The Baby Bell local-phone carrier said it will test the service in selected markets starting in mid-year and begin rolling out the service in its 14-state region by year-end. It would be first major local phone carrier to offer a service tying the phone to the TV and Internet.
In a separate development, Merrill Lynch upgraded U S West stock to a "buy" from "accumulate," saying the stock was undervalued after a 14 percent price drop last week. Shares of U S West (USW), scaled 1 11/6 higher to 55 in trading Monday morning.
U S West is feeling some pressure from AT&T (T) , which is acquiring Denver-based Telecommunications Inc. (TCOMA), the second largest U.S. cable operator. Ma Bell plans to offer phone and Internet service over cable lines within the next few years in much of U S West's territory.
As a result, the company last week said 1999 earnings would be lower than initially projected because it plans to spend $300 million to upgrade its network in preparation for combat with AT&T.
Merrill Lynch analyst Daniel Reingold, however, downplayed that threat in a report Monday.
"(M)uch of last week's pressure on USW shares was driven by the company's vague but loud reference to AT&T/TCI's plans to offer cable telephony services in four U S West cities over the next several years," he told clients Monday. "We believe the impact on USW is likely to be much smaller and far less painful than many investors must have surmised last week."
Indeed, AT&T still has to spend billions to upgrade its cable networks, and widespread service won't likely be available until some time in 2000 at the earliest. U S West isn't likely to lose much business, at least initially, as a result.
The Baby Bell said it has selected software from Network Computer to provide its Internet-TV services, which will also allow users to watch television and surf the Web at the same time. Network Computer, primarily owned by Oracle Corp. (ORCL), is a rival of Microsoft's (MSFT) WebTV.
The U S West service will also be available over ordinary dial-up connections or high-speed "DSL" lines that are up to 200 times faster. The television and phone will be connected via a set-top box. U S West has not selected a manufacturer to make those boxes yet.
"With U S WEST @TV, households can enjoy the benefits of being connected without having to purchase a PC," said Eric Bozich, vice president of Internet and Applications. "Catching the local news on TV or picking up the phone are part of peoples' daily routine. We are aiming to make Web tone as common as dial tone."
By Jeffry Bartash, CBS MarketWatch