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And what will all this cost consumers? While Armstrong declines to set a price on the full package of phone, Internet and TV services, he says the savings that will flow from delivering many offerings over a few lines could hold monthly bills well below $100, depending on the services that customers choose. Says Malone: "Once this platform is in the home, the marginal cost of supplying highly desirable entertainment or communication services is very low." No one--least of all Armstrong--thinks your bill from AT&T will get smaller. The hope is that consumers, confronted with all this goodness, will sign up for everything from video conferencing to Net access.
And, of course, local phone service. The real sweet spot of the TCI deal is that it will let Armstrong outflank the Baby Bells to provide local-calling services. With AT&T's 51.4% share of the $95 billion long-distance market steadily dwindling (it was 64.9% at the start of the decade), the company had been scrambling to sign up local customers. But that meant renting phone lines from the Bells--which control the so-called last mile of the telecommunications system--to provide local service, a costly procedure that led to endless squabbles over terms. "We've got to have access to the market and not just a dialogue, a debate or a contract," Armstrong says.
That drove him straight to his pal Malone. Armstrong first suggested a deal during a visit to TCI headquarters in Englewood, Colo., last October, a week after he took the top job at AT&T. The two leaders had done business while Armstrong was at Hughes Electronics, and "his view and my view seemed pretty compatible," Armstrong recalls. But first came Armstrong's $11 billion acquisition of Teleport Communications in January. Teleport, a leading provider of local phone service to businesses, serves 66 U.S. markets through lines that circumvent the Baby Bells.
Meanwhile, Malone seemed to be preparing to sell TCI, which he had built into the dominant U.S. cable company. But his complex dealmaking had turned TCI into an unwieldy, debt-ridden giant. So, in February 1997, Malone brought in long-time cable executive Leo J. Hindery Jr. handed him the title of president and told him to clean up the mess. Hindery promptly whacked thousands of jobs and wiped $4.5 billion in debt off TCI's books by putting 3.8 million cable subscribers into joint ventures with other companies. As Colorado cable analyst Ted Henderson puts it, "They had to dress up the bride and make her attractive for AT&T."
For Malone the deal was a farewell to a company that he has dominated for 25 years. Malone recalled earning a Ph.D. (in operations research) with hefty financial help from AT&T while he worked at Bell Labs in the 1960s, and "now they are getting their dividend." Malone is not doing badly either: he leaves TCI with $1.8 billion worth of stock. "I am personally betting substantially that this will be a very successful investment," he says.