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Deal Won't Be a Call to Action for Most Rivals, Analysts Say

Baby Bells have already prepared for more competition, but Sprint might be pressured to catch up.

June 25, 1998|KAREN KAPLAN | TIMES STAFF WRITER

Unlike the previous wave of telecommunications mega-mergers that saw phone companies combining with phone companies, AT&T Corp.'s plan to buy cable giant Tele-Communications Inc. doesn't leave rivals with a clear way to respond.

In fact, analysts said, the best move for most of the local and long-distance phone companies may be not to change their strategies at all.

In buying TCI, AT&T would gain a direct link to 10.5 million households across the country. That would make it easier for the long-distance giant to sell local phone service to its customers and help fulfill the "one-stop shopping" promise that is driving the unprecedented industry consolidation.

The Baby Bells--which for the most part still enjoy local phone monopolies in their territories and are doing everything they can to protect them--have known since Congress passed the Telecommunications Act of 1996 that AT&T and its brethren would eventually compete with them. Their long-term strategies already take that into account, analysts said.

"I don't know so much that they have to respond to this, but it further underlines the significant change going on within this industry," said David Burks, vice president of research at JJB Hilliard, WL Lyons in Louisville, Ky.

On the long-distance side, MCI and WorldCom already have their hands full trying to complete their $37-billion merger. But the pressure on third-place Sprint has certainly increased, and analysts suggested that Sprint try to combine with a local phone company, such as GTE Corp.

"Sprint clearly is going to have to do something," said Scott Wright, a telecom analyst with Fahnestock & Co. in New York.

If any of the phone companies end up doing something, it probably won't involve a merger with a cable company. It would be easier and cheaper for them to strike up a marketing alliance, analysts said.

That would also give them the flexibility to partner with a satellite broadcasting company instead of a cable company, said Peter Vujaklia, a vice president in the communications, information and entertainment practice at Mercer Consulting in Pittsburgh.

Besides, regulators would almost certainly put a stop to any merger between a local phone company and a cable operator that serve the same region.

"If Bell Atlantic decided it wanted to buy Cablevision Systems in the New York area, I think regulators would say, 'Wait a second, that's the only other plug into the house of a lot of your customers, and now there's no possibility of using it for competition,' " Wright said.

Not that they haven't tried. Bell Atlantic announced its own $33-billion deal with TCI in 1993, but it fell apart for financial reasons and regulatory issues. US West, another Baby Bell, built its own cable system, but spun it off earlier this year.

Although the telecommunications landscape is still shifting, it is already clear that the most successful companies will be those that can sell a bundle of services. But if the bundle includes a critical mass of key services, cable may not be a necessity, analysts said.

WorldCom and MCI, for example, can already sell customers local and long-distance calling, data transmission services and Internet connections.

GTE sells both local and long-distance service, along with Internet access and wireless calling. In addition to local phone service, Pacific Bell offers digital wireless, Internet access and paging services.

With the exception of AT&T, shares of the major long-distance companies didn't change dramatically. AT&T plunged $5.38 to $60 on the New York Stock Exchange. But MCI rose 6 cents to close at $57.75, and WorldCom slipped 31 cents to $47.63 in Nasdaq trading. Shares of Sprint rose 6 cents to close at $74.06 on the NYSE.

Shares in the major local phone companies sank universally on the NYSE. Bell Atlantic was the biggest loser, falling $5.88 to $92.50. Ameritech sank $2.38 to $42.50, and BellSouth dropped $2.25 to $67. SBC lost $1.50 to close at $39.75, while US West fell $1.63 to $48.69. GTE lost 81 cents to close at $56.69.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Companies at a Glance

AT&T Corp.

* Chairman: C. Michael Armstrong

* 1997 revenue: $51 billion

* 1997 profit: $4.6 billion

* Employees: 133,000

* Headquarters: New York

* Thumbnail: No. 1 U.S. long-distance phone service provider, with more than 90 million customers. Also provides wireless communications services, Internet access and credit card services. Incorporated March 3, 1885, as American Telephone & Telegraph Co. Grew to become national phone monopoly. In 1984, judge's order forced AT&T to spin off seven Baby Bells that provided local phone service. In moves completed in 1996, AT&T spun off its equipment and research operations as Lucent Technologies Inc., as well as computer and cash register maker NCR Corp. Formally renamed itself AT&T Corp. in 1994.

* Web site: http://www.att.com

Tele-Communications Inc.

* Chairman: John Malone

* 1997 revenue: $6.4 billion

* 1997 loss: $495 million

* Employees: More than 28,000

* Headquarters: Englewood, Colo.

* Thumbnail: One of the biggest U.S. cable TV companies, serving 10.5 million households, and another 10 million through affiliates. Founded in 1968. Consists of three main groups, each with its own stock: cable TV operator TCI Group; cable TV programming unit Liberty Media Group, and TCI Ventures, whose operations include international cable TV, phone service and digital video services interests.

* Web site: http://www.tcinc.com

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