According to several analysts who follow AT&T Corp.
regularly, reaching the deal to merge with Tele-Communications Inc. was the easy part:
Making it work is another thing.
The task in front of both companies is monumental. AT&T
must rebuild a large portion of TCI's cable infrastructure, spending upward of $12
billion to upgrade the network to at least 750-megahertz two-way capabilities.
The company also has to forge telephony-interconnection
deals with other cable companies -- like its recent deal with Time Warner Inc. -- to
ensure that it can offer local telephone service to a large enough segment of the
And then there's marketing the new services, deploying
the new services and integrating the corporate infrastructure, to name a few other
And although the question may be which task the new
AT&T should tackle first, most analysts had a simple answer: everything.
"I think that they've got to do things in
parallel," said David Yedwab, vice president of Eastern Management Group, a
Parsippany, N.J.-based telecommunications-research company. "They can't start
providing local telephony until the systems are upgraded, and to increase the potential
coverage area, they've got to do deals with other cable companies."
But that isn't as easy as it seems, given that the
Time Warner Cable agreement -- largely thought to be the blueprint for other deals with
cable providers -- received a lukewarm reception from many MSOs.
So far, AT&T has signed on several TCI affiliates to
telephony agreements, but the largest MSOs have yet to join the fold -- most notably
MediaOne Group Inc., Comcast Corp. and Cox Communications Inc., which are reportedly in
negotiations with AT&T.
Brian Adamik, an analyst for Boston-based The Yankee Group,
said integration is going to be the key for the success of the merger.
He added that the first step -- shuffling the top
management -- has already been done.
Earlier this month, AT&T rearranged its management
structure, most notably making Leo J. Hindery Jr., currently president and chief operating
officer of TCI, report directly to AT&T chairman C. Michael Armstrong. In the previous
structure, Hindery was to report to AT&T president John Zeglis.
"I think that was appropriate," Adamik said.
"The challenge that all of these major mergers face is getting all of the employees
on the same page."
He added that what should motivate AT&T even more is
the fact that this deal is essential to its competitive survival.
Adamik added that since the Baby Bells will be in the
long-distance business -- AT&T's core business -- soon anyway, the alternative is
to lease the Bells' networks for local service, which is something that AT&T
simply cannot do.
But one thing that Adamik wasn't so sure about is how
cable-television services will fit into the AT&T mix.
"I still don't know how interested AT&T is in
the video business," he said. "At the end of the day, do they want to be in the
video business, or the high-speed Internet business?"
While the corporate answer most likely would be,
"both," Adamik added that he would not be surprised if AT&T eventually
decided to shed or spin off the cable-television portion of the business.
"It's so complicated, what they're doing.
But I don't think that the major driver was to get into the video business," he
said, adding that the impetus of the deal was to gain access to a broadband pipe directly
into customers' homes.