AT&T DSL plans get snagged in cable
By Deborah Solomon
WSJ Interactive Edition
April 12, 2001 6:53 AM PT
AT&T's nascent plan to roll out high-speed Internet service over traditional phone lines is already hitting a speed bump.
The company recently stepped up plans to use digital-subscriber-line technology as a way to get voice and data services to consumers nationwide with its purchase of assets from NorthPoint Communications Group. But, it turns out, a little-noticed clause in a contract that AT&T Corp. (NYSE: T) signed earlier this year with two big cable companies could prohibit the telecommunications company from offering DSL in important parts of the country until June 2006.
Earlier this year, AT&T signed an agreement with Cox Communications and Comcast that prevents AT&T from offering high-speed Internet access to residential customers in the territories served by the two cable companies. In return, Cox and Comcast must use Excite@Home, a high-speed Internet-service provider that is largely owned by AT&T, in "substantially all" their cable systems across the U.S. The agreement runs until June 4, 2006.
Assuming Cox and Comcast stick to their end of the bargain, that agreement would delay AT&T's ability to offer DSL service to consumers nationwide. Comcast and Cox, which operate the fourth-largest and fifth-largest cable systems, together have cable lines that pass about 13 million homes in cities stretching across the U.S., from Phoenix to Philadelphia and Detroit.
An AT&T spokeswoman said the agreement with Cox and Comcast applies only to high-speed Internet service and doesn't affect the company's ability to sell other technologies, such as phone service over DSL. The company plans to eventually deploy voice over DSL, which uses a digital subscriber line to provide a dial tone. The spokeswoman said the agreement doesn't impede AT&T's ability to sell DSL to business customers, which the company has been doing for more than two years.
But industry observers said the agreement is troubling since it could limit AT&T's market opportunity and throw a roadblock in the path of a business that hasn't gotten off the ground and faces its own separate set of challenges.
Breaking up is hard to do
The hurdles AT&T faces in trying to deploy DSL points to a broader challenge for the company as it attempts to break itself into four pieces. The telecom firm is in the process of splitting into separate broadband, wireless and business companies, with consumer long distance trading as a tracking stock of the latter.
AT&T wants to sell DSL as a way to generate revenue for its consumer long-distance business, which is seeing declining revenue as a result of falling long-distance prices, fierce competition and the substitution of new technologies such as wireless for traditional phone calls.
Meanwhile, the proposed breakup of AT&T means that another potential hurdle lurks for AT&T's DSL offering as well. AT&T must decide whether to sell its DSL service to consumers in the areas where AT&T Broadband, the company's cable division, sells a similar high-speed Internet product that uses cable-television lines. AT&T Broadband, the nation's largest cable provider, has cable systems covering about 30% of the U.S., including major cities such as San Francisco and Denver.
AT&T officials said they are still working out the details of what service will be offered where but said the company will have a "branding system that minimizes confusion," according to a spokeswoman.
To sell DSL, AT&T will need to connect to the phone networks owned by the regional Bell companies -- a somewhat costly and complex undertaking. Several companies that tried to build a business on selling DSL have found it largely unprofitable and some have either gone out of business or are teetering on the bridge of bankruptcy. "It's been impossible for any service provider other than the Bells to make money at it," said Brian Adamik, an analyst with the Yankee Group.
Last month, AT&T agreed to pay $135 million for virtually all the assets of NorthPoint, a DSL provider which recently sought bankruptcy-court protection, to help get a jump-start on the DSL business. AT&T is aiming to begin selling DSL later this year.
With AT&T seemingly precluded from offering DSL in some areas and the company facing a stiff challenge from the Bells -- which have been hawking DSL for the past several years -- Adamik said it is unclear whether AT&T's overall efforts to sell DSL will pay off. Still, industry observers say, any competition is ultimately good for consumers, who can benefit from more choice and potentially lower prices.
Competing against itself
What is becoming clear is that once AT&T's breakup is complete, the separate companies will provide many of the same services. AT&T Broadband, for example, offers local phone service using cable telephony, and AT&T's consumer long-distance division plans to offer local service using DSL. AT&T Wireless Group, which will be split off from AT&T later this year, also is developing a product called "fixed wireless" to provide local phone service over a wireless connection.
Before the breakup, AT&T's original intent was to use the different technologies to get voice, video and data services to customers across the country. In areas where AT&T Broadband doesn't own cable-TV lines, for example, the company planned to sell local phone service using fixed wireless technology.
When the breakup is complete, industry observers say, the various AT&T companies will have to do what is best for them and their shareholders and not worry about stepping on another AT&T company's toes.
Meanwhile, to prevent an all-out marketing war that causes customer confusion, AT&T is working out brand licensing agreements with its divisions. The agreements are likely to include provisions detailing where a company can use the AT&T brand name and dictating that the companies coordinate marketing efforts if they offer service in the same region.
An AT&T spokeswoman said the different divisions may eventually compete against one another, but will do it in a way that doesn't hurt the AT&T brand or confuse customers.
"We feel customers want choice and this provides customers with a choice of a variety of services from different AT&T companies," the spokeswoman said. |
