AT&T's Offspring
Part 2

By Bill Mann (TMF Otter)

(Oct. 19, 1999) -- In part 1, we looked at BellSouth and Bell Atlantic. In part 2, we'll finish our review of the Baby Bells, move on to the spin-offs, and show you how much it's all worth.

SBC Communications (NYSE: SBC)
Market Cap: $102 billion
P/E: 22
Dividend Yield: 1.8%
Company Headquarters: San Antonio

SBC is the glutton of the Baby Bells, having absorbed Pacific Bell and Ameritech. SBC itself is the former Southwestern Bell, with a service area encompassing Texas, Arkansas, and Oklahoma. Pacific Bell's territory is California and Nevada, and Ameritech's is the Great Lakes states. In addition, SBC purchased SNET, a non-Bell local telecom company based in Connecticut, and controls Cellular One, a national cellular communications provider.

SBC provides telecommunications products and services in the above areas and 10 countries. According to the company, "SBC Communications Inc. continues to seize opportunities that help us reach our goal of providing the most comprehensive set of products and services available in the marketplace. Our strategic mergers, national-local strategy, and long distance market endeavors help us grow quickly and efficiently to benefit our customers."

With the completion of the Ameritech merger, SBC's combined 1998 revenues are $46 billion, with 10 million domestic wireline customers, $22 billion in strategic investments in 23 countries, and 59 million subscriber lines. Also, two of SBC's subsidiaries, Pacific Bell and SNET, are consistently ranked in the top telecommunications companies by J. D. Power & Associates.

Internationally, SBC is invested in communications, Internet, and publishing companies in France, Switzerland, Israel, South Africa, Taiwan, South Korea, and Mexico (10% ownership in TelMex), and undersea fiber optic projects running from the U.S. to Japan and China. The Ameritech merger adds 13 countries to those already served by SBC. Finally, the addition of Ameritech gives SBC one of the largest home and business security firms in the country.

What you received in 1984: For each 10 AT&T shares, you received 1 SBC share = 10 shares
For each 10 AT&T shares, you received 1 Pacific Bell share = 10 shares
For each 10 AT&T shares, you received 1 Ameritech share = 10 shares
What you have now: 300.743 Shares
Value: $ 14,642.44

Market Cap: $30 billion
P/E: 18
Dividend Yield: 3.5%
Company Headquarters: Denver

US West, Inc. provides a full range of telecommunications services to more than 25 million customers in 14 Western and Midwestern states. It is, however, the one Baby Bell that has not appreciably spread into other extra-regional lines of business. US West had 1998 revenues of $12 billion, derived from its directory, local communications wireless, and Internet services. The company also offers cable services in Omaha and Phoenix, two of the larger markets in its service area.

The company is currently in the midst of being taken over by Qwest Communications, a new generation long distance and Internet bandwidth provider. Should the merger be consummated, US West will be part of a $65 billion international telecommunications provider, though it will also represent the first time one of the Baby Bells would be taken over by a non-Bell company. (Though it should be noted that Joe Nacchio, the CEO of Qwest, is a former AT&T executive.)

What you received in 1984: For each 10 AT&T shares, you received 1 USW share = 10 shares
What you have now: 76.482 Shares
Value: $4,359.48

Those are the Baby Bells, but we do have a few other properties to examine: Lucent Technologies, NCR, Vodaphone Airtouch, MediaOne, and AT&T itself.

Lucent Technologies (NYSE: LU)
Market Cap: $194 billion
P/E: 74
Dividend Yield: 0.12%
Company Headquarters: Murray Hill, NJ

Lucent Technologies is the former Bell Labs, which was spun off in January 1996 to operate as a separate company. Lucent's 1998 revenues were $31 billion, and revenues should exceed $37 billion for 1999.

The company designs, develops, manufactures, and services systems and software that enable network operators and other service providers to supply wireline and wireless access; local, long distance, and international voice services; data and video services; and cable service.

What you received in 1996: .324084 Lucent shares for each AT&T share, or 51 LU shares
What you have now: 206.647 shares
Value: $12,192.15

NCR Corporation (NYSE: NCR)
Market Cap: $2.7 billion
P/E: 24
Dividend Yield: N/A
Company Headquarters: Dayton, OH

NCR was spun off from AT&T in September 1996, and is in many ways the forgotten child following the phenomenal success of Lucent. NCR Corporation designs, develops, markets, and services information technology products, services, systems, and solutions worldwide. NCR's primary focus is in data warehousing designed to assist companies in providing customer service at the point of transaction.

What you received in 1996: 0.0625 NCR shares for each AT&T share = 7 shares
What you have now: 7 shares
Value: $193.73

So these are the companies created by AT&T. But we are not yet done. What about those companies created by the offspring of AT&T, the grandkids, if you will. There are two.

Vodaphone Airtouch (NYSE: VOD)
Market Cap: $74 billion
Dividend Yield: N/A
Company Headquarters: Newbury, England

In April 1994 Pacific Telesis spun off its wireless segment, creating Airtouch, on a one share for each share of Pac Tel basis.
AirTouch grew to become one of the world's largest wireless companies based on the number of customers served by its ventures in the United States, Belgium, Egypt, Germany, India, Italy, Japan, Poland, Portugal, Romania, South Korea, Spain, and Sweden. AirTouch also owned an interest in the Globalstar satellite system. The company merged with Vodaphone, plc. Each share of Airtouch was exchanged for 0.5 shares of Vodaphone.

What you received in 1994: 23 shares of Airtouch
What you received in 1999: 12 shares of Vodaphone + $115 in cash
What you have now: 60 shares
Present value: $2,995 ($2,880 in share value + 115 cash)

MediaOne (NYSE: UMG)
Market Cap: $42 billion
Dividend Yield: N/A
Company Headquarters: Englewood, Colorado

In 1995 US West spun off its Media Group, which was subsequently renamed MediaOne. The stock was issued as a dividend with one share being issued for each share of US West.
MediaOne is the world's largest broadband company. The company provides a wide array of communications and entertainment services through local connectivity. The company has three main three lines of business -- cable-telephone, wireless, and directory and information services -- in selected high-growth markets worldwide, including United Kingdom, The Netherlands, Belgium, Japan, Czech Republic, Slovakia and Singapore. It currently has in excess of 8 million customers. Finally, MediaOne holds a 25% stake in Time Warner Enterprises (NYSE: TW), one of the largest multimedia corporations in the world.
Interestingly, to complete the circle, this grandchild of the original Ma Bell has recently entered into a merger agreement with none other than AT&T itself. Once consummated, the holders of Media One stock will be issued 0.95 shares of AT&T stock for each share and also receive $30.85 in cash. Perhaps if we wait long enough all of these companies may re-merge into a multi-media monster.

What you received in 1995: 62 shares of UMG (now MediaOne)
Present value: $4340

Market Cap: $152 billion
P/E: 20
Dividend Yield: 1.81%
Company Headquarters: New York

The great thing is that after all the spin-offs, you STILL have your grandparents' original shares, though the Ma Bell they bought is vastly different from today's AT&T. It is still the largest long distance communications provider in the world, but it has replaced much of its common carrier operations with services that provide content. AT&T is the largest cable company in the U.S., thanks to its takeover of TCI in 1998. AT&T became one of the largest local access providers through its purchase of Teleport Communications Group in 1997.

AT&T is the world's premier voice and data communications company, serving more than 90 million customers, including consumers, businesses, and government. With annual revenues of more than $51 billion and some 126,000 employees, AT&T provides services to more than 280 countries and territories around the world.

AT&T runs the world's largest, most powerful long distance network and the largest digital wireless network in North America. The company is a leading supplier of data and Internet services for businesses and the nation's largest direct Internet service provider to consumers.

AT&T holds minority positions in Excite@Home, the leading broadband access provider in the U.S., as well as a majority position in Liberty Media General. AT&T's U.S. cellular network is one of the most extensive in the nation. It also owns a stake in Concert, an international services provider held in conjunction with British Telecom. Finally, AT&T's positions in international telecommunications facilities are still incredibly diverse.

What your grandparents bought in 1983: 100 AT&T shares
What you have now: 172.571 shares
Value: $7,452.91

So, to summarize, let's make a roster of the companies and shares that have been derived from that original purchase of 100 AT&T shares:

Company            Shares          Value 
AT&T               172.571         $7,452
Bell Atlantic      194.822        $12,444
BellSouth          282.504        $11,942
SBC                300.743        $14,642
US West             76.482         $4,359
Lucent             206.647        $12,192
NCR                  7               $193
Vodafone Airtouch   60             $2,995 
MediaOne            62             $4,340 

TOTAL:                            $70,562

Original Investment:               $6,140
Annual Return:                      17.7% 

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