Michael Armstrong, chairman and CEO of AT&T, said TCG
'will become the foundation for a new unit with accountability for our local
Robert Annunziata, chairman and CEO of TCG, will become an
executive of AT&T, reporting directly to Armstrong.
The TCG merger will immediately transform AT&T into a
facilities-based carrier, thereby allowing it to circumvent an Eighth Circuit Court of
Appeals ruling last year that benefited such entrants into the local loop, but that left
the long-distance carriers out in the cold.
Analysts have been expecting a blockbuster announcement
from AT&T, which has lagged behind its competitors in formulating a strategy for
getting into the local loop.
The need for a strategy was given added impetus in
November, when WorldCom Inc. announced that it was acquiring MCI Communications Corp. --
which was already in 25 local markets.
Analysts believe that the TCG deal, along with any
agreements with TCI, will meet with little opposition from federal regulators, who are
expected to approve the WorldCom/MCI deal.
AT&T, which still has the world's most recognized
brand name, may be picking the ideal time to get back into the local loop.
The effects of the TCG deal on cable's future role in
telephony depend on the current status of each cable operator.
Cox said it will 'stay the course' in its drive
to become a full-blown CLEC (competitive local-exchange carrier), while analysts said TCI
and Comcast are more likely to act as distributors of AT&T local-exchange service.
'We're not all in lockstep,' conceded Cox
vice president of public affairs David Andersen. Andersen said the TCG deal will have
little effect on Cox's plans.
Cox is already providing switched telephone service in its
Orange County, Calif., and Omaha, Neb., markets, with plans to roll out service in its
seven remaining major clusters, he said.
'What Teleport did for us was give us lines and
switches in areas where we didn't have them,' Andersen said. 'It also gave
us a nice return on our original investment of $207 million, which is now $2.4
One industry watcher, speaking on condition of anonymity,
said Hindery was discouraging talk of future deals with AT&T because of TCI's
history of not delivering on its promises.
'TCI has stepped on itself repeatedly by promising
things that didn't come to fruition,' he said. 'Leo doesn't want to
announce anything until the fat lady sings.'
AT&T will use TCG to gain immediate access to the
CAP's top 66 markets, 9,000-plus fiber route miles, 41 local switches, 5,000
connected buildings and 300,000 access lines of service, Armstrong said.
'Cable will expand AT&T's reach beyond
TCG's commercial accounts to the residential markets,' said one financial
analyst, who asked not to be identified.
Meanwhile, one analyst asked what the TCG deal would do to
the Sprint PCS partnership, which includes the same cable operators that controlled TCG.
Most likely, he said, the partners are preparing to jettison that investment.
'You can kiss that partnership goodbye,' he said.
'They were suppose to market Sprint long-distance service. But Cox cut a deal to
offer long distance in California with another carrier. That was the first sign of
dissension in that partnership.'