AT&T; hopes to take Internet to local phone market Long distance leader might be interested in purchasing AOL


NEW YORK -- AT&T; Corp., as part of its plans to boost profits and sales faster, is looking to reach local phone customers through the Internet.

AT&T;, the largest U.S. long-distance phone company, has failed in efforts to provide local phone services to the majority of its 80 million residential long-distance customers. It reported taking a first-quarter charge of $371 million, or 23 cents a share, for the costs of its unsuccessful effort to crack the local market.

AT&T; reportedly is interested in buying America Online Inc., the largest online service, which has about 12 million residential customers. AOL would give AT&T; a direct line to homes and put it a step closer to providing customers with a variety of communications needs, including wireless, long-distance, local, Internet and data services.

"AT&T; still lacks a viable entry for the local telephone market," said William Deatherage, an analyst at Bear, Stearns & Co., who has a "neutral" recommendation on the company's shares.

"Ultimately," he said, "a company that serves a household with online services is positioned to be a full-service provider."

By purchasing an Internet company, AT&T; could bypass the local phone companies that charge it billions of dollars a year for access to their networks for voice and data services.

"The closest thing for AT&T; to develop local strategy would be an acquisition of AOL," said Brian Adamik, an analyst at the Yankee Group. "It would help solidify its position with customers on a tangible level."

AT&T; shares rose $1.06 in trading on the New York Stock Exchange yesterday, to close at $63.

Deatherage of Bear, Stearns expects AT&T; to acquire companies, possibly Internet companies, as a way to boost its lagging growth. The Financial Times reported yesterday that AOL had rejected a takeover offer from AT&T.;

AT&T; and AOL officials declined to comment on that report.

AOL shares rose $4.88 yesterday and closed at $93.88, after touching a record $95. Shares of other Internet companies, including Yahoo! Inc., Lycos Inc., Excite Inc. and CNET Inc., rose amid speculation that AT&T; or media companies such as Time Warner Inc. and Walt Disney Co. will bid for them.

AT&T; Chief Executive C. Michael Armstrong is moving quickly to focus on the Internet and data-services markets. Last month, AT&T; reached agreements with three Internet companies to market and sell its phone services online.

It also opened a center for its AT&T; Labs research arm in California's Silicon Valley, where many smaller developers of Internet technology are based.

The moves underscore the Internet's importance to AT&T;, which is losing market share in its primary long-distance business. Armstrong is pushing AT&T; into fast-growing markets and targeting customers who buy services that generate the most profit.

AT&T; wants to dramatically increase exposure to the Internet business, including building its own network and reaching online consumers, analyst Deatherage said.

CEO Armstrong wants to boost AT&T;'s revenue by 2 percent to 4 percent this year. That could be a tall order. First-quarter revenue rose 0.7 percent, to $12.63 billion, putting AT&T; well behind its rivals, including MCI Communications Corp. and Sprint Corp.

Pub Date: 6/18/98

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