News

AT&T Still Eyeing Cable Deals

2/01/1998 7:00 PM Eastern

Last Monday's AT&T Corp. analyst meeting came and
went with no big cable deals announced, but senior MSO executives insisted that talks are
ongoing about possible Internet and telephony projects involving operators and AT&T.

AT&T chairman Michael Armstrong has already pulled the
trigger on AT&T's purchase of Teleport Communications Group, which is mostly
owned by Tele-Communications Inc., Comcast Corp. and Cox Communications Inc. That deal,
signed just a couple of weeks before AT&T's long-planned analyst meeting, set
back talks between AT&T and TCI-controlled At Home Corp., parent company of
high-speed-data service @Home Network, one person involved in the talks said.

There were indications last week that AT&T was probably
talking with Time Warner Cable and U S West Media Group, as well as with At Home,
investors in which also include Comcast, Cox and Cablevision Systems Corp. 'I have
always assumed [that AT&T executives] were talking with all of the major cable online
players, and that they would make them the same offer,' Bear Stearns & Co.
telephone analyst William Deatherage said.

Armstrong did have several positive things to say about the
cable industry at last week's gathering of financial analysts in New York. Analysts
and an AT&T spokesman related the fact that he considered cable an increasingly viable
broadband option to tap consumer markets. And Armstrong said he was encouraged by cable
upgrades.

Deatherage thinks that cable deals are still in the works,
and that the question is not 'if,' but 'when' and 'how.'
Armstrong 'has talked favorably about the opportunities between AT&T and the
cable industry continually for the last month to six weeks,' the analyst said.

'Not only does he want to build the scale of his
Internet business as a strategic priority, but he still lacks an entry path to consumer
local services, which is also a strategic imperative, given the fact that he has about $25
billion in consumer long-distance revenue to protect. I think that it's a matter of
deciding how to structure a deal that's win-win,' Deatherage said.

One financial analyst, describing his reaction to the lack
of specific AT&T and TCI news last Monday, said, 'The silence was
deafening,' after receiving tips and rumors on the subject for the last two months.

But executives close to the talks, who described themselves
as being under 'a serious gag order,' said last week that AT&T's
negotiations with TCI are not endangered -- just slowed by routine processes.

What still remains shrouded are the specific contexts of
the two deals long rumored to be in the works between the long-distance giant and TCI.
Analysts are still expecting some sort of arrangement between AT&T and @Home, which is
controlled by TCI, as well as a deal between the two companies that will give AT&T a
telephony foothold in the local loop via TCI's cable drops.

The @Home deal may take the form of an investment or
AT&T fusing its WorldNet Internet service with @Home's network. The latter option
raises questions about the value of having two national high-speed backbones, which
'could be one reason why this didn't happen sooner,' said one industry
executive, who requested anonymity.

Another analyst also speculated that AT&T may be
conducting similar negotiations with the merging Road Runner/MediaOne Express service.

Here's what Armstrong did announce last Monday:

• A rollout of AT&T WorldNet Voice, which enables
Internet-protocol phone calls.

• A $1.6 billion cost-cutting target that means the
elimination of up to 18,000 jobs, a salary freeze and a management reshuffle

• A turbo-charge of its existing 40,000 miles of SONET
(synchronous optical network) plant by installing 80-wavelength 'dense-wave-division
multiplexors,' made by Lucent Technologies Inc. That move will let AT&T become
the first carrier to test and deploy a system that can carry more than 3 million calls on
a single SONET fiber, according to company officials.

• The addition of 20 more fiber rings to its existing
coast-to-coast network of 32 fiber rings; seven more high-capacity, 4ESS switches to its
existing web of 136 switches; and 200 more 'edge switches' for
data-communications traffic.