By Jeff Fischer (TMF Jeff)
March 22, 2000

Matching AT&T's old reputation, this may be the most "laid back" Duel that I have ever read. My opponent, TMF Otter, was laid back in his bear argument -- perhaps because the strong bear arguments are in hibernation. Why? Because Ma Bell is no longer laid back. Everything that AT&T 's CEO is doing is meant to keep the company from falling into irrelevance, which TMF Otter fears could happen. However, the fact that AT&T is the leading wireless provider and will be the world's largest cable operator already shows that AT&T is highly relevant to today's communication industry.

Of course, AT&T faces great challenges, and I agree with TMF Otter that AT&T is at a strategic inflection point. The company has already convinced me, however, that it is aware of this, and that self-awareness is initially the most important concern. Secondly, AT&T has convinced me that it can move swiftly to capitalize on this inflection point. AT&T snapped up most of the best cable and wireless properties before any competition knew what happened, and now the company has moved quickly to profit on international properties, too.

International deals include a $10 billion global network venture with British Telecommunications, and AT&T also plans to acquire Netstream, a Brazilian phone company, and FirstCom. FirstCom runs telecom operations in Chile, Colombia, and Peru. AT&T will combine all of these Latin American properties into one publicly traded subsidiary, AT&T Latin America. Finally, AT&T also recently received a $5 billion investment from Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>. I can't think of many companies that are more relevant than Microsoft.

I was surprised that TMF Otter didn't mention AT&T's long-term debt, which stands at an eye-grabbing $22 billion. Much of this debt is the result of acquiring cable companies, which don't sell cheaply and which often bring debt with them, too. However, even with this debt, AT&T is on solid financial footing and it has good credit ratios. The company's debt/EBITDA stood at 1.8x at the start of 2000, while its EBITDA/interest payment ratio was a healthy 12x. All of this means that AT&T should be able to service its debt safely over many years, and it still has breathing room for more acquisitions and deals.

My Foolish opponent in this Duel, Bill Mann, is the Fool's resident expert on the telecommunications industry. So, Bill's admission that he doesn't have a strong bear argument for AT&T is one of most bullish statements that we could ask for. Thanks, Bill.

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