Mr Fun:
Re: T reach.
From Dow Jones today: (see bold)
May 5, 1999
AT&T Pushing Cable To Become Broader Part Of Telecom Indus
By JOELLE TESSLER
Dow Jones Newswires
NEW YORK -- AT&T Corp.'s (T) planned acquisition of MediaOne Group Inc. (UMG), coming close on the heels of its purchase of Tele-Communications Inc., is unlikely to produce much additional competition for video services providers in most local cable markets.
But AT&T's aggressive push into the cable business - with these two deals as well as planned agreements that would give the long distance giant access to cable lines of Time Warner Inc. (TWX) and Comcast Corp. (CMCSA) - will have a major impact on the cable industry overall.
As cable wires are increasingly used to deliver local and long distance phone service as well as high-speed Internet access, AT&T's move into the cable business is likely to increase competition significantly in both of these markets.
'This is changing the definition of the cable industry,' said Forrester Research analyst Tom Rhinelander. 'It's not just TV anymore...The traditional cable industry will become part of the overall telecommunications industry.'
In order of priority, AT&T's goals in entering the cable business are to provide phone services, then Internet access, and then the video services that most subscribers associate with cable right now, Rhinelander said.
The company's hope, said Deutsche Bank Securities analyst Douglas Shapiro, is to bundle all of these services together and sell them to consumers in one package. This strategy is both a defensive one since it would reduce customer churn in AT&T's core long-distance business, as well as an offensive one since it would position AT&T to sell new products such as local phone service, Shapiro noted.
As a result, Rhinerlander said, AT&T will significantly alter the competitive landscape for both regional Bell operating companies, which provide local telephone services, and Internet service providers.
Indeed, Shapiro noted, AT&T is targeting a 35% penetration in the local phone market within six years.
Shapiro stressed, however, that AT&T's cable initiatives are unlikely to result in much new competition in the video services market since there is very limited geographical overlap among cable companies. That's because it isn't economically feasible for cable companies to invest in necessary network infrastructure in markets in which there is already significant competition.
If anything, Shapiro said, video services delivered over cable wires could become more attractive than digital broadcasting services (which are delivered via satellite and are the primary competition facing most cable companies today) if they are bundled with other telecommunications products.
With the TCI and MediaOne acquisitions, AT&T would become a major player in the cable industry.
According to Geoffrey Sands, a partner in Booze Allen & Hamilton's media and entertainment practice, TCI has roughly 10.5 million subscribers of its own and access to as many as 33 million through marketing agreements. And MediaOne has roughly another 8 million, Sands said, adding that there are about 70 million cable subscribers in the country.
Deutsche Bank's Shapiro believes AT&T's entry into the cable business is likely to have a number of benefits for other cable operators since the long-distance giant will bring its tremendous clout, financial resources and lobbying power to the industry.
For instance, he said, AT&T is likely to spend heavily on technology development, which could bring down equipment costs for the entire industry.
Forrester's Rhinelander added that AT&T's presence will raise the profile of the overall industry on Wall Street, which will make it easier for cable companies to get access to the capital they need to upgrade their systems.
"With AT&T, there will be a real powerful engine pulling the train along," Shapiro said.
Rhinelander believes AT&T's corporate management style is also likely to represent real change in an industry that was traditionally dominated by insular, family-owned companies.
For one thing, he noted, the long-distance giant brings its focus on customer care to a business with a reputation of poor service. After all, Rhinelander pointed out, while cable companies have enjoyed largely monopolistic positions until now, AT&T will have to provide quality service if it wants to sell bundled services to customers who have alternatives for local phone service and Internet access.
Rhinelander added that AT&T's entry into the cable business is also likely to have implications for telecommunications equipment makers - such as set-top box makers Scientific-Atlanta Inc. (SFA) and General Instrument Corp. (GIC) - since AT&T has traditionally purchased its equipment from companies that supply the phone industry, such as Lucent Technologies Inc. (LU).
Although Deutsche Bank's Shapiro does believe AT&T's purchase of MediaOne could draw regulatory scrutiny, he said "the government will ultimately have to back off because it wants competition in local phone markets and AT&T is its best hope for that."
Forrester's Rhinelander added, however, that the deal could ultimately result in the combination of cable Internet access providers Roadrunner, which is jointly owned by Time Warner and MediaOne, and At Home Corp. (ATHM). AT&T gained a majority ownership position in At Home when it purchased TCI. A merger of those two companies could in turn prompt federal regulators - and public opinion - to force cable operators like AT&T to open their networks up to Internet service providers like America Online Inc. (AOL) and Mindspring Enterprises Inc. (MSPG) within the next two to three years, Rhinelander said.
Looking ahead, Sands of Booz Allen expects to see more cable industry consolidation that will include deals with non-cable players like the Baby Bells and Internet service providers.
After all, he noted, Comcast - which lost out on its bid to acquire MediaOne - and AOL and Microsoft Corp. (MSFT) - which were also said to be interested in the cable company - "still have to make a move." And there are still a number of cable companies that would make attractive targets, such as Cablevision Systems Corp. (CVC) and Cox Communications Inc. (COX), Sands added.
"The trend toward more open competition... leads to more consolidation," he said. |
