Sifting through the leaves on a Saturday morning:
Good source on the latest in DSL:
americasnetwork.com
NN website for Networld +InterOp presentations:
newbridge.com
From Monday's IBD, at article on AT&T. I found the last sentence curious considering LU's announcement re: financing WinStar.
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Will A Revamped AT&T Hit Sales-Growth Target?
Date: 10/26/98
Author: Reinhardt Krause
Amid a big shake-up engineered by Chairman C. Michael Armstrong, AT&T Corp. is striving to reach sales-growth goals this year and next.
The nation's largest phone company is expected to show progress when reporting third- quarter earnings Monday. And it had better. AT&T has said it wants '98 sales to rise 2% to 4% over '97 - about double last year's anemic 1.6%. It had '97 sales of $51.3 billion.
Its rivals, including the regional Bells, are boosting sales much faster, with growth rates usually in the double digits. In the first half of '98, AT&T's sales rose less than 1% vs. the year-ago period.
AT&T is expected to report Monday that sales of data services to businesses are rising. Analysts also will be watching two other key areas: its struggling consumer long-distance business and wireless sales.
''We're still skeptical about what to expect from AT&T in terms of growth,'' said Ophelia Barsketis, portfolio manager at Stein Roe & Farnham in Chicago. Stein Roe once was a big AT&T stockholder, but isn't now.
''Some of what Mr. Armstrong is doing is huge risk/reward situations,'' Barsketis said. ''He's done a lot of long-term strategic planning, but the base needs to produce some decent sustainable growth, and we're not seeing that yet.''
Indeed, after a spate of cost cuts and deals this year, AT&T is a work in progress. Armstrong left Hughes Electronics Corp. to join AT&T as chairman and chief executive in November '97. Among Armstrong's many moves: He's buying cable leader Tele-Communications Inc.
''We see them (AT&T) on track,'' said Peter Kennedy, an analyst at Morgan Stanley Dean Witter Inc. ''There should be stabilization in consumer long-distance, a pickup in ales to) business, and wireless should stay strong.''
Cost-cutting that includes 18,000 layoffs is boosting earnings. Excluding one-time charges, second-quarter profit rose 60% vs. the year-ago quarter, to 91 cents a share.
AT&T is expected to earn 96 cents a share for the third quarter. That's the consensus of 26 analysts polled by Zacks Investment Research Inc. That would be 39% more than the 69 cents it reported in the year-ago quarter.
But Armstrong still must revive AT&T's core businesses, or his honeymoon may not last. The company is aiming for 4% to 8% revenue growth in '99, analysts say.
''AT&T's biggest hurdle is that it's so big,'' said Jeffrey Kagan, president of Kagan Telecom Associates Inc. in Atlanta. ''Armstrong is doing what they hired him for - shaking things up. But the results have yet to be seen.''
At least one analyst, however, does see results.
''Sales growth for the year should be 3% to 4%,'' said Eric Strumingher, analyst at Paine Webber Inc. ''The real pickup is in business ales).''
Teleport Communications Group Inc. will help boost AT&T's business sales, say analysts. AT&T says it will take a third-quarter charge of $217 million, or $137 million after taxes, for its $11 billion acquisition of Teleport in July.
The $48 billion TCI purchase is still in progress.
AT&T shares fell about 14% after it revealed the TCI deal, but they've since regained two-thirds of that loss.
Buying TCI could open the door for AT&T in local phone markets, making it easier to compete with the Bells.
TCI and its affiliates reach about 33 million homes and have about 11 million customers. But upgrading TCI's cable wiring to offer phone service is a long-term project, AT&T concedes. The tab could be more than $5 billion.
But with TCI, AT&T could offer a package of long-distance, cable TV, Internet access and other types of services to keep high-spending consumers.
Those packages could become vital when AT&T battles the Bells in the long-distance phone market, analysts say. The Bells plan to enter long- distance, but regulators won't grant approval until there's more local phone competition. Some Bells are expected to start offering long-distance service next year.
That's a challenge for AT&T. About 45% of its sales come from long-distance service to homes. It's still No.1, but AT&T has steadily lost share in that market since its '84 breakup.
Among consumers, its market share has fallen to 62.2% from 67.5% a year ago, says market researcher Yankee Group in Boston.
But analysts say some of the lost business won't hurt. About 15% of AT&T's 80 million home customers spend little on long-distance calls, analysts say.
''In the ideal, the (consumer) market share they lose is going to be the bad (low-usage) share,'' said Boyd Peterson, a Yankee Group analyst.
Peterson also points out that AT&T's real growth will come from the newer, more dynamic markets of wireless and data services.
AT&T has high hopes for its wireless unit, a bright spot in the first half of the year. The unit has added about 520,000 cell-phone subscribers in the first half and now has about 8.75 million.
''We're expecting AT&T to beat our estimate for 300,000 new subscribers in the third quarter,'' said Kennedy at Morgan Stanley.
One of AT&T's weapons has been a new flat-rate national pricing strategy. It rolled out the aggressive ''Digital One'' rate plan in May.
And there's much more on AT&T's plate. In October, AT&T said it will buy Vanguard Cellular Systems Inc. for $1.5 billion, including debt. The deal would give AT&T about 625,00 East Coast customers.
In July, it announced a merging of global operations with British Telecommunications PLC. On Friday, AT&T said it will realign some of its cell- phone properties with BellSouth Corp.
And it may buy other firms. Possible targets include McLeodUSA Inc. and WinStar Communications Inc., analysts say.
>>>>>
And another from the same issue, this time on BT and AT&T's Concert alliance. NN is providing AT&T's network management services and BT's ATM backbone, so an optimist could argue a case for bringing both together for Concert. It's also interesting to note that both companies are actively pursuing start-ups to fund. Siemens also launched a VC arm just a few months ago. Once again Terry Matthews was way ahead of the game.
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Partners AT&T, British Telecom Prepare Venture
Date: 10/26/98
Author: Reinhardt Krause
AT&T Corp. wasn't British Telecommunications PLC's first choice for a strategic U.S. partner. But AT&T may turn out to be a better fit than what British Telecom had planned.
British Telecom and AT&T announced a joint venture merging their global operations in July. The deal is awaiting a green light from regulators. It follows British Telecom's thwarted plan to acquire MCI Communications Corp., now part of MCI WorldCom Inc., in late '96.
The jointly owned British Telecom- AT&T venture will focus on Concert Communications Services. Concert was formerly a joint venture between MCI and British Telecom. It's projected to have $10 billion in sales in '00. The two phone giants expect operating profits to grow 15% to 20% a year.
AT&T and British Telecom plan to develop a new Internet-type network that provides voice and data services. The venture has yet to name a chief executive. But Alfred Mockett, president of British Telecom's global operations, is active in the two companies' planning. He spoke with IBD recently about the merger.
IBD:
How is your alliance with AT&T progressing?
Mockett:
We're on schedule to make all the requisite regulatory filings by the end of October. We anticipate it will take about 12 months from then to secure the necessary clearances. We have fully staffed transition teams in place and operational. We've just signed an agreement for AT&T to act as a distributor of Concert services in the U.S.
IBD:
AT&T and British Telecom plan to create a $1 billion fund for investment in U.S. high-tech companies. What types of firms are you eyeing?
Mockett:
We're looking at typical Silicon Valley start-ups that have systems-development capability. Our particular interests would be mobility, data services, fixed-mobile integration and multimedia. We'll be making equity investments to take advantage of the intellectual property that will be developed.
IBD:
British Telecom has agreed not to make U.S. acquisitions as part of the AT&T pact. Was that a smart long-term strategy?
Mockett:
Clearly, given the significant contribution from both parents to the global venture, it would be highly inappropriate for either to compete against the venture. So you wouldn't find BT investing in a CLEC (competitive local exchange carrier) or a long-distance operator. Our approach in the U.S. is to invest where we can alongside AT&T, probably allowing them to take the lead.
IBD:
In August, MCI sold off its 24.9% equity stake in Concert to British Telecom for $1 billion. Will Concert be profitable this year?
Mockett:
Concert will get to break-even, which is a far cry from some of the (money-losing) competition.
IBD:
British Telecom recently spent more than $825 million to acquire stakes in phone companies in Malaysia and South Korea. Do you plan further investments?
Mockett:
We've actually spent more than $1 billion in Asia-Pacific investments over the last three months. The opportunities in Asia-Pacific represent much better value for the money than those in the U.S., where they're being measured in terms of huge multiples of revenue and earnings.
IBD:
When do you think China will open up its telecom market to direct foreign investment?
Mockett:
The market still is closed with regard to network-owner-operated service providers, and we have to play a slightly longer game there. We've had an office there for a few years. We recently signed a memorandum of understanding with China Telecom in terms of closer cooperation. You can't look at China as a contiguous market. Basically there are five regions, with five provinces in each. That's 25 individual opportunities the size of Korea.
IBD:
Japanese carriers have taken their time forming global alliances. Are they potential partners of AT&T and British Telecom?
Mockett:
We have a keen interest in Japan. It is a market that's liberalizing and consolidating at a far faster pace than we could have imagined. They seized the initiative with the (World Trade Organization) accord to open up the market.
We're talking to all the players. The approach of most of them has been nonalignment. Sooner or later, some of them are going to have to get off the fence.
IBD:
MCI WorldCom plans to triple the size of its fiber-optic network in Europe in '99. How do you view it as a rival?
Mockett:
The investment program of our joint ventures in Europe is $15 billion. BT's share of that is $5 billion. . . . We already have 25,000 kilometers of fiber in the ground. By the end of '98, we'll have 32,000. Those are the yardsticks to measure the aspirations of others.
IBD:
There have been substantial price drops in international long- distance rates. Are British Telecom's profits going to be affected by that trend in the future?
Mockett:
We've operated in one of the most fiercely competitive marketplaces in the world for over a decade. There are over 200 licensed operators trying to eat our lunch. The key here is to make sure you keep reductions in your cost base ahead of reductions in market prices. We've been successful doing that. Some would say we wrote the playbook on defending a market.
IBD:
In the United Kingdom, British Telecom has introduced controversial pricing for Internet access called Click+. It's a per-minute, pay-as-you-go model that charges a penny more than a local phone call. Will that pricing help jump-start Europe's lagging Internet market?
Mockett:
The (Internet access) market in Europe is underpenetrated, but country by country there are different reasons. The Click+ pricing model can be as effective in growing the Internet market as prepaid mobile was in unlocking the untapped potential of the (cellular) market. It's a different commercial model for an Internet service provider and one the market wanted.
>>>>>
Effects of BCTEL-Tellus Merger:
newsalert.com
As the combined companies fight for market share, equipment and service providers like NN will be called upon to offer differentiators. Guns and bullets, indeed. "Lay on Macduff and damn'd be him who first cries, 'Hold, enough!'"
[Incidentally, the article says, "Another prospective partner for phone companies is local telephone carrier MetroNet Communications Corp. , which this year expanded its fiber network," which bodes well for XYLN.]
FCC approves SBC's merger with SNET:
newsalert.com
Interesting comments by Jean Monty on Nortel's possibly funding other acquisitions:
newsalert.com
But having slipped below the "psychological barrier" of 50 percent ownership in Nortel following its recent $9.1 billion merger with Bay Networks , a California-based networking equipment company, Monty admitted that BCE's holding in Nortel could decline further over time.
That would happen mainly if suburban Toronto-based Nortel, now known by its new brand name Nortel Networks, itself needed to fund another merger or acquisition.
A thought-provoking article, to be sure.
Okay, that's it for now.
Later --
Pat |
