Time Warner, AT&T; Discuss Phone Service Joint Venture : Telecom: The long-distance carrier is looking for ways to reduce the billions it pays out to local telephone companies.

AT&T; Corp. and Time Warner Inc. are in negotiations to jointly enter the local telephone business, industry executives said Tuesday.

AT&T; declined to comment on specifics of the talks but said it is in discussions with a number of cable companies about new methods of providing local phone connections for its long-distance customers.

The nation’s largest long-distance carrier, with $43.4 billion in revenue last year, said it is looking for ways to reduce the nearly $18 billion annually it pays to local telephone companies for origination and completion of long-distance calls.

“These discussions are very preliminary,” said Jim Byrnes, a spokesman for AT&T.; “There are lots of qualifications. It’s not clear that the cable industry can provide these connections.”

AT&T; stressed that the company is not interested in buying an equity interest in Time Warner, which is the nation’s second-largest cable operator, with 11.5 million subscribers.

Wall Street analysts have speculated that AT&T; might buy the 15% Time Warner stake owned by Seagram Co. Industry executives said Tuesday that federal rules prevent long-distance companies from jointly owning property with local phone carriers. US West, a local carrier based in Englewood, Colo., owns a 25.5% stake in Time Warner’s cable business.

Unlike rival MCI Communications Corp., which agreed last week to invest as much as $2 billion in Rupert Murdoch’s News Corp., AT&T; said that it had no interest in entering the content side of the entertainment business.

Industry analysts said that an alliance between Time Warner and AT&T; could help position both for the realignment of the telecommunications industry, as Congress discusses allowing local phone companies into the long-distance business and long-distance carriers and cable companies charge into the local phone business.

A series of alliances have been announced to prepare for the new landscape. Sprint Corp. is joining with three of the biggest cable companies--Tele-Communications Inc., Cox Communications Inc. and Comcast Corp.--to offer wireless services and possible local phone service as well. The Baby Bells have teamed up in two joint ventures designed to help them compete with the cable industry in delivering television programs.

Time Warner would not comment on the discussions. But industry executives said an alliance with AT&T; would give Time Warner the best brand name in the phone business, a clear advantage in its effort to sell phone service to cable subscribers, many of whom are suspicious of the cable industry’s ability to provide good service. Time Warner already provides phone service in Rochester, N.Y., and plans to rollout limited services to businesses in New York City later this year. New York is among the most progressive states in deregulating the phone business.

“This is part of a two- to three-year build-out by the cable industry for phone capacity,” said Christopher Dixon of PaineWebber Inc.

It is not entirely clear how an alliance between Time Warner and AT&T; will affect Time Warner’s relationship with US West. That company has been buying cable networks, including the investment in Time Warner, as a way to build its own national phone business. While there is no overlap between Time Warner’s cable coverage and US West’s phone services, the local phone supplier could see the AT&T; venture as undermining its own local brand.

Yet as one industry executive said, “They are probably delighted by the involvement of such a strong name brand.”

For AT&T;, a Time Warner alliance would likely form only one piece of a broader strategy to build a presence in the local phone business. “It gets AT&T; coverage of only 9% of the country,” said one industry executive.