly little review - the AT&T-TCI merger, creating the largest imaginable company in their respective markets,'' said Roy Neel, president of the Baby Bell-led United States Telephone Association.
Regulators say, though, the AT&T-TCI deal is a rare chance to jump-start competition in local phone markets. Most Bell rivals target businesses, not residential customers.
AT&T has the incentive to go after consumers. It has the most market share to lose once the Bells get regulators' approval to sell long-distance calls.
''(Customer) retention is a key goal for AT&T, especially highly valued consumers,'' said Linda Meltzer, analyst at Warburg Dillon Read Inc. ''AT&T may roll out a super bundled product in the market before the Bells get in.''
AT&T's dream customer will buy more TV channels, high-speed Internet access and cell phone service. To woo them, AT&T will offer discounts on local and long-distance phone calls.
''We'll offer a choice in local service at prices 20% to 30% less than what the (Baby Bells) charge,'' said AT&T's Hindery. He says the consumers most likely to buy local phone service from AT&T already will have digital set-top boxes in their living rooms.
In 1998, TCI spent $1.8 billion to upgrade its network, a mix of fiber-optic and coaxial wiring. By converting its system to digital signals from analog, TCI can offer more video channels, pay-per-view and music programming. It also was able to charge higher monthly fees from consumers.
By the end of this year, AT&T hopes to double the 939,000 digital subscriber base TCI had last year. AT&T says it can sign up 2.8 million to 3 million digital subscribers in 2000. The pace is not out of the question, considering TCI had 35,000 subscribers in 1997.
At the same time, AT&T plans to sell Internet access over cable wiring. By purchasing TCI, AT&T acquired a majority stake in AtHome Corp., which sells high-speed Internet access via cable modems. TCI had signed 29,000 customers for AtHome's service in 1998. By year end, it expects that number to climb to 175,000.
Hindery says AT&T has marketing plans beyond AtHome's high-end services, which cost consumers $40 monthly. He says AT&T will sell lower-priced Internet access over cable lines to consumers. They may want Internet access for TVs, not PCs.
When analysts add up how AT&T can market new services to TCI's customer base, the numbers look good.
''Digital video, high- speed data and other services will grow at a faster rate than AT&T's long-distance revenues,'' said Cynthia Brumfield, editor of the Broadband Intelligence newsletter in Bethesda, Md. ''The deal was compelling to bypass the Bells' local networks, but also to pick up nifty high-growth businesses.''
AT&T sold regulators on the merger, though, by promising to butt heads with the Bells. To do that, it needs to deliver local phone service over cable lines.
AT&T is paying hefty upfront fees to its cable partners. They also will collect a monthly fee per phone subscriber.
AT&T's goal is to reach at least half the nation's homes through cable lines. It is trying to forge pacts with Cox Communications Inc., Media One Group Inc. and Philadelphia-based Comcast Corp. Media One and Comcast this week announced a plan to merge.
To pressure the Bells, the FCC may let AT&T make more cable-related purchases.
AT&T expects to sign up 30% of subscribers with access to upgraded cable lines within five years, Hindery says. Analysts don't expect its local phone business to turn profitable until 2004. It will spend at least $250 to $350 per home to add phone service. AT&T is testing phone service over cable wiring in Fremont, Calif.
In early 2000, AT&T says it will start rolling out local phone service on a wide scale to TCI subscribers. Analysts are unsure what technology AT&T will use early on, but its long- range plans center on Internet-type phone switches.
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And, from today's LATimes:
latimes.com
Thursday, March 25, 1999
COMPANY TOWN
Deal to Buy MediaOne Crowns Comcast Chief's Climb to the Top
By SALLIE HOFMEISTER, Times Staff Writer
Brian Roberts, the 39-year-old president of Comcast Corp., who orchestrated this week's $47-billion takeover bid for MediaOne Group, was weaned on the cable frontier.
As a teenager, Roberts punched customers' pay booklets, sold cable subscriptions door-to-door during the summers and tagged along with his father, Ralph, who founded Comcast in the early 1960s and built the industry alongside cable news maverick Ted Turner, Tele-Communications Inc.'s John Malone and Time Warner Inc. Chairman Gerald Levin.
While the image of Brian as Ralph's kid has lingered long after his rise to president of Comcast in 1990, a series of bold initiatives is finally bringing Roberts the leadership recognition sources say he covets. He is moving into the spotlight as the cable industry confronts the most profound technological changes since Levin beamed Home Box Office into American homes via satellite in the early 1970s.
"Brian has pushed Comcast ahead of the industry in new technologies and is the right leader for cable's new generation," said Christopher Dixon, an analyst at PaineWebber Inc. "The young management team he has put together could position Comcast to assume the role passed along by John Malone."
Malone, a role model whom Roberts reverently calls "one of the great American capitalists of the 20th century," has set the industry's agenda for the last decade as chief of TCI, which was sold to AT&T this month for $44 billion.
A hint of Roberts' ambitions surfaced in 1997, when together with partner Microsoft Corp., he initiated a secret bid for control of TCI by trying to buy a block of shares from heirs of its late founder, Robert Magness. The move angered Malone, who ultimately retained control but felt Roberts should have been more above-board in his approach.
For Roberts, the MediaOne transaction, if approved by shareholders and regulators, would catapult Comcast into the top cable tier, with AT&T and Time Warner. The three would control about half the nation's 70 million cable subscriptions.
Size is critical for cable companies eager to lower their costs and offer a bundle of telecommunications services as they go toe-to-toe with satellite television providers and phone companies in a digital revolution that promises improved TV pictures, more viewing choices, high-speed connections to the Internet and phone service, all from one provider.
The bid for MediaOne caps an acquisition spree over the last year that would more than double Comcast's customer base and bring its market value to roughly $90 billion--above Walt Disney Co.'s and equal in size to Time Warner, the world's largest entertainment conglomerate.
Comcast's buying blitz was underwritten by a rally in cable stocks that traces to a dinner meeting between Roberts and Bill Gates two years ago. Their conversation led to a $1-billion investment by Microsoft in Comcast that affirmed cable as the preferred pathway into the home for information delivery.
The stock rally that followed made the younger Roberts something of an industry hero and set the stage for cable to become the favorite playground for Silicon Valley and AT&T.
"You have to give Brian credit for the growth of the company," said Marc Nathanson, chairman of Los Angeles cable company Falcon Communications. "They are sound operators and have an unusual corporate culture where the new guard is calling the shots but the old guard is still active as mentors. Brian is the exception of the second-generation in cable--competitive, but never cocky, arrogant, egotistical or pretentious, and always respectful. The stars have not gone to his head."
Indeed, those who are close to Comcast credit the company's rise to the collaborative culture that stems from a deeply respectful relationship between father and son.
"I'm on a lot of boards, but have never seen such a wonderfully talented and collegial management team," said Anne Wexler, a Washington lobbyist who has been a Comcast director since 1990.
Brian was the only one of the five children of Ralph, now 79, and Suzanne Roberts, an actress in regional theater, to show an interest in the family business. Brian begged his father to hire him after graduating from the University of Pennsylvania and the Wharton School, where he was also a champion squash player.
"He was single-minded," said Ralph, the company's gregarious and courtly chairman who often takes 20 minutes to make his way to his office in the Philadelphia headquarters each morning as he greets even the security guards by name. "I said, 'Gee Brian, you really should go out and work for someone else for a few years.' Brian said, 'I think you are rejecting me,' and it turned me over. He started at the bottom, climbing poles and installing cable."
Brian says his father's light touch has allowed their relationship to flourish. "I haven't had a bad idea in 20 years according to my father," said Brian, who sources say nevertheless is driven by his father's approval. "Lots of kids follow parents into the business but it doesn't work out--the parents hold on too tight or don't allow the young person to make the mistakes they need to."
Steve Burke says the homey atmosphere factored into his decision to resign from Disney as head of the television station group last year to join Comcast as president of the cable group.
"Comcast feels like Capital Cities to me," said Burke, whose father, Daniel, formed the legendary partnership with Thomas Murphy that built Capital Cities/ABC, the broadcasting giant now owned by Disney. "Both companies were built by decentralization, a strong point of view about right and wrong, minimal bureaucracy and a simplified decision-making process. Comcast still has no public relations department."
Burke describes Brian as shy, energetic, intellectually curious and self-critical and credits Ralph with encouraging his son to recruit his own team to take the company to the next level.
"They have a top-quality team throughout the company, the best margins in the cable industry, the most consistent cash flow besides Time Warner, and double-digit growth," said Merrill Lynch's Jessica Reif Cohen.
Yet some industry executives question whether Comcast can manage its fast growth while integrating MediaOne, a top-heavy spinoff of regional phone company US West Communications Inc. More than half of MediaOne's assets are in non-cable operations and many are international wireless properties that are now up for sale.
The pricey MediaOne transaction stands out as one of the most aggressive moves by the otherwise cost-conscious company. Sources in the cable industry say Roberts has lost out on several opportunities over the last two years because of his fear of striking a bad deal and a tendency to push too hard at the bargaining table.
The company was outmaneuvered in the bidding for the TV Food Network and the Travel Channel in a quest by Comcast to build its cable programming assets, which include the QVC shopping channel, the Golf Channel, a regional sports channel and E! Entertainment Television.
Comcast has mixed success with its Hollywood ventures. Roberts had a tumultuous brush in the mid-'90s with Barry Diller, who was hired by QVC's owners to build the home shopping empire and tried to use it to take over CBS. Comcast quickly bought control of QVC to squelch the bid, which would have forced Comcast to divest QVC due to cable-broadcasting cross-ownership bans.
Roberts also backed an ill-fated programming partnership in C3, which was terminated last year because of diverging interests of the two Hollywood executives who were partners.
* * *
Brian Roberts
* Age: 39
* Education: University of Pennsylvania, Wharton School of Finance
* Family: Married, 3 children
* Interests: U.S. squash team that took silver medals at the 1981, 1985 and 1997 Maccabiah Games in Israel.
* Career: Started as a cable installer at Comcast in 1982; worked through the ranks for eight years as a regional and local cable manager of systems in Trenton, N.J., and Flint, Mich.; corporate executive vice president before becoming president, at age 30, in 1990.
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