News

Will AT&T Deal Save Americast?

7/26/1998 8:00 PM Eastern

AT&T Corp.'s proposed acquisition of
Tele-Communications Inc. may already be yielding unexpected competitive dividends.

Some analysts believe that an AT&T/TCI combination will
spur competition if it compels SBC Communications Inc. to spare Ameritech New Media, a
100,000-subscriber MSO that is rumored to be on the chopping block once the regional Bell
operating company completes its acquisition of Ameritech Corp.

ANM's Americast cable service currently has 76 cable
franchises in three states and systems that pass well over 1 million households.

Its future, however, has been in doubt almost from the
moment when SBC agreed to acquire the company's Chicago-based parent.

Never enamored with cable, SBC chairman Edward Whitacre Jr.
has spent most of the past year jettisoning the company's video holdings.

In addition to closing down an SBC video trial in
Richardson, Texas, one of Whitacre's first acts after acquiring Pacific Bell was to
shutter Pacific Telesis Group's fledgling cable-television operations in San Jose,
Calif.

And although he went ahead with PacTel's wireless
cable launch in the Los Angeles Basin, the MMDS operation is reportedly being shopped to
Prime Cable, which already bought SBC's video operations in Montgomery County, Md.

But the marriage of AT&T and TCI may alter the
RBOC's thinking, some said.

The consensus is that despite its apparent disdain for
cable, SBC needs ANM in order to produce a bundled package of cable, Internet access and
local and long-distance telephone services that will be comparable to what AT&T will
be offering.

That's because as the RBOC consolidates huge chunks of
the nation's local exchange -- it also has a deal pending for Southern New England
Telecommunications Corp. -- it becomes more likely that the battle for a large share of
the local loop may come down to SBC and AT&T, said Mark Plakias, managing director of
Strategic Telemedia, a New York-based consulting outfit.

"SBC should be looking at Ameritech New Media as a
convergence opportunity, and not a cable opportunity," Plakias said. "It's
got the scale now to justify a major investment in a bundled-value proposition. Getting
rid of Ameritech New Media would seen to take them further away from it."

SBC is going to need that "bundled proposition"
in various TCI communities where its local telephone customers will be targeted by
AT&T.

In Michigan, for example, ANM has franchises in 10 TCI
communities, representing some 120,000 households. Those local phone customers could be at
risk if SBC doesn't have service offerings equal to the package that AT&T will
introduce.

In Illinois, Ameritech's video arm has signed
agreements in four TCI venues with about 95,000 homes. TCI, however, will pick up another
91,000 households and 255,000 cable subscribers when it completes its $500 million
acquisition of Jones Intercable Inc.'s systems in the western Chicago suburbs -- a
deal that will boost the MSO's Chicagoland cluster to 1.5 million residents.

Predictably, SBC is being very circumspect in its public
comments about ANM's future.

During a recent appearance before the Senate Judiciary
Committee, Whitacre vowed to take a hard look at ANM's operations, but he stopped
short of promising that the company will survive the takeover.

"We think that it's premature to discuss it,
because we haven't had time to sit down with the Ameritech people and have a look at
their business models," SBC corporate spokesman Larry Solomon said.

Meanwhile, ANM executives continue to parrot the party
line, insisting that the company's marching orders are to continue securing new
franchises.

Behind the scenes, however, concerns about the
company's future were partially alleviated by the AT&T-TCI deal.

"It demonstrates the value of a high-capacity cable
system and affirms the value of bundling and one-stop shopping," a company insider
said.

And with local regulators aware that ANM's future is
in question, concerns about its survival will be "deflected" if the incumbent
cable provider is also changing hands, the insider said.

However, some cable analysts rated the company's
chances of survival as dim, at best, arguing that the notoriously bottom-line-oriented SBC
will not invest capital in pursuing an overbuild strategy.

"They're going to exit [the cable
business]," predicted Denver-based cable analyst Chuck Kersch. "You can't
get into an overbuild situation and make money sharing a market."

Plakias also warned that regulatory considerations
can't be overlooked.

With Congress and the Federal Communications Commission
already painting the AT&T/TCI marriage as pro-competition, SBC faces a "litmus
test" of whether it's prepared to do more "than sit on its consolidated
hands," he added.

Moreover, shutting down ANM might produce a
public-relations nightmare, with SBC being perceived as preferring to consolidate, rather
than to compete.

"The public relations alone could keep Ameritech New
Media afloat," Plakias said. "Unloading it would confirm regulators' worst
fears. SBC may find that it's being held hostage by regulatory expectations."

Bruce Leichtman, media analyst with The Yankee Group, a
Boston-based research outfit, agreed, but he noted that there are more practical reasons
for keeping ANM up and running.

For example, SBC's hopes of invading the $110 billion
long-distance market rest with the FCC, which may take a dim view of anything that
seemingly limits competition in the cable market.

"It's one thing to shut down PacTel's
nascent cable operations," Leichtman said. "It's another to shut down a
100,000-subscriber company. I don't think that the FCC would like that at all."

Meanwhile, if the company does survive, the apparent losers
would seem to be other MSOs in Illinois, Ohio and Michigan that have been overbuilt by
ANM, and that would stand to benefit from its shuttering.

MediaOne, which is competing against ANM in six Detroit
suburbs, believes that reports of the company's impending demise are premature.

"We haven't seen any signs of Ameritech backing
off," said Bill Black, MediaOne's director for public affairs in Michigan.
"And we have no intention of slacking off, because the reality is that competition is
here. If it's not in the form of Ameritech New Media, it will be in the form of
somebody else."

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