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AT&T completes megamerger with TCI

The companies close their $55 billion merger, a deal that will no doubt shake up the U.S. telecommunications market.

AT&T and Tele-Communications Incorporated today completed their $55 billion merger, a deal that will no doubt change the U.S. telecommunications market as we know it.

The merger will allow AT&T to make an end run around existing local phone networks to offer its own local dial tone over TCI's cable network. Further down the road, the long distance giant plans to evolve into a much broader telecommunications company, offering high-speed Internet, cable TV, and telephone service in one tightly wrapped package.

Although TCI's cable network reaches only about a third of U.S. households, AT&T has moved quickly to expand its reach by striking telephony deals with Time Warner cable and five of TCI's affiliates.

The company also is in talks with other cable operators, and has said that it plans to have access to about two-thirds of U.S. households over the next four to five years.

Little to change this year
Despite the fanfare surrounding the long-awaited closing, little will actually change soon from a consumer's point of view.

The two companies already have launched a television advertising campaign touting the benefits of their merger, trying to join the brands in consumers' minds.

But there is likely to be little crossover between the two companies for many months. The TCI cable service will gradually be absorbed into the AT&T brand, and TCI customers will receive "welcome aboard" gifts from AT&T in the form of a 10 minute pre-paid calling card and voucher for a pay-per-view movie. Little change in service is expected through the end of this year, however.

The first steps toward a genuine integration of service are happening in Fremont, California, where the newly merged company is setting up the first trials of telephone service over cable lines. Those trials will be rolled out to 10 cities across the country by the end of the year.

"Most customers, with the exception of those who live in those 10 cities, won't see much [change] until the year 2000," said Eileen Connolly, an AT&T spokeswoman.

Meanwhile, AT&T will begin offering traditional cable television services under its own brand in the TCI areas.

High-speed net controversy
The third leg of AT&T's cable strategy is high-speed Internet access, and has proved most controversial during the merger review process.

TCI is the controlling investor in the @Home cable Internet service, which is the leading broadband Net access system with more than 330,000 subscribers.

A coalition of ISPs and other competitors, led by America Online, Mindspring Enterprises, and US West, lobbied federal regulators to give them access to AT&T's new cable system as a condition of the merger. Under today's rules, a TCI subscriber who wants cable Net access has to use @Home as an ISP.

The Federal Communications Commission declined to rule on this issue as a part of the merger, and the ISPs have formed a lobbying group to bring the issue to the attention of Congress and keep it on the front burner at the FCC.

This issue could come back to haunt AT&T if it begins to mark a dominant market share in the broadband Net access market.