AT&T entering new era with ties to cable, Internet
Copyright © 1999 Nando Media
Copyright © 1999 Reuters News Service
By JESSICA HALL
NEW YORK (February 14, 1999 1:41 p.m. EST nandotimes.com) - AT&T Corp., the once stodgy company with a lackluster stock, has reinvented itself with a series of bold acquisitions and alliances, emerging with a strong presence in the fast-growing cable and Internet fields and a rising stock price.
AT&T has seen more changes in the past 16 months - since its new Chairman C. Michael Armstrong took the reins - than it had seen since its break-up and creation of the Baby Bells in 1984, analysts said.
"There's been monumental change. Basically what he's (Armstrong) done is take a company that was heading in the wrong direction, with no vision and a bloated
cost structure and turned it into a growth story," said Guy Truicko, portfolio manager at Unity Management, based in Lake Success, N.Y.
Under Armstrong, AT&T cut 18,000 jobs, trimmed expenses, agreed to acquire cable television giant Tele-Communications Inc. and purchased a local phone company and a wireless company and IBM Corp.'s global network.
The company also forged separate joint ventures with No. 1 U.S. cable company Time Warner Inc. and British Telecommunications Plc., and formed several marketing alliances with Internet companies such as Yahoo! Inc., Excite Inc. and Lycos Inc.
Armstrong also changed the culture of AT&T, putting a stop to the high-spending days of chauffeur-driven cars. Now, expenses are tightly controlled and bonuses are tied to executives' performances.
"The rule book that AT&T played by for so many years no longer works. The AT&T of today looks nothing like the AT&T of yesterday," said Jeffrey Kagan, an independent telecommunications analyst.
AT&T has come a long way since the dark days of April 1997, when its stock languished in the low $30s - its lowest level in four years - due to dismal quarterly profits, stagnant revenues in its core long distance business and management uncertainty.
The stock is up 187 percent since then, compared to a 63 percent increase in the Standard & Poor's 500 index and a 38 percent gain in the Dow Jones industrials
average.
AT&T's stock traded at $85.375 on Friday, down $2.81 for the day, and down from its 52-week high of $96.125 earlier this month.
"It's trading at a blended multiple ... blending phone and cable and the future of the Internet," said James Walline, vice president of equities and mutual funds at Lutheran Brotherhood.
"Before it had a lethargic growth rate - in its share price and earnings - now people see them as a company with a whole new energy," Walline said.
Next week, AT&T shareholders will vote on the proposed $48 billion purchase of TCI, a deal seen as Armstrong's most pivotal and daring move. The deal is expected to close shortly after the shareholder vote and it receives Federal Communications Commission approval.
While shares of AT&T fell immediately after the deal was announced on fears it would dampen the company's profits, the stock rebounded after investors began to
understand the benefits of AT&T's new association with the cable and Internet businesses.
"Starting from the time of the TCI announcement, there was the beginning of a shift in the shareholder base. It's gone from being an old-line company with widows
and orphans owning the shares, to a growth, momentum stock with momentum-seeking investors," Truicko said.
With the TCI deal, AT&T, the No. 1 U.S. long distance company, will re-enter the local phone business and provide service over TCI's cable television wires.
Using the cable network, AT&T can bypass the Baby Bells' phone lines, and the costly access charges, to reach customers.
Through the TCI acquisition, AT&T also will become the largest shareholder in At Home Corp., a fast-growing, high-speed Internet access service.
Armstrong recently told analysts and reporters to expect a further relationship between AT&T and At Home. Analysts expect AT&T to sell its Internet assets to At Home in exchange for an even greater stake in At Home.
At Home and Time Warner's Internet business, RoadRunner, might even merge, analysts said. That deal would create a stronger, national high-speed Internet company and make AT&T one of the main shareholders and allow it to benefit from the high-priced levels at which Internet stocks typically trade.
During discussion about the AT&T-Time Warner joint venture, AT&T, TCI and Time Warner discussed merging At Home and RoadRunner, but the discussions
broke down after the companies could not agree on a price, a source familiar with the situation said.
In addition to AT&T's acquisitions and joint venture, it also made moves to revive its stale long distance business by implementing new pricing plans and offering packages of services.
"They've added new pricing plans to get new growth volume.
"The old business will be a faster growth area. You blend that with the data, cable and Internet businesses, and it does augur for future growth," Walline said.
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