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AT&T'S BOLD MOVE | THE PLAYER

Now It's Time to Make It All Work, Says AT&T Chief

With MediaOne deal, Armstrong finishes buying spree and will focus on upgrading cable links for two-way communication.

May 06, 1999|ELIZABETH DOUGLASS | TIMES STAFF WRITER

Having cemented its bid to purchase MediaOne Group for $57.2 billion, AT&T Chairman and Chief Executive C. Michael Armstrong on Wednesday said the phone giant's cable-buying spree is over and that the company will now turn its attention to the daunting task of making video networks carry phone service to customers.

"As far as significant cable investments, my acquisition phase is over," Armstrong said in an interview with The Times.

However, AT&T will continue to pursue joint ventures with cable operators to gain access to even more U.S. households, he said. Already, the company has announced ventures with cable operators Comcast, its competitor in the bidding war for MediaOne, and Time Warner.

The purchase of cable giant Tele-Communications Inc., the proposed buyout of MediaOne and the joint ventures would give AT&T direct and indirect access to more than 60 million homes--connections the phone company plans to use to offer local and long-distance telephone, video and Internet services.

Still, Armstrong acknowledged that his cable strategy will provide access to just 60% of U.S. households. He said the remaining large cable operators--joint venture partners Time Warner and Comcast as well as Cox Communications and others--are not for sale. In addition, analysts say, any further cable purchases by AT&T could alarm antitrust regulators.

Thus, for the last 40%, he said, AT&T will need to lease lines from local phone companies--a route AT&T has avoided, viewing it as costly and fraught with disputes.

In addition, Armstrong noted that AT&T still faces strong opposition from Internet titan America Online, which spoke out against AT&T's purchase of TCI and is pushing to force AT&T to open its cable lines to rivals.

"It seems like every time we sit down to work with them, they are on the other side of an issue," Armstrong said. "Now they've been opposing the MediaOne acquisition, and not only opposing it, but then there are rumors that they might even make a bid--and they still could."

However, since MediaOne set a deadline of midnight Wednesday for rival bids, the chances of an AOL offer are remote at best.

News of AT&T's presumed victory with the MediaOne deal sent its shares up $5.38 to close at $56.94 on the New York Stock Exchange, while MediaOne eased 75 cents to $76.88, also on the NYSE. Comcast Class A shares surged $9.19 to $73.31 on apparent relief that the firm won't try to top the bid.

With the pieces in place, AT&T must now blend companies with vastly different corporate cultures while it takes on the costly and difficult job of upgrading cable networks nationwide to handle two-way communications.

"On a relative basis, it's easy to buy [companies]. The hard stuff is making it work well," Armstrong said. "And it's not really whether it will work--of course it will work. It's when it will work and how it will work that we're really spending the time on."

MediaOne's network, already far along in two-way communication upgrades, will probably be at least 80% upgraded by the end of this year, Armstrong said. TCI's cable network will be nearly 85% upgraded by the end of 2000--quicker than earlier projections.

In addition to the upgrade, the company must also prepare technical and customer service crews and billing systems and attend to all the logistics that go with offering a variety of services.

"All that's got to be done, city by city by city, in order to accomplish this," Armstrong said.

Packaging video and high-speed Internet access with local, long-distance and wireless phone service will yield a tighter bond between the company and its customers and will bring simplicity to billing, Armstrong said.

At the same time, AT&T's bundle of services is designed to address the problem of declining long-distance revenue, a result of more competition and falling per-minute prices.

"We've made these investments in order to decommoditize long-distance," Armstrong said. "Long-distance is a commodity, and you take something that's a commodity by itself and you package it with a set of services--wireless, the Internet, the long-distance, the local and video--that's the strategy."

Also key to the strategy will be the company's fast-growing wireless business.

"We doubled the budget in capital this year to $2 billion just to fill the holes on the wireless side and to upgrade to digital," Armstrong said.

"In wireless, I've got to continue to make investments, both to acquire where I can, to build out where it needs it and to build up where I already am."

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Stock on Hold

AT&T's stock has made strong gains since fall but has been struggling lately, although the deal news Wednesday sparked a rally. Weekly closes and latest on the NYSE:

Wednesday: $56.94, up $5.31

Source: Bloomberg News

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