AT&T Bear's Rebuttal
by Paul Larson ([email protected])

I have to admit that I found myself scratching my head after I read David's argument. I'm just a bit baffled at how David can possibly sing the accolades of AT&T shedding unprofitable businesses while refocusing its attention and then turning around and calling the company's acquisition of TCI a positive event. TCI has been in the red for years and shows little signs of posting black ink any time soon. Expected loss this year? A mere $160 million or so. If shedding unprofitable businesses is a good thing, isn't buying them bad?

Furthermore, what experience in the cable industry does AT&T have? I thought refocusing on the core long-distance business was the path to salvation? To this Fool, the TCI merger seems much more like a diversion than a focusing. Even in Dueling Fools, David, you can't have your cake and eat it, too.

Again, I just can't see how this merger is going to do anything but suck AT&T dry financially. Upgrading TCI's one-way cable service to two-way is going to be extremely expensive. In addition, I see nothing but distractions in trying to run and merge two totally different businesses. Long-distance telephone and local cable are two operations that are not going to integrate easily. Sure, AT&T is buying a lot of "pipes" into homes across the country, but they are old pipes that it has no experience in operating.

Moving on, I have to agree with my opponent's assertion that spinning off Lucent was a brilliant move. The shareholder value created by having Lucent independent has been nothing short of inspiring. In fact, Lucent's stock has done so well that it even surpasses AT&T in market capitalization at the moment. This is obviously a case where the two parts were worth far more than the whole.

Nevertheless, we are talking about GrandMa Bell's future here, not her past. No matter how spectacular Lucent performs going forward it will not affect the price of its old parent. By buying AT&T today you are not buying Lucent. You are buying the core long-distance business which, as I indicated in my initial argument, will be anything but a walk in the park to harvest profits. Maybe GrandMa Bell would have done better to keep Lucent's equipment business and then sell off the long-distance operations. Said another way, Lucent is now nothing more than a happy memory to AT&T.

Speaking of happy memories, they may be all AT&T shareholders have of their portfolio's performance if the TCI merger is allowed to go through and the company's deft competitors keep on eating the cash cow's lunch. I know I'm supposed to respect my elders, but I just find it hard to like GrandMa Bell at these levels.

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