It will be a while before the trucks are repainted and the
shoulder patches change, but AT&T Broadband & Internet Services has officially
supplanted Tele-Communications Inc., and a new force has entered the cable business.
AT&T Corp. paid more than $43 billion in stock and cash
for a broadband connection to 11 million customers. Renaming the cable service is just a
small part of its plan to offer "any-distance" wireline communications to those
subscribers and to millions more through partnerships and potential acquisitions.
With its marketing muscle, its financial strength and the
will to bypass the local phone companies that drain its revenue, AT&T Broadband is set
to become a cable company like no other.
"They're not going to be concerned by things like
[debt] leverage ratios," SG Cowen Securities Corp. cable analyst Gary Farber said.
"I'd say that AT&T will focus on the technical side and the marketing side."
AT&T Broadband is already testing a package of local
and long-distance phone service, Internet access and video over the cable plant in
Fremont, Calif., and it plans to test bundled offerings in another Bay Area city and in
nine other markets by year's end.
In four to five years, AT&T chairman C. Michael
Armstrong wants to be able to sell a range of service to at least two-thirds of the
population. He's already cut deals with Time Warner Inc. and five former TCI affiliates to
create wireline phone services over cable systems that pass around 43 percent of cable
homes.
Within a few months, TCI customers can expect a
"welcome" letter from AT&T Broadband, accompanied by a prepaid calling card,
TCI spokeswoman LaRae Marsik said after the deal officially closed last Tuesday.
While customer-service representatives still refer to TCI
cable, the service will be renamed with the AT&T Broadband brand starting in a few
weeks, she said.
AT&T Broadband might not rush to start shaving the
price of Home Box Office or consumer long-distance just to get customers to buy more,
though, marketing experts said.
The company might take a while to build the new AT&T
Broadband brand and to figure out what its priorities are, said Bruce Leichtman, director
of media and entertainment strategies at The Yankee Group, a consulting firm in Cambridge,
Mass.
"It's not just as simple as bundling a discount,"
Leichtman said.
If the goal in a given market is to cut long-distance
churn, that could require a different package than one designed to spur penetration of
high-speed-data service, he said.
"I think that it's OK to brand and not immediately
start to tinker with revenue models," he added.
Stephen Liebmann, president of New York-based S. Liebmann
& Associates Inc., predicted that AT&T Broadband will be aggressive, but flexible.
"You have to make the bundle very attractive," he
said, "but you also have to let people buy whatever they want."
Overpromising could also be a problem, especially while
AT&T Broadband gets the former TCI plant in shape and builds out the phone services
with its cable allies.
"The worst thing that could happen is to offer
something nationally that not everybody can get," said Terry Rich, president of Des
Moines, Iowa-based Rich Heritage Inc. and a former cable-marketing executive.
"What AT&T can do nationally is brag about the
quality of its service," but not necessarily flash images of digital cable and
high-speed Internet in every ad, he added.
With Leo J. Hindery Jr., the former TCI president and chief
operating officer, as CEO, it's no stretch to expect AT&T Broadband to be active in
the deal market.
AT&T has talked to every big MSO about a phone venture.
Adelphia Communications Corp., for example, has talked up
its 1.3 million-subscriber joint ventures with AT&T, including one with Century
Communications Corp., which Adelphia has agreed to buy.
That "puts us way up on the list in terms of
discussions with them," executive vice president Tim Rigas told analysts last week.
Farber said big MSOs have indicated that they're waiting to
see how the Time Warner joint venture works out before cutting their own deals, probably
in the second half of the year. Other analysts think that phone deals will happen sooner.
AT&T may also look to make outright acquisitions,
although that probably wouldn't happen for a while.
For one thing, Farber noted, the Federal Communications
Commission's cable-ownership-concentration rules are under review. AT&T might be loath
to buy a big operator, like Cablevision Systems Corp., until those rules are settled and
while the environment for issues like data unbundling is unsettled.
Meanwhile, TCI headquarters employees are gearing up to
move from Englewood, Colo., to new digs in Meridian, Colo., with the first wave April 9.
Insiders reported that space is so tight in the new
building that Hindery has jokingly warned them not to remove their coats or leave their
desks that first morning for fear of losing their seats. TCI plans to lease space to make
up the difference, a spokeswoman said last week.
AT&T did settle, for now at least, the issue of where
the cable group would be based by declaring that it would remain "in the Denver
area." But Gerald DeFrancisco, the new executive vice president for wireline
telephony at AT&T Broadband, is based in Basking Ridge, N.J.
William Fitzgerald, the former TCI Communications Inc.
chief operating officer, will continue to fill that role, running the domestic cable
operations. Both men report to Hindery, who reports to Armstrong.
John C. Malone, the former TCI chairman and CEO, turns his
focus to Liberty Media Group. Liberty got $5.5 billion in cash from AT&T last week for
TCI's control stake in At Home Corp., the National Digital Television Center and Western
Tele-Communications Inc., as well as 47 million AT&T shares (from last year's sale of
Teleport Communications Group).
Those assets came from TCI Ventures Group, which merged
with Liberty last week. TCI Ventures shareholders will get 0.52 shares of new Liberty
stock.
According to published reports, a TCI Ventures shareholder
filed a lawsuit last week against AT&T, contending that TCI Ventures shareholders
didn't get full value for the At Home stake.
Monica Hogan contributed to this report.
