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AT&T Files First Report Since Swallowing Up TCI

8/01/1999 8:00 PM Eastern

In its first full quarter since closing its $43 billion
acquisition of Tele-Communications Inc., AT&T Corp.'s net income rose by about 8
percent to $1.59 billion, or 49 cents per share, mainly because of costs associated with
the merger.

As a whole, AT&T reported revenue of $15.9 billion --
an increase of 6.7 percent compared to the $14.8 billion for the second quarter of 1998.
Without the TCI transaction or its acquisition of IBM Corp.'s Global Networks
business, operational earnings would have been 75 cents per share, up 38.9 percent.

On a pro forma basis, AT&T Broadband and Internet
Services -- excluding all closed cable partnerships and Excite@Home -- had second quarter
revenues of $1.4 billion, an increase of 7.6 percent, compared to $1.319 billion for the
year-ago quarter.

According to the company, AT&T BIS ended the quarter
with 11.3 million customers -- a 1.2 percent increase -- and passed 19.3 million homes.
The company added that it has about 1.4 million digital-cable customers and 83,000
subscribers to its high-speed Internet service AT&T@Home.

Cash flow at the cable operation was down 27.9 percent to
$316 million, from $438 million a year ago. AT&T attributed the decline in cash flow
to increased costs associated with new service launches, an increase in Year 2000 and
merger-integration costs, and an increase in stock compensation expense related to the
company's increased stock price during the quarter.

In a conference call with analysts, AT&T Broadband
president Leo J. Hindery Jr. said that 1999 cash flow growth at the cable unit should be
in the mid-single-digit range, down from the previously expected mid-to-high single-digit
range.

That downgrade is due primarily to a roughly 10 percent
increase in the division's workforce, as well as rebranding efforts and efforts to
comply with NCTA standards for customer service.

Although cash flow increases will not meet earlier
expectations, AT&T Broadband's telephony efforts continue to be a surprise, the
company said.

Hindery added that in its Freemont, Calif., telephony pilot
-- which has roughly 1,000 paying customers -- the take rate is around 18 percent to 20
percent after "fairly rudimentary marketing practices." The company also plans
to expand the test to Chicago and eight additional markets this year.

Hindery added that digital subscribers are on track to
reach 1.8 million by the end of the year and that Excite@Home subscribers should rise to
between 175,000 to 200,000 by year-end. The homes passed for the data service should
increase to 5 million households, compared to 3 million households currently, in the same
time frame.

AT&T spent about $730 million in the quarter for
capital expenditures and said 71 percent of its cable plant was at least 450 megahertz,
with 49 percent in the 500 MHz to 860 MHz range.

About 38 percent of plant was two-way capable at the end of
the quarter.

Hindery said the company was on track to have 81 percent of
its plant upgraded by the end of the year; 51 percent will have two-way capability.

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