Just a month after rumors swirled of AT&T (T) investing more than $1 billion in @Home Network (ATHM) to expand into the high-speed Net access business, the two companies today got cozier in a more roundabout way--through Teleport Communications Group (TCGI), a local telecom.
Ending widespread speculation, AT&T said it has signed a merger pact with Teleport for an all-stock deal valued at $11.3 billion. (See related story)
Nearly all of the attention so far has focused on how the deal will help AT&T get into the local phone business. But what's being missed is that the deal also is likely to round out AT&T's Net strategy, which has come under criticism on Wall Street. (See related story) AT&T WorldNet service has an estimated 1 million accounts, but that isn't much compared with giants such as America Online and Microsoft Network.
With the Teleport-@Home connection, AT&T now can expand into the potentially lucrative Net access market for businesses, trying to catch up with smaller but faster-growing rivals such as WorldCom. @Home also could benefit from the distribution and marketing clout provided by AT&T, making the deal a potential "win-win" for both.
Here's the new connection that will help the nation's largest telco: @Home currently is under a five-year strategic pact with Teleport to provide high-speed Net access to businesses, and that deal will continue with today's announcement.
@Home's deal with Teleport provides the platform to offer Net, intranet, and extranet connectivity via cable and phone lines to businesses. This service is offered by @Work, a burgeoning division of @Home. In a recent regulatory filing, @Home said it was receiving revenues from nearly 200 business customers, and that it had agreements with more than 100 additional businesses to begin to install the service. @Work needs a jump start, and the AT&T marketing and distribution connection could help.
An @Home spokesman was circumspect about the deal. "There may be a lot of speculation [that the AT&T merger with Teleport] makes AT&T and @Home closer and closer, but it doesn?t do anyone any good to speculate," said Matt Wolfrom, a spokesman for @Home. He added that @Home's relationship with TCG is a business relationship, and said he does not expect the merger to change now that Teleport has been acquired.
Perhaps more important down the road, the Teleport buyout also gives AT&T closer relationships with cable television giants Comcast, Cox Communications, and TCI, because they own chunks of Teleport and @Home, said Brian Eisenbarth, an analyst with Collins & Company.
"Cable access could become the choice for Internet access because information can flow much faster that way, and AT&T realizes that," said Eisenbarth, noting Microsoft's recent investments in cable companies, such as its $1 billion investment in Comcast. "If cable access takes off, the Teleport deal gets AT&T poised to move into cable Net access."
Cox, Comcast, and TCI together hold 95 percent of the voting power and 66 percent of the equity ownership of Teleport. TCI controls about 72 percent of the voting power of @Home, and Comcast and Cox also hold a stake in the cable Net access provider.
"The strength of @Home is not its relationship with Teleport, but its strong relationship with the cable networks," said Shaun Andrikopoulos, an analyst at BT Alex. Brown. "The investors in @Home are the cable companies who control more than 50 percent of the cable market."
Michael Harris, president of industry consulting firm Kinetic Strategies, agreed that today's deal moves AT&T into place for a relationship with the cable companies.
"AT&T brings the cable companies capital and telephony expertise, and the cable companies offer that last-mile connection into peoples houses," said Harris.
Under AT&T's buyout of Teleport, each Teleport share would be exchanged for 0.943 of an AT&T share. Teleport's stock lost 3-5/8 today to end at 54-1/8, while AT&T stock gained 2-5/8, to end at 62-5/8.
Robert Annunziata, chairman and chief executive of TCG, will become an executive vice president of AT&T and lead a new unit that will incorporate AT&T's current local service and access management operations. Annunziata will report to both AT&T chairman and chief C. Michael Armstrong and president John Zeglis.
The companies say they do not expect a significant number of jobs to be eliminated due to the merger because of the growth opportunity in the local business services market.
Internet News Editor Jeff Pelline contributed to this report.