AT&T DEAL HANGOVER In Aftermath, Both Companies Furiously Spinning>

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One week after the bombshell announcement, the AT&T-TCIspin machine may be helping the seller more than the buyer.

Tele-Communications Inc.'s share price -- which is nowtied to AT&T Corp.'s because AT&T plans to buy TCI with AT&T stock --ticked up $1 last Wednesday, even as AT&T slipped back to $56.75 per share, down 13percent from where it closed the day before the merger was announced.

Both stocks fell in early trading last Thursday, butAT&T was down more than TCI was.

Those results came after days of furious jawboning bysenior executives at both companies, including lengthy conference calls with reporters andanalysts and face-to-face meetings with key shareholders. Those communications efforts areexpected to keep building over the next several weeks.

AT&T chairman C. Michael Armstrong declared during onecall two days after the June 24 announcement of the deal that he had "no buyer'sremorse." That's a good thing, since AT&T agreed to pay a $1.75 billionbreakup fee to TCI if the deal collapses.

AT&T and TCI were so confident that their deal wassound that there were no provisions for renegotiating terms based on rising or fallingshare prices, AT&T chief financial officer Dan Somers said.

"All of the parties committed to take this and createwhat we have talked about creating," Somers added.

TCI president and chief operating officer Leo J. HinderyJr. said on the same call that he expects the new AT&T Consumer Services Co. to craftan AT&T-branded, bundled offering that will have widespread appeal to other cableoperators, without forcing AT&T to buy them all out to gain the nationwide coveragethat it wants.

A series of equity transactions, Hindery said, "issimply not where our heads are right now."

Somers expounded at length on the bottom-line benefits fromreduced churn (worth $200 million in yearly revenue to the long-distance business alone)and from higher penetration for cable and long-distance services ($1 billion per year incombined revenue) after the services are bundled.

And both companies sought to downplay the potentialcapital-expenditure costs that apparently spooked many AT&T investors.

"There are the wildest of cap-ex numbers runningaround," Armstrong said.

But by the time David Nagel, AT&T's chieftechnology officer and president of AT&T Labs, got on the phone with reporters lastWednesday, the numbers still looked pretty big.

Nagel said AT&T plans to pick up on TCI's plans tospend $1.8 billion over the 1998-through-2000 period for two-way upgrades and bandwidthexpansion to 750 megahertz in metro markets and to 550 MHz in outlying areas. TCI willpick up an estimated $500 million of those costs in the time that elapses before theAT&T/TCI merger closes, which is targeted for early next year, he said. That leavesAT&T with a $1.3 billion tab.

On top of that, AT&T plans to spend an additional $1.8billion between 1999 and 2002 on what it calls "maintenance," which includesline extensions and network management, executives said during the call.

"It equates to about $35 per year for each videocustomer, or about $350 million annually for four years," Nagel said.

AT&T will also pick up a per-unit cost of $175 foradvanced digital set-tops, executives said. That's including per-box subsidies thatcome from TCI's arrangements with BankAmerica and Intuit Corp., forged earlier thisyear, which subtract about $50 per box. Totaled, that's another $1.8 billion on afully deployed basis to all of TCI's 10.5 million subscribers, executives said.

Adding together network upgrades, maintenance and digitalset-tops, AT&T's cost load weighs in at about $4.9 billion, not includingIP-phone gear.

To get itself into local telephony via Internet protocol,which Nagel called "the best ultimate solution," AT&T is earmarking anadditional $400 to $500 for non-TCI customers and between $300 and $400 for existing TCIcustomers.

IP phone "requires a couple of further upgrades,"Nagel said. He cited the creation of advanced-digital set-tops with built-in cable modemsthat support packet telephony as one of those "further upgrades."

At 30 percent penetration, that's another $1.26billion, using the $400-per-household price.

The grand total: $6.16 billion.

Meanwhile, at the CTAM marketing conference in Chicago lastweek, amid continued basking in the deal's affirmation of the broadband pipe, somecable executives -- including ones from companies that merged with or drew investment fromtelcos -- wondered aloud about potential problems as AT&T's and TCI'scultures collide.

Others were a bit incredulous that AT&T would riskattaching its brand to TCI's cable service, given the current state of TCI'splant.

Even before the deal closes, TCI regional officials mayfind themselves renewing acquaintances with old friends: representatives of theCommunications Workers of America and International Brotherhood of Electrical Workersunions. Those unions have had trouble cracking TCI shops in the past, but organizers mayget a psychological lift from the ties to currently union-friendly AT&T.

One CTAM attendee reported hearing from a TCI regionalexecutive that a CWA representative came calling the day after the merger was announced,but a CWA spokeswoman could not confirm any renewed organizing moves.

CWA spokeswoman Candice Johnson said the union'srecently negotiated four-year agreement with AT&T would not carry automatic bargainingrights with TCI. But she added that it was quite possible that local organizers would tryto revive long-stalled talks with TCI.

"To the degree that TCI would be in a company withmuch more enlightened labor-relation philosophies, that would be a huge plus," shesaid.

Linda Haugsted contributed to this report.

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