Thursday, December 31, 1998

Thursday, December 31, 1998

Justice Department approves telecommunications merger

By ANNE GEARAN

Associated Press

WASHINGTON -- The Justice Department approved the $40 billion merger of AT&T and cable giant Tele-Communications Inc. on Wednesday on the condition that TCI sell its interest in a rival phone company.

AT&T is the nation's largest provider of wireless, or mobile, telephone service, with about 9 million customers. TCI is the second-largest cable television operator in the United States and also owns approximately 23 percent of the stock in phone company Sprint's mobile telephone business, called Sprint PCS.

TCI must sell off all its Sprint PCS holdings to pass antitrust muster, said Joel I. Klein, assistant attorney general in charge of the Justice Department's antitrust division.

The sale should further the trend toward lower prices and better competition among mobile providers, Klein said.

"The settlement today will ensure that the merger will not blunt the move towards a more competitive market in wireless services," Klein said in a statement.

Approximately 60 million Americans subscribe to mobile phone services, and customers bought about $30 billion in mobile services this year.

Under terms of the settlement, AT&T and TCI must transfer the Sprint PCS stock to an independent trustee before the merger can be closed. The trustee then will have approximately five years to complete the stock sale.

The agreement also includes measures designed to promote competition between AT&T and Sprint pending complete divestiture of the Sprint PCS stock.

The merger is really an acquisition by New York-based AT&T, with $52 billion in revenue this year, of Colorado-based TCI, with revenue of about $7.5 billion this year.

AT&T spokesman Burke Stinson said the company hopes to complete the stock deal by summer. A statement from company general counsel Jim Cicconi called the approval good news for consumers.

"We are now one step closer to finalizing a transaction that will ultimately give residential customers broader choices for local telephone service and other advanced services and products," Cicconi said.

AT&T had promised to upgrade TCI's cable systems to provide local phone service if the deal went through.

Cicconi said it is "especially significant" that the Sprint PCS sale was the only condition set by Justice Department antitrust overseers. AT&T made clear from the start that it intended to divest that business, Cicconi said.

TCI spokeswoman Katina Vlahadamis said the company would have no separate comment.

TCI's owned and affiliated cable TV systems reach about one-third of the country's homes. After they are upgraded, AT&T plans to offer residential customers one-stop shopping for local, long-distance, cable TV, Internet and data services.

Critics, including other phone companies, complained that if the merged company can prevent other companies from using TCI's high-speed lines to reach customers, competition for Internet and phone services could be crimped.

The merger, announced in June, also is subject to review by the Federal Communications Commission.

"The stickiest areas have yet to be addressed and will be addressed when the FCC takes a look," said telecommunications analyst Jeffrey Kagan of Atlanta, referring to access to TCI's high speed lines coveted by America Online and other firms.

Still, Kagan predicts the FCC also will approve the merger. "Bottom line, it will be approved, but there will likely be concessions AT&T, TCI will be asked to cough up."

AT&T stock fell $2.18-3/4, or 3 percent, to $76.81-1/4 per share on the New York Stock Exchange after the Justice Department's announcement, which came shortly before markets closed. TCI fell 18-3/4 cents to $55 on the Nasdaq Stock Market, while Sprint slipped 12-1/2 cents to $84.06-1/4 on the NYSE, while

The deal is among several recent telecommunications megamergers.

Bell Atlantic Corp.'s $65.1 billion merger with GTE Corp. was proposed in July and is still pending.

SBC Communications Inc. announced plans in May to buy Ameritech Corp. for $60.2 billion in stock. That deal is also pending.

WorldCom Inc. completed a $37 billion acquisition of MCI Communications Inc. in September.