New York - After two years of false starts, complaints and excuses, AT&T finally is jumping back into the local access market.
The long-distance giant last week said it will spend over $11 billion to acquire Teleport Communications Group, Inc. (TCG), an industry-leading competitive access provider with facilities in 57 U.S. markets.
The move reverses the field for AT&T by giving the company its own broadband metropolitan facilities to connect user locations to AT&T voice and data switches, rather than relying on what became a nearly fruitless effort to resell regional Bell operating companies' phone lines.
Just as important, the move appeared likely to eventually break the competitive logjam in the telecom industry. Analysts said the acquisition may finally give RBOCs the legal rationale they need to convince regulators the carriers have local competition.
Already the RBOCs were threatening to enter the long-distance market quickly via a court ruling on New Year's Eve that threw out - at least for some of them - the requirement that they comply with a local competitive checklist before entering the long-distance business.
And three days before AT&T announced its deal for TCG, SBC Communications, Inc. further encroached on AT&T's territory by announcing it was buying Southern New England Telecommunications Corp. (SNET), the dominant local carrier in Connecticut that entered the long-distance market two years ago.
Given that the AT&T/TCG deal is not expected to close until late this year, users will have to wait to see benefits. But AT&T and TCG officials said while the sale is pending, they would try to accelerate the migration of AT&T users' local access lines from RBOCs to TCG.
"The underlying theme of this transaction is that AT&T is investing for growth," said AT&T Chairman and CEO C. Michael Armstrong. "We have every intention of being a fully integrated global telecommunications provider."
Armstrong emphasized the move would allow TCG to reach business customers via a direct, facilities-based connection. That stood in stark contrast to former AT&T CEO Robert Allen's emphasis on reselling RBOC and GTE Corp. local exchange lines, a strategy that essentially ended in November when AT&T ceased marketing resold lines.
While Armstrong's strategy is much more expensive than Allen's, it could have been even more costly for the long-distance giant. AT&T negotiators apparently won TCGs agreement not to demand more than TCG's value in the stock market, which soared in 1997 to nearly $60 a share.
And taking a page from WorldCom, Inc. CEO Bernard Ebbers' playbook, AT&T offered its own stock in payment. It was able to do so because of a sharp rise in AT&T's stock since Armstrong assumed control in November. Wall Street appeared to applaud the deal.
The AT&T/TCG merger lines up favorably with the pending MCI Communications Corp./ WorldCom merger. Both now will have comparable alternative local fiber facilities in major cities, plus a vast long-distance network.
But some users saw an even greater potential benefit in the AT&T deal. The MCI/WorldCom combo reduces by one the number of carriers that users can play off against each other to negotiate the best rates, noted Ronald West, immediate past president of the Communications Managers Association. But the AT&T deal leaves in place the carrier and route diversity between TCG and an RBOC that many users seek in large cities without eliminating a long-haul carrier from the scene.
TCG users such as West, who is manager of telecommunications for the New York law firm of Shearman & Sterling, said they may find dramatically quicker provisioning for local and long-distance service under the merger. That is because once a TCG connection to a building is in place, TCG provisions new channels in software within two hours, rather than the RBOCs traditional week to a month, West said.
The AT&T/TCG deal overshadowed another telecom industry merger announcement earlier in the week when super-RBOC SBC put up a $4.4 billion bid for SNET.
The SBC/SNET marriage could give SBC access to the same long-distance market it
has been coveting in numerous court proceedings but has been denied so far by the Federal Communications Commission.
