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To: Alf who wrote (1166)	6/24/1998 6:39:00 PM
From: Alf	Respond to of 6180

Posted at 2:19 p.m. PDT Wednesday, June 24, 1998 AT&T agrees to buy TCI for $31.7 billion Associated Press NEW YORK -- AT&T Corp. is buying cable television giant Tele-Communications Inc. for $31.7 billion in a bold step that would give the long-distance company access to millions of homes to offer local telephone service and high-speed Internet access. The transaction would allow AT&T to reach TCI's more than 13 million cable customers across the United States and make good on AT&T chairman Michael Armstrong's promise to beef up the company's weak spots and branch out into new telecommunications businesses. Getting access to TCI's cable customers would be a major step toward that goal. Eventually, it could give AT&T the ability to offer local phone service through TCI's existing cable hook-ups to customers' homes. ''Today we're beginning to answer a big part of the question about how we will provide local service to U.S. consumers,'' Armstrong said in announcing the deal today. The agreement would combine the nation's biggest telecommunications company and one of the biggest cable companies. It would be the third-richest ever in the telecommunications industry after SBC Communications Inc.'s planned $60.1 billion purchase of rival Baby Bell Ameritech Corp. and WorldCom Inc.'s planned $37 billion purchase of MCI Communications Inc. AT&T is paying $46.68 a share for TCI's more commonly traded series A stock. That represents a 20 percent premium over TCI's closing price of $38.69 on Tuesday on the Nasdaq Stock Market. AT&T's stock fell $5.19 per share today to $60.19 on the New York Stock Exchange this afternoon. TCI rose $1.06 to $39.75. Based on today's closing prices, AT&T is paying $29.2 billion in stock for TCI's cable operations and $2.5 billion in cash for AtHome Corp., a provider of high-speed Internet access that is part of TCI's Liberty Media Group programming arm. Additionally, AT&T said it would assume responsibility for $10 billion in TCI debt. Under the deal, which must be approved by stockholders and government regulators, Liberty would continue to be operated independently and run by TCI chief executive John C. Malone. Despite a 1996 federal law intended to open up local phone markets to new competition, AT&T and other long-distance companies largely have sat on the sidelines. AT&T has scrapped a series of strategies for breaking into local phone service and has said the regional phone monopolies were charging too much for leasing local lines for it to make a profit. A TCI deal is ''exactly what AT&T has needed to burst into the local market,'' said Jeffrey Kagan, an independent telecommunications consultant based in Atlanta. ''AT&T would have the ability to offer a bundle they were never able to offer before.'' AT&T made a move toward entering the local phone services market in January by buying Teleport Communications Group for $11.3 billion. Teleport, which is partly owned by a group of cable companies, provides local phone services to business. TCI had previously been eyed by a big telephone company when Bell Atlantic proposed buying it in 1993 for $26 billion. At the time the deal was ballyhooed as marking the convergence of telecommunications and entertainment, but the deal fell apart and cable and telephones appeared headed their separate ways. AT&T is gambling that TCI's upgrades of its network to handle digital services will enable it to provide more sophisticated services to households, including Internet access. TCI has spent $500 million this year alone so far to update its equipment to handle two-way transmissions by 2000. With AT&T's deep pockets, TCI hopes to finish the upgrade up to 20 percent faster, Malone said. AT&T itself has a rocky history with regulators; government criticism led it to abandon merger talks last year with SBC Communications Inc., a Baby Bell. But Federal Communications Commission chairman William Kennard today signaled this deal would have an easier time. ''If AT&T and TCI make a strong commitment to bring residential consumers more choice in local telephone and high-speed Internet access services, then this proposed merger is eminently thinkable,'' Kennard said in a statement. Armstrong emphasized the new deal will create competition in local markets instead of reducing it. He expects regulators to approve its TCI purchase within 9 months. ''We don't anticipate this will be a rough road,'' Armstrong said in a teleconference with analysts this morning. Under the agreement, AT&T would own TCI's cable businesses while maintaining an alliance with Liberty Media Group, which includes stakes in some of America's most popular cable networks, including Discovery, Black Entertainment Television and Fox/Liberty Networks. The deal ultimately would result in AT&T having three ''tracking stocks,'' which are stocks issued to follow the performance of a particular division at a company, but have no direct claim on the company's profits. One new ''tracking stock'' would be for Liberty Media. AT&T also would issue new stock to cover its newly acquired cable TV business unit and its consumer phone business. A third would cover AT&T's business customers. AT&T also would control TCI's stake in AtHome Corp., a leading provider of high-speed Internet access whose investors also include Cox Communications Inc. and Comcast Corp.