AT&T has been moving to use the bandwidth of the coaxial cable to expand its reach into millions of homes as it pushes into data and information services. Ma Bell merged with Tele-Communications (TCI) which has a subscriber base of 10.5 million customers and is number two behind Time Warner, which has 20 million cable customers.
In AT&T's joint venture with Time Warner, the telco giant will own 77.5 percent of the joint venture and Time Warner will hold a 22.5 percent stake. "Together with our merger with Tele-Communications and agreements with five TCI affiliates, the Time Warner joint venture will enable AT&T to reach more than 40 percent of U.S. households over the next four to five years," said AT&T chief C. Michael Armstrong in a statement. The companies plan to market the services, including video telephony, in two test markets by year-end. Services will include: multiple phone lines per household, conference calling, call waiting, call forwarding, and individual message centres.
Don't expect the deal to be a money tree for AT&T right away. AT&T said it will fund the joint venture's negative cash flow. AT&T is also footing the bill for equipment. Capital expenditures, the cost of adding communications equipment to cable nodes and in people's homes and other expenses will be picked up by AT&T. The phone company expects costs to range from $300 (£180) to $500 (£300) per home, depending on whether or not the customer already subscribes to Time Warner's video service. Time Warner also gets $15 (£9) for each home that signs up, which will be made in twice a year, is expected to total about $300 million (£180 million). On top of these fees, AT&T will pay a monthly fee of $1.50 (£0.90) per telephony subscriber, up to $6 (£4) a month over a six-year period, if certain penetration levels are met.
Time Warner will remain responsible for upgrading its cable systems to support two-way communications. Time Warner expects the upgrade to be 85 percent completed by the end of the year and finished by the end of the year 2000, the companies said.