Speculation continues that AT&T Corp. will unveil plans to issue a separate tracking stock to trace its wireless business, which has grown significantly since the carrier introduced its successful Digital One Rate plan.
The tracking stock, according to published reports, also would include fixed wireless services, which analysts estimate will cost about $1 billion to roll out. AT&T already is offering commercial fixed wireless access in Dallas, and said in its recent quarterly conference call that it will widely introduce the service next year.
AT&T is busy upgrading its cable networks with the capability to provide local service. In places where this is improbable, AT&T plans to provide service wirelessly. AT&T has driven down the cost of providing wireless fixed access, to about $750, matching costs of circuit-switched cable telephony.
A tracking stock would unleash the value of AT&T’s wireless business, which continues to see strong improvement in its margins resulting from its one-rate plans. Operating cash flow reached $404 million in the third quarter, up 22.7 percent from the second quarter, while revenues jumped 40.9 percent.
“Digital One Rate was a major contributor to our profitability improvement, with twice the operating EBITDA per customer than other plans,” AT&T President John Zeglis told analysts this month.
News of the possible tracking stock spurred AT&T’s stock to jump 12 percent on Monday. Investors have worried about the high cost associated with upgrading the cable networks, and those worries have shown up in the company’s lagging stock price.
Sprint Corp., which this month agreed to merge with MCI WorldCom, created its wireless tracking stock last year to separate the capital intensive business from its local and long-distance business. By the end of the third quarter it was the third-best performing stock on the S&P 500.
AT&T also is expected to spend large amounts on its wireless network to try and keep capacity and coverage ahead of demand. The carrier has struggled with capacity problems all year as the Digital One Rate plan has caused usage to skyrocket across the country. AT&T Wireless is expected to spend about $3 billion on its wireless business in 2000 compared with this year’s $2 billion allocation.
Analysts value AT&T Wireless at about $60 billion, comparable with nationwide players Nextel Communications Inc. and Sprint PCS, which both are younger companies and have values of $50 billion.
