AT&T `Blip' Slaps Vendors

K.C. NEEL

AT&T Broadband's decision to curtail construction and equipment spending until next year won't likely affect the company's long-term ability to morph into a full-service telecommunications provider. But it does point up the precarious position the company is in these days, observers say.

This isn't the first time AT&T has pulled back on its spending habits in order to shore up its financials.

The last major shutdown came in 1997 when Tele-Communications Inc., which was purchased by AT&T last year, halted all construction, laid off 2,000 workers and put a kibosh on all marketing efforts. The company was in dire financial straits, and it had to react drastically or risk further red ink. This latest stop in spending is more related to inventory management and minor budgetary realignments than underlying financial troubles, CEO Dan Somers says

Some industry insiders agree.

"This is a blip on the trend line for AT&T," says one executive familiar with AT&T's business. "There's really nothing of substance to this."

However, he also notes that "it's very, very critical for them not to spend a penny more than was budgeted."

It may be a blip on AT&T's radar screen. But the news that AT&T won't be writing any more checks until next year sent shares of several AT&T vendors spiraling downward last week. Most vendors believe that the slowdown is temporary, but several hardware companies including Antec and Harmonic Inc., which suffered significant blows following the news, have yet to recover. Investors are increasingly willing to jettison stocks that report problems with sales.

AT&T isn't alone in cutting back its spending habits. Corporate capital spending is starting to slow down across the board after years of aggressive acquisition. Corporate profits are beginning to fall; banks are tightening lending policies and consumer confidence is starting to wane a bit.

"My understanding is that this was a capital infrastructure decision, basically delaying shipment to the first of the year," says Rich Nelson, senior director-marketing for Broadcom's Business Communications unit. Broadcom suffered similar troubles as Antec and Harmonic when Cisco Systems, one of the company's largest customers, cancelled some recent orders.

"With us and Cisco," Nelson said, "it was a similar thing except that it was the telecom equipment suppliers - the Qwests of the world - who were slowing down. This stuff happens, and in the end, it makes no significant difference to anyone."

Yet AT&T is in a cutthroat race to sign up customers to new services and curtailing spending now could affect how well the company finishes in that marathon. It must continue to sign up customers to new services or risk the continued ire of investors who are increasingly losing their patience with AT&T's lackluster performance.

"Reaction was much larger than it needed to be," says one insider. "Come January, they'll all be coming out of chutes again."

And while there was some speculation that AT&T's financial squeeze could prompt the sale of some of its systems, possibly even to John Malone, company executives said its major market groups wouldn't go on the block.

"None of our clusters," says AT&T Broad- band president Dan Somers. "Not at all."

Rounding out its distribution roster with the major MSOs, FX has reached a new long-term affiliation agreement with Comcast Cable. The agreement pushes carriage commitments for the general entertainment network past the 65 million mark.

Lindsay Gardner, EVP of affiliate sales and marketing for for Fox Cable Networks Group, says that FX will air on 80% of Comcast's system within 24 months. Currently, FX is in about 1.5 million Comcast homes, largely in systems the MSO took over via acquisitions.

Like the balance of the network's carriage, the Comcast agreement will put FX on expanded basic. Gardner says all of FX's carriage and commitments to same are on basic or expanded basic.

"We have had talks that have been continuing for years. This is the culmination of a lot of discussions and hard work," says Gardner, adding that FX's coverage of NASCAR was a real driver for the deal. "Comcast has a strong presence in the southeast, where the sport is very popular. The Michigan 500 will be carried on FX and Detroit is another key market for Comcast."