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To: SteveG who wrote (3076)	12/9/1997 9:27:00 AM
From: SteveG	Read Replies (1) \| Respond to of 12468

<A> WSJ: AT&T Ends DirecTV Pact; May Join Rivals By Stephanie N. Mehta Staff Reporter of The Wall Street Journal AT&T Corp., signaling a possible new push into the cable-TV business, said it's selling back its equity stake in Hughes Electronics Corp.'s DirecTV Inc. satellite service. The move to end the lackluster marketing venture could free AT&T to pursue much grander alliances with cable-TV companies, which compete fiercely with DirecTV and other satellite TV companies. Cable companies' push to offer fast data transmission over their lines could help AT&T expand in Internet services. And the cable companies have installers and service trucks that could aid AT&T's efforts to install local-phone equipment. Executives of the New York telecommunications giant have been telling people privately that AT&T may seek to invest in one of DirecTV's cable competitors to beef up its Internet and local-phone efforts. The cable company most rumored to be in discussions with AT&T is Tele-Communications Inc., the Denver cable giant. Neither company would comment on such talks. The DirecTV divestiture is surprising since AT&T's new chairman, C. Michael Armstrong, used to run Hughes and had been instrumental in forging the relationship with AT&T. AT&T said the deal had been in the works for months and that its new CEO had to recuse himself from discussions related to the sell-off due to his relationship with Hughes, a unit of General Motors Corp. Mr. Armstrong has declined to give interviews until January, AT&T says. The venture, in which AT&T offered discounts on DirecTV equipment and service to its best customers, wasn't a winner for either company, analysts say. DirecTV had expected AT&T's marketing to boost the satellite service's customer base significantly given AT&T's 90 million long-distance phone customers. However, AT&T lacked the ability to handle direct installations for customers. And unlike local consumer electronics stores, AT&T couldn't let potential subscribers test-drive the satellite service before ordering it for their homes. AT&T said it would sell its 2.5% stake in DirecTV to Hughes for $161.8 million, making a small profit on the $137.5 million it paid in March 1996. AT&T also agreed to give up options to acquire as much as 30% of the satellite company. Most DirecTV customers won't be affected by the move, but some who signed up under the AT&T-DirecTV program may lose some of the perks, such as discounts or coupon books, that the alliance offered at various times. Instead, the two companies have agreed to offer their joint customers a free, preselected pay-per-view movie or event each quarter in 1998. DirecTV has been a consumer-electronics success story, growing to more than three million customers since its introduction in 1994. But Brian Adamik, a telecom analyst with the Yankee Group and a former AT&T executive, estimated that AT&T had only signed up about 50,000 customers during the course of its marketing venture with Hughes. AT&T wouldn't comment on its DirecTV subscriber base other than to say it had been hard for its telemarketers to sell. AT&T faces the more immediate concern of shoring up its core communication services business. The company has been struggling to catch up with Internet leaders such as America Online Inc., WorldCom Inc. and Microsoft Corp. Kinetic Strategies, a research firm in Phoenix, estimates that there will be 110,000 subscribers using the cable companies' high-speed Internet-access services in the U.S. and Canada by the end of the year. An AT&T spokesman declined to comment on any potential investments the company might make in cable operators. But AT&T's Internet rivals are already placing their bets. Microsoft Chairman Bill Gates, for example, is especially bullish on cable. He has directed Microsoft to invest $1 billion in No. 4 cable operator Comcast Corp. and has been reportedly looking at TCI and other cable companies. AT&T could bring engineering expertise and much needed capital to the cable companies, which will need to spend billions to upgrade their networks for highspeed data and phone services. But with many potential suitors, including Microsoft, vying for a piece of the cable industry, "AT&T may need the cable companies more than the cable companies need AT&T," said Michael W. Harris, president of Kinetic Strategies. Buying back AT&T's stake would let DirecTV seek new distribution pacts with telecom carriers, including possibly the Baby Bells. Under its agreement with AT&T, DirecTV was "handcuffed" from pursuing new ventures with other telecommunications companies, a DirecTV spokesman said. DirecTV has had success offering services through Cincinnati Bell Inc., the big local-phone company in Ohio. Unlike AT&T, Cincinnati Bell is able to install and service the DirecTV equipment, helping to make the carrier the top DirecTV distributor in the Cincinnati market, the spokesman said. AT&T has been shedding noncore assets to focus on its communication services business, including its expansion into local-phone services where the Bells and GTE Corp. rule. As part of this effort, AT&T has already announced plans to seek buyers for its Universal credit card and customer-care operations, sales that could bring the company several billion dollars. AT&T also is exploring the sale of its small paging operation and other businesses. "Dow Jones News Service" "Copyright(c) 1997, Dow Jones & Company, Inc."