Mar. 30--Sprint Corp. and three cable companies, including Tele- Communications Inc., the East Bay's dominant cable provider, unveiled plans Wednesday to spend $4.4 billion to develop local phone services.
The effort by TCI, Sprint, Comcast Corp. and Cox Communications Inc. is expected to challenge the seven Baby Bells, including Pacific Telesis Group,
for control of the nation's $90 billion local telephone market. As a riposte,
PacTel and its siblings have readied plans to invade the cable-television and long-distance markets.
The Sprint-TCI group promises to provide wireless, cable television, local telephone and long-distance services to customers who would pay a single bill for these offerings.
``You can see a new type of full-service, coast-to-coast telecommunications company emerging'' from the alliance of the four companies,
said Ronald LeMay, who was named Wednesday as the venture's chief executive. LeMay is a former Sprint executive.
Some industry watchers believe even more services could spring from the alliance.
``These could include computer on-line services, high-speed data traffic, video telephones,'' said Michael Kupinski, an analyst with A.G. Edwards in St. Louis.
The $4.4 billion is about twice as much as long-distance giant MCI has said it would spend to develop a local phone system.
TCI has already been preparing itself to deliver local phone service by negotiating to purchase a number of cable systems in the Bay Area, including those serving Richmond,, Concord, Oakland and Berkeley. Directly or through partnerships, TCI could control access nearly all Bay Area cable subscribers. This type of wide-reaching cable network could form the backbone of a telephone system.
TCI, the nation's largest cable operator, is also attempting to form clusters of cable systems in several other U.S. markets.
Industry analysts say Sprint, TCI, Cox and Comcast have a good chance to succeed.
``We believe Sprint is making one of the more viable plays to position themselves as a competitor in the local telephone market,'' said Craig Ellis,
analyst with Richmond, Va.-based investment firm Wheat First Butcher Singer.
But Ellis warned that the $4.4 billion investment will likely burden Sprint, TCI and their partners with hundreds of millions of dollars in new financial obligations. The venture is expected to be financed with debt and equity.
``This endeavor will come at a price,'' Ellis said. ``This will most certainly impact Sprint's earnings growth going forward for a period of time.''
One of the key weapons in the war the Sprint-TCI group intends to wage against the Baby Bells is Teleport Communications Group, a company that is already competing in limited ways against Pacific Bell. Teleport, which is co-owned by TCI and several other cable companies, will be able to provide its owners the switching capability to transfer calls among cable, long- distance and wireless networks.
``We hope to become the Bay Area's second telephone company,'' said Chuck Levine, general manager of Teleport's operations in San Francisco. Teleport has built a fiber-optics ring around the Bay Area.
The Sprint group will probably spend ``tens of millions in Northern California, if not hundreds of millions,'' to develop a phone system, Levine said. END!A3?CC-SPRINT
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