Communication industry forming giant alliances

November 09, 1994|By ANDREW LECKEY | ANDREW LECKEY,Tribune Media Services Inc.

The Axis powers. The Beatles. Burt and Lonnie.

Alliances don't always work, often because they're marriages of convenience lacking necessary resources, staying power or compatibility.

A year ago, the grand Bell Atlantic/Tele-Communications Inc. (TCI) merger was announced -- a deal that would ultimately fall apart in the attempt to meld regional telephone with cable.

Since then, industries that ultimately will make up the so-called information superhighway have turned their anxiety into a complex series of corporate combinations and agreements. Some are impressive financial arrangements, others as ephemeral as melting snow.

Many recent announcements have left conservative stockholders perplexed or concerned. As I've stated before in this column, regional phone companies and cable firms are in the hot seat.

Most regionals don't have the technological know-how or financial resources necessary to assume leadership roles in the technology revolution. They're also seeing new competitors invade their local service areas. Cable companies, to survive, are being forced to offer services that may not be profitable for years.

The future likely will bring a world of four or five "super" communications giants offering all levels of service across all types of technology. Many firms won't make the cut.

Among the recent alliances, as firms seek to become whole:

* Bell Atlantic Corp., Nynex Corp. and Pacific Telesis Group are joining with Hollywood's Creative Artists Agency to offer video entertainment programming for telephone customers. Superagent Michael Ovitz will organize the enterprise to provide movies and programming. Regionals Ameritech Corp., BellSouth Corp. and Southwestern Bell Corp. already have an alliance with Walt Disney Co.

* Bell Atlantic and Nynex, which are merging cellular businesses, are forming an alliance with the proposed cellular combination of U.S. West Inc. and AirTouch Communications. The resulting foursome would bid together in the rich auction in early December of federal licenses to offer "personal communications services," or PCS.

* Cable operators TCI, Cox Enterprises Inc. and Comcast Corp. entered into an agreement with Sprint Corp. to enter local telephone markets. The partners would use cable wires to the home and new wireless phone services, which would be joined to Sprint's fiber-optic long-distance network.

"Amid frenzy to acquire assets that will pay off in the year 2000, there's widespread investor anxiety about where regional Bells are going," observed Daniel Reingold, analyst with Merrill Lynch & Co., who, like many analysts, prefers stock in the wealthy long-distance carriers. "Regional stocks were bought by investors for security of dividend and stability, but cutthroat competition and diversification moves are taking that away."

Embattled regionals also are losing many top-notch employees who have opted for early retirement plans in cost-cutting efforts.

"Changes in local phone companies mean change for consumers and the companies' employees, since these are no longer utilities with protected monopolies and they're much more volatile," explained Michael Balhoff, analyst with Legg Mason. "It's difficult to predict their degree of success in areas such as video services and PCS."

Progress won't always result. "Perhaps I was too optimistic a year ago and became a victim of the hype," said Connie Luecke, analyst with Duff & Phelps. "Now I'm more pessimistic and jaded, and I think some alliances don't mean anything at all and won't last."

Stock of cash-rich long-distance carriers AT&T Corp. and MCI Communications are recommended by Mr. Balhoff, Ms. Luecke and Mr. Reingold. Sprint is suggested by Mr. Balhoff and Mr. Reingold, while Ms. Luecke would use that stock as a source of funds because she's concerned about the extravagance of its recent deal-making.

Among regionals, Bell Atlantic and U.S. West are favored by Mr. Balhoff and Mr. Reingold, while Ms. Luecke rates them a hold. Southwestern Bell is recommended by Ms. Luecke and Mr. Reingold. and Ameritech is suggested by Ms. Luecke. The analysts currently have scant praise for the remaining regionals.

"Local Bells are in trouble, since the cost per home of their copper wire system is twice the $400 cost of either a wireless PCS or coaxial cable system," said Philip Sirlin, analyst with Wertheim Schroder.

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