AT&T; in Pact to Sell Local Service Via Warner Cable

After months of negotiations, AT&T; Corp. and Time Warner Inc. will announce today the formation of a new company to deliver local phone service over the entertainment giant’s cable wires, sources said Sunday.

AT&T;’s proposed alliance with Time Warner, the nation’s largest cable-TV company, is the cornerstone of the phone giant’s plan to offer the first national brand for local telephone service since the 1984 court-ordered breakup of its operations into several regional Bell operating companies.

AT&T; took the first step toward this goal in June, when it proposed a $45-billion purchase of cable provider Tele-Communications Inc. That deal is expected to close in mid-February. Combined, the TCI and Time Warner deals would give AT&T; access to about 18 million households for coverage of more than one-third of the nation.

The alliances would take the AT&T; brand directly into the home, enabling the long-distance provider to offer local phone service without having to pay the regional Bells fees for the connections.

The agreement with Time Warner is the template for similar pacts that AT&T; is negotiating with other cable operators. The first of these partnerships with a group of small cable operators, including Los Angeles-based Falcon Cable Co., was recently announced.

Under the agreement with Time Warner, AT&T; would own roughly three-quarters of the new company and Time Warner the rest. The joint venture would pay Time Warner an upfront fee of $15 for every home in its system already wired for two-way communications. Over the last several years, cable companies have been upgrading their facilities for the two-way communications required for phone service. Delivering cable TV requires only one-way communication.

In addition, the venture would pay Time Warner $1.50 a month for each subscriber that signs up for AT&T;’s local phone service. That fee would climb to $6 within five years.

On Friday, Time Warner shares closed at $62.50, down $1.75, and AT&T; shares rose 81 cents to close at $90.75, both on the NYSE.