AT&T-TCI: Now Its the Execution


The dust has settled, the shareholders have spoken and thegovernment has given its approval. Now all that is left for AT&T Corp. is to execute.

AT&T cleared the biggest hurdles before its planned $48billion merger with Tele-Communications Inc. last week, when it received shareholderapproval and the blessing of the Federal Communications Commission.

At meetings held last Wednesday in Secaucus, N.J., and inDenver, shareholders of both companies overwhelmingly approved the merger, which willcreate a local and long-distance telephony, cable and high-speed Internet giant the likesof which the world has never seen.

Shareholders also authorized a merger of Liberty MediaGroup and TCI Ventures Group, along with an increase to 2.5 billion and 250 million,respectively, in the number of outstanding Liberty Series A and Series B common shares.

During his remarks, TCI chairman and CEO John Maloneacknowledged that TCI had "a hell of a run."

"[But] it's time to move on," he said."Global communications is evolving very rapidly. New technologies that we wereprivileged to play a role in creating are, I think, driving them. And now, we're going offon a new adventure."

Malone noted that just "four" out of 967franchising authorities had not voted yet to approve the transfer of TCI's local systemsto AT&T.

"[But] those four will not hold up the deal," headded.

In actuality, five local governments hadn't voted on thedeal as of last week: the city and county of Santa Cruz, Calif.; Tacoma, Wash.; and twoChicago suburbs.

Four venues, however, have voted to deny transfers,including Portland and Multnomah counties in Oregon and two small communities in New York.AT&T is suing the Oregon localities, which have demanded that the company open accessto the high-speed @Home Network to competing Internet-service providers.

FCC officials hope that the combination will break thelocal-telephone monopoly and speed deployment of advanced communications technologies toall Americans.

The FCC made two pronouncements that were expected: Theagency said it would require Liberty to comply with program-access rules, but it declinedto impose unbundling requirements on AT&T's broadband Internet-access services.

The commission issued a note of caution on theprogram-access front, saying that it was concerned that Liberty could bypassprogram-access rules by distributing its services over AT&T's "coast-to-coastfiber optic network."

Program-access rules, which compel the sale of verticallyintegrated cable networks, apply only to satellite-delivered programming.

"Such a migration [to fiber] could have substantialimpact on the ability of alternative [programming distributors] to compete in themarketplace," the FCC said in its 77-page order. "If it appears that themovement of programming from satellite to terrestrial delivery is frustrating thepro-competitive purposes of [the program-access rules], we will so notify Congress."

In a related program-access issue, the FCC said it wouldnot interfere with Liberty's "preferred-vendor" agreement with AT&T-TCI,which requires that Liberty receive terms and conditions no less favorable than thosegiven to Liberty's competitors. However, the FCC invited parties that feel that thearrangement is illegal to file complaints.

Since mid-January, FCC officials have made it clear that anunbundling requirement or open-access conditions were inappropriate at this time.

On the Internet-unbundling issue, FCC chairman WilliamKennard said in a prepared statement, "Given the early state of deployment of cable'shigh-speed Internet-access services, it would be imprudent to act now."

America Online Inc. and others had urged the FCC to forceAT&T to sell its high-speed transport and @Home Internet-access provider as separateproducts, allowing subscribers to buy AOL's service without having to first buy @Home's.

Kennard said he was "cautiously optimistic" thatthe merger will result in consumer benefits. He added that the merger won't produce localphone competition without "investment and deployment of resources" by AT&T.

At AT&T, 1.267 billion shares voted in favor of themerger, while 8.9 million voted against it. More than 72 percent of the outstanding sharescast favorable votes -- the highest level ever recorded for a company proposal inAT&T's history.

Meanwhile, during a tightly orchestrated 20-minuteshareholders' meeting at the TCI National Digital Television Center in Denver, 88.6percent of 2.3 billion outstanding shares were voted, with 99 percent of those approvingthe AT&T merger.

Malone -- who was conducting his 27th and final TCIshareholders' meeting -- invoked the memory of Bob Magness, the MSO's deceased founder.

Magness "would have loved this," Malone said."With the run-up of the AT&T stock and the Liberty stock, this transaction, ifyou add up the pieces, is very close to a $100 billion transaction -- which, I think,would even get Bob's attention."

Malone also saluted TCI president and chief operatingofficer Leo J. Hindery Jr.

"Without his boundless energy, I don't believe thatwe'd be where we are today, either as a company or in terms of getting this transactionwith AT&T accomplished."

In an emotional response, Hindery, his voice breaking,expressed his appreciation for his "two years and six days ago" at the helm ofTCI.

The AT&T meeting was decidedly less sentimental, withchairman C. Michael Armstrong fielding questions from the audience almost immediatelyafter the meeting officially opened.

Most questions centered on explaining the complicated dealmore thoroughly, which Armstrong tried to do in the limited time allotted -- the meetinglasted about an hour, and questioners were limited to two minutes.

Armstrong stressed that the merger will create an entirelydifferent company.

"AT&T yesterday was simply a long-distancecompany," Armstrong said. "That business is very exposed without other valuebeing delivered to the customer."

And the way to do that, he said, is through the merger withTCI, enabling AT&T to provide local and long-distance telephony, high-speed Internetaccess and broadband technologies directly to the customer.

But first, AT&T must go forward and do what it said wasa top priority all along -- execute.