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AT&T outlines plans for TCI merger

The long distance giant spells out its plans to merge with Tele-Communications Incorporated and offer local phone service through cable wire.

AT&T today outlined new details in its plans to merge with Tele-Communications Incorporated and offer local phone service through cable wire.

The company retreated from original plans to create a broad cable and voice consumer services division, with its own tracking stock, as a part of the TCI merger.

Company executives also outlined plans to accelerate their upgrade of TCI's cable network over the next year, adding another $2 billion to what had already been committed to readying the cable system for local voice phone traffic.

When the two companies first announced their $48 billion merger in June, executives discussed folding much of AT&T's and TCI's consumer-oriented businesses into a single business unit, allowing Wall Street to mark its progress with its own tracking stock.

But in a Securities and Exchange Commission filing today, executives said they will focus on assimilating TCI's cable assets, which include the cable delivery system, a controlling share in the @Home cable Internet service, and the cable company's programming arm.

"We have to be able to fully integrate these assets to deliver their true value to our customers," said AT&T chairman C. Michael Armstrong in a statement. "That's why we have decided to consolidate our acquisitions before considering the creation of a tracking stock. We believe that's in the best interests of our customers and our shareowners."

The company will continue with plans to create separate tracking stock for TCI's programming and media divisions, which will be folded together in a subsidiary called Liberty Media Group.

AT&T was careful to say that this programming group will be dominated by board members from the old TCI, and that the long distance company would not have final control over their decisions. This could set up a scenario where Liberty Media executives decide to act at odds with their parent company, even allowing the company to compete directly with AT&T, today's filing said.

After the merger, TCI president Leo Hindery will take over responsibility for all of AT&T's cable businesses, including investments in cable affiliates and the development of cable telephony. TCI CEO John Malone will be chairman of the Liberty Media group.

The company's mammoth filing today spun out details from the merger between the two companies that had only been hinted at in earlier statements by company executives.

Deal inked in a month
The two companies took only a month to negotiate their mammoth merger deal, according to the regulatory filing.

Talks began in late May and culminated with an announcement of the deal on June 24, the filing said.

According to a proxy, the phone giant's shareholders are scheduled to meet on February 17 to approve the proposed buyout.

"We consider this [merger] a critical step toward our goal of becoming the 'total communications source' for our customers-supplying complete packages of local telephone, long-distance, wireless, Internet, entertainment and next-generation digital services," Armstrong said.

In the filing, AT&T also disclosed that it is running into some opposition to the merger. Local franchise authorities, for example, are requiring that AT&T and TCI unbundle their cable facilities and make them available to competitors.

"TCI and AT&T currently intend to contest any such conditions imposed by local franchise authorities," because it could reduce the economic benefits of the merger.

Faster move to local phone service
In a separate statement today, AT&T said it had raised its expectations for 1999 earnings, announced a 3-for-2 stock split, and said it was stepping up its plans for local phone service.

The company said it was accelerating its investments in preparing TCI's cable system to handle local voice traffic. The company's total capital investments will rise from between $9 billion and $10 billion to between $11 billion and $12 billion in 1999 alone as a result of the change, executives said.

At the time of the merger announcement, company officials said they would invest close to $5 billion over four years in upgrading TCI's cable system.

As a result of the speeded plans, AT&T will offer market trials in ten cities this year, in which the two companies will co-market voice, video and high-data services. Included in the trial will be customers in Chicago, Dallas, Pittsburgh, Seattle, Denver, Salt Lake City, Portland, Oregon, St. Louis, and two San Francisco Bay Area communities.

The company plans to offer local telephony in most TCI markets in 2000. Initially, this will be traditional circuit switched technology, but the company will likely begin moving to IP, or Internet Protocol, telephone service that same year, the company said.

AT&T shares rose 2.8125 to close at 85.0625, near a record high, on 15 million shares traded.

The SEC today declared AT&T proxy statement effective, and the company plans to start mailing documents to shareholders on Monday.