From: technews <technews@ou.edu>
To: "'it-fyi@listserv.ou.edu'" <it-fyi@lists.ou.edu>
Subject: it-fyi: AT&T Considers Separate Cellular Stock (NY Times on the W
Date: Wed, 24 Nov 1999 11:01:31 -0600
November 24, 1999
AT&T Considers Separate Cellular Stock
By SETH SCHIESEL
Top executives at AT&T are planning to create a separately traded tracking
stock for the company's fast-growing cellular unit and to invest billions to
deliver high-speed Internet access and local phone service to millions of
American homes using wireless technology.
The plan, outlined Tuesday by executives close to the company, would open a
broad new front in AT&T's battle with the Baby Bells to recapture part of
the local communications market.
AT&T's board has not given final approval to the tracking stock, but the
company's management wants to announce plans for the spinoff and the new
wireless initiative at a meeting with financial analysts on Dec. 6, the
executives said.
While the company does not appear to have made final decisions about the
wireless company's management, executives close to AT&T said John D. Zeglis,
AT&T's president, stands an excellent chance of being named to run the new
operation. The executives also said Daniel E. Somers, who recently left his
post as chief financial officer to run AT&T's far-flung cable television
unit on an interim basis, would probably be formally tapped as chief
executive of that operation.
An AT&T spokeswoman declined to comment.
Given the success that Sprint had in forming a tracking stock for its
wireless operation last year, AT&T's board appears supportive of the plan,
executives close to the company said. But if AT&T intends to issue a
tracking stock before it completes its acquisition of the Mediaone Group
next year, the move would also require approval from Mediaone's board.
As a condition of accepting AT&T stock in that deal, Mediaone, the big cable
television carrier, insisted that it have a veto over any big changes in
AT&T's capital structure before the acquisition was completed.
AT&T is currently negotiating with Mediaone about the tracking stock plan,
according to executives close to the discussions.
The creation of a wireless tracking stock would be an unusually aggressive
financial move for AT&T, one of the nation's most widely held stocks. Owners
of AT&T shares would receive shares in the new wireless unit, though the
wireless operation would not be a totally independent company a la Lucent
Technologies, which AT&T spun off in
1996.
Tracking stocks are meant to mirror the performance of particular units
within a larger company, while reporting independent financial results.
Hughes Electronics, for instance, trades as a tracking stock of General
Motors, which owns Hughes.
In the recent past, tracking stocks were sometimes considered a bit unseemly
because they did not give stockholders a true economic stake in the
operation being tracked. But they have become much more widely accepted more
recently, especially as they have unlocked value for shareholders.
Some AT&T executives are frustrated with the company's somewhat dormant
stock and are convinced that the market is not giving the company credit for
the value of its wireless operation, one of the nation's biggest. By issuing
a new stock to track the wireless operation, AT&T is hoping to bolster
overall returns for its investors.
The company's management does not, however, appear to believe that the cable
television operation is similarly ready to stand on its own, according to
executives close to the company.
It was unclear whether AT&T would offer shares in the wireless unit to the
public as a way to raise cash. On Monday, Credit Suisse First Boston, which
has advised AT&T on many of its recent deals, announced that it had hired
away Daniel P. Reingold, a top telecommunications analyst, and the rest of
his team from Merrill Lynch & Co.
As it tries to raise the visibility of its wireless unit, AT&T also appears
set finally to move its long-ballyhooed Project Angel from the laboratory to
the marketplace. In development at McCaw Cellular Communications even before
AT&T acquired McCaw earlier this decade, Project Angel is a technology that
can theoretically deliver torrents of digital data to fixed locations, like
houses or places of business, using frequencies usually associated with
mobile phones.
AT&T has made deals to become the biggest cable television company in the
nation, acquiring Tele-Communications Inc. in addition to the pending
Mediaone deal, and the company's dominant strategy remains to use cable
lines to deliver all sorts of local communications services across the
nation.
But even AT&T's broad cable footprint does not cover the entire nation, and
senior AT&T executives now want to use Project Angel to reach millions of
homes beyond the company's cable systems, according to executives close to
the company.
AT&T intends to use the wireless systems to deliver high-speed Internet
access and local phone service in competition with the Baby Bell local phone
giants, which in some cases appear poised to jump into AT&T's core
long-distance market.
The new wireless systems could enable new sorts of products. For instance,
at an AT&T board meeting last week in Kirkland, Wash., home of AT&T's
wireless headquarters, the directors were shown a demonstration of a phone
that could be used as a cordless unit within the house and as a cellular
unit outside it, executives close to the company said Tuesday.
The expanded wireless plans could also be seen as a tool to persuade
independent cable television operators to cut deals with AT&T to jointly
deliver telephone service over their cable lines, lest AT&T move into their
markets on its own using wireless technology.
While AT&T's corporate core has long been valued by investors and analysts
on the basis of the company's earnings, many small, fast-growing
communications concerns today are valued based on their revenue growth and
cash flow or on earnings before interest, taxes, depreciation and
amortization.
AT&T is hoping that a tracking stock associated with its wireless business
would be valued on that basis, allowing the unit to invest in Project Angel
without undermining the strength of the stock.
One potential wrinkle is that in that situation the wireless stock would not
be a so-called pure play in mobile telephone service, a known quantity with
investors. An enhanced role for Project Angel could confuse some investors
who are considering buying a wireless tracking stock.