At&T; Agrees To Buy Teleport $11.3 Billion Deal Gives At&T; A Foothold In Several Major Local Markets
AT&T Corp. on Thursday agreed to buy Teleport Communications Group, which provides local telephone service in 28 states, for $11.3 billion in stock.
The acquisition, approved by the boards of AT&T and Teleport Thursday, would give AT&T a foothold in the local markets of several large urban areas, including New York and Los Angeles.
AT&T could use the 65 local phone networks owned by Teleport to compete with the Baby Bells and other companies. Teleport sells local phone service primarily to business customers.
AT&T Chairman C. Michael Armstrong said the deal will speed AT&T’s entrance into the local business market, cut its costs and enable it to sell all-in-one packages of local and long-distance service to businesses.
Armstrong said AT&T expects to save $1 billion in costs in the first year of the deal and more than $2 billion in annual costs by 2002.
The business sector is the most lucrative segment of the phone industry. Teleport, with about $500 million in revenue last year, has built its own network of fiber-optic cable to compete against the far larger regional Bell companies.
The AT&T deal is its first major acquisition under new chairman Armstrong. Last year, the company sold or announced the sale of $3.5 billion in assets unrelated to its core businesses as it builds a stockpile of cash to intensify its focus on telecommunications through acquisitions and other means.
Robert Annunziata, chairman and chief executive of Teleport, will become executive vice president of AT&T heading a new local services unit.
Several cable TV companies that are major shareholders of Teleport - Cox Communications, Comcast Corporation, and TeleCommunications Inc. - also approved the deal.
AT&T and other long-distance phone giants have been attracted to smaller local exchange carriers such as Teleport as a wedge into the lucrative markets of the regional Bell monopolies.
But some analysts criticized the deal, saying that AT&T already was leasing lines from Teleport. With AT&T’s purchase, Teleport could lose the business of Sprint, MCI and other AT&T rivals, said David Goodtree, an industry analyst with Forrester Research.
Still, AT&T’s is the latest in a string of similar deals. The smaller sellers of local phone service, which sell primarily to businesses, are also combining with other small telecommunications companies.
There’s a good reason why this new breed of telephone company - known in the industry as competitive local exchange carrier - is getting so much attention. Unlike the five regional Bell companies that now survive AT&T’s breakup in 1982, these companies are free to sell both local- and long-distance phone service, enabling them to offer all-in-one packages of phone and data communications to companies.
In addition, most of the carriers have built their own networks of fiber-optic cable, overcoming the need to lease lines from the regional Bell companies, which cuts into profits.
xxxx Telephone rivals A new class of local phone company has emerged to rival the regional Bell monopolies and GTE Corp. The largest, based on estimated 1997 revenue: 1. MFS Communications (bought by WorldCom); $2 billion 2. Teleport Communications Group, New York; $500 million 3. Intermedia Communications, Tampa, Fla.; $200 million 4. ICG Communications, Denver; $170 million 5. Winstar Communications, New York; $100 million 6. Brooks Fiber Properties (bought by WorldCom); $100 million 7. GST Telecommunications, Vancouver, Wash.; $100 million