AT&T and TCI Merger: A Plan to Captivate Residential Telephony Market

Strategic Insights -

In a strategic move aimed at dominating the residential telephony market, AT&T Corporation has merged with Tele-Communications Inc. The $48 billion agreement seeks to create tracking stocks, leveraging cable TV infrastructures, and forging alliances with other cable TV providers. Despite potential profit margins, AT&T's stock price has dropped by over 13% since the announcement. To calm investor fears, AT&T emphasized the viability of Internet Protocol (IP) telephony, citing its cost-effectiveness and compatibility with high-speed data services.

Key Takeaways:

  • The merger aims to create two AT&T tracking stocks: AT&T Consumer Services and Liberty Media Group, with a common stock trading under the AT&T Corp. name.
  • IP telephony is expected to be the primary means of entering local markets, offering cost savings and compatibility with high-speed data services.
  • The cost of upgrading TCI's facilities to provide packet-based service is estimated at $1.8 billion by year-end 2000, with an additional $1.3 billion for maintenance and line extensions between 1999 and 2003.
  • The potential cost of making non-cable TV households IP-telephony-compatible is approximately $400 to $500 per subscriber.
  • AT&T plans to strike alliances with non-TCI affiliate cable TV system operators, but expects to maintain a majority stake in these partnerships.
  • IP telephony represents a crucial factor in Standard & Poor's review of the credit rating of a combined AT&T-TCI, with the analyst raising questions regarding the technology's feasibility and cost-effectiveness.
  • The merger's success may accelerate Bell company entry into in-region interLATA markets, potentially affecting the credit ratings of the Bell operating companies.

Statistics:

  • $48 billion: The estimated value of the AT&T-TCI merger.
  • 40%: The drop in AT&T's stock price since the merger announcement.
  • $1.8 billion: The estimated cost of upgrading TCI's facilities to provide packet-based service by year-end 2000.
  • $1.3 billion: The estimated cost of maintenance and line extensions for TCI's cable plant between 1999 and 2003.
  • $400 to $500: The potential cost of making non-cable TV households IP-telephony-compatible per subscriber.

Sources:

  • _The Wall Street Journal_ (July 1, 1999)
  • AT&T Corporation (June 24, 1999)
  • Tele-Communications Inc. (June 24, 1999)
  • _Standard & Poor's_ (June 29, 1999)
  • Merrill Lynch & Co. (June 25, 1999)