AT&T Corp., shut out of the local telephone business since the breakup of the old Bell system 15 years ago, plans a major push back into the nation's homes and businesses with wireless technology offering both phone and high-speed Internet service, knowledgeable sources close to the company said yesterday.
The strategy, which the sources said will cost $1.2 billion next year, is seen by analysts as a way to hedge the company's huge bet on cable television lines as the conduit for bringing local customers telephone and Internet service. Long the nation's largest long-distance telephone company, AT&T also has quickly become the nation's largest owner of cable systems. But the size of its investment--about $120 billion--and technical challenges have worried Wall Street, and AT&T's stock has fallen by 20 percent since May.
Under the new plan, which sources said would be announced at a Wall Street analysts' meeting Dec. 6 in New York, the company will string equipment from its existing cellular telephone towers, then transmit voice and data traffic to rooftop antennas connected to the telephone wiring of homes and businesses.
AT&T had no official comment on the matter last night.
AT&T will become a competitor in what is known as the fixed wireless business with companies such as Teligent Inc., WinStar Inc. and NextLink Communications Inc. AT&T will begin with three markets next year--Dallas, plus two undisclosed cities--then expand across the country, the sources said.
Fixed wireless competitors noted that AT&T has tried this before--three years ago, when the company announced Project Angel, which foundered as officials decided the technology was too costly.
"It's nice to see that AT&T is making a bet on the viability of fixed wireless again," said Jonathan Askin, chief legal counsel for the Association for Local Telecommunication Services. "Teligent and WinStar and the other fixed wireless carriers have about a three-year head start. AT&T has vast resources, but they don't have the facilities."
The sources said AT&T plans to finance its new project by issuing a tracking stock for its wireless holdings, similar to the wildly successful offering from Sprint Corp. for its Sprint PCS business. The capital from the tracking stock would also help AT&T expand its mobile phone network, which already covers about 75 percent of the nation.
AT&T's foray into fixed wireless comes as whispers grow louder on Wall Street that the company may be stumbling in the execution of its strategy to turn cable television franchises into high-speed conduits for Internet traffic, telephone calls and video-conferencing.
The new initiative makes clear that "cable's only a partial solution," said Scott Cleland, an analyst with Legg Mason Precursor Group. "They've got to defend their customer base where they don't have cable."
Questions have been raised in recent months about the bold cable vision articulated by chief executive C. Michael Armstrong. Analysts have suggested that AT&T might have to spend more than planned to upgrade the cable systems, and might have difficulty finding enough workers to do the job. And many have suggested that the company faces stronger than expected competition from local phone companies and competitors who offer DSL, or digital subscriber line, which turns regular telephone lines into swift arteries for Internet traffic and voice calls.
AT&T officials have recently sought to assuage concerns, asserting that the company's cable investment is overestimated, and should really be seen as less than $60 billion after deducting purchases within the cable franchises that will be sold off or used for other purposes.
Sources close to the company said AT&T will present its fixed wireless initiative as a complementary offering to its cable strategy, providing a way to sell services to customers who live beyond cable's reach. Far from a tacit admission that cable is troubled, they said, it would be presented to analysts as another bold new step toward capturing market share.
But the same sources acknowledged that AT&T has had difficulty negotiating agreements with other cable companies to allow it to sell telephone service over those lines. Even if AT&T is able to close on its most recent cable purchase, Media One Group Inc., it will still own fewer than half the lines in the country, making those agreements critical. Fixed wireless offers a clear and unencumbered way to the customer.
"It gives them an alternative if they're not able to work an acceptable deal with the cable operators," said Robert B. Wilkes, a telecommunications analyst with Brown Brothers Harriman & Co. "It's a hedge, but also an attempt to increase the bargaining position with the cable industry."