SBC, Prodigy to Join Forces on Internet Operations

SBC Communications Inc., the No. 1 local phone company, and Prodigy Communications Corp. said Monday that they agreed to combine their consumer and small-business Internet operations.

The deal gives San Antonio-based SBC, the parent company of California’s Pacific Bell, a 43% equity stake in Prodigy and gives the White Plains, N.Y.-based Web provider access to SBC’s high-speed Internet technology and increased presence in the U.S. Spanish-speaking market.

Under terms of the deal, SBC will make Prodigy its exclusive retail consumer and small-business Internet access provider to the roughly 100 million people living in its service area.

Prodigy will assume management of SBC’s 650,000 dial-up phone-line and high-speed Internet access customers, bringing Prodigy’s subscriber base to more than 2 million customers.

“In one fell swoop, Prodigy has become a consumer broadband access leader,” said Ted Broomfield, an analyst with SoundView Technology Group. Internet service providers are racing to strike deals that would allow subscribers to upgrade to these higher-speed connections from slower dial-up links.

In addition, SBC pledged to deliver a minimum of 1.2 million new customers over the next three years as it exclusively markets the Prodigy service.

Further financial terms of the deal were not disclosed.

Prodigy will be able to tap SBC’s $6-billion capital investment in high-speed digital subscriber line technology. SBC is the leading U.S. provider of such high-speed links, with more than 100,000 customers, the companies said.

As part of the deal, Prodigy said it will make DSL its preferred method of high-speed Internet access offering, even in regions where SBC does not operate.

SBC executives said that while Prodigy would become SBC’s retail access brand, the telephone operator would continue to offer wholesale high-speed Internet access to other customers, including America Online Inc.

Prodigy, which is backed by Mexican telecommunications giant Telmex and Telmex-controlled Carso Global Telecom, both owned by Mexican billionaire Carlos Slim, will gain new reach among U.S. Spanish speakers.

SBC is the dominant local telephone provider in the Southwest, Midwest, California and Nevada, where 60% of the country’s 30 million Spanish speakers and nine of the top 10 metropolitan Latino markets are located.

Prodigy will contribute its assets to a new limited partnership that would be operated under the brand name Prodigy, and which would operate Prodigy’s business. The partnership will be 57% owned by Prodigy and 43% by SBC.

SBC will have the right to convert its interest in the operating partnership into a direct-equity interest in Prodigy. Current stockholders of Prodigy will remain stockholders of Prodigy, and Prodigy’s common stock will remain listed on Nasdaq, the companies said.

Shares of Prodigy fell $1.13 to close at $31 on Nasdaq, while SBC slipped 13 cents to close at $51.38 on the New York Stock Exchange.