~ OT ~ AT&T Hopes for Better Luck With Broadband...
By George Mannes
Staff Reporter // The Street.com
The new alliance of AT&T (T:NYSE) and Microsoft (MSFT:Nasdaq) promises to
speed up the delivery of broadband services to millions of American homes.
But if history is a lesson, these new interactive services, piggybacked
onto cable TV systems, will not come as quickly as people might think.
As part of the deal, in which Microsoft is buying $5 billion of AT&T
securities, the two companies say they'll soon offer such digital cable
services as Internet access, interactive television and audio programming
with the help of Microsoft's Windows CE software in two showcase cities.
With AT&T building a substantive cable network -- including
Tele-Communications Inc. systems, the impending purchase of MediaOne
(UMG:NYSE) and some side deals with Comcast (CMCSA:Nasdaq), the network
will pass 25 million American homes -- the companies look poised to
revolutionize TV.
But you don't have to look too far in the past to see that when a cable
operator and a software developer decide to develop a new generation of
broadband services in a model city, things don't always turn out as
planned.
Back in late 1994, Time Warner (TWX:NYSE) and Silicon Graphics (SGI:NYSE)
(now known as SGI), showed off with great fanfare the Full Service Network
in Orlando, Fla. A trial system for what was envisioned as the next
generation of interactive television services, FSN featured movie videos on
demand. Home shopping. News on demand. Downloadable video games, too.
By mid-1997, Time Warner had scrapped the system. Time magazine estimated
that its parent company had invested $100 million in the project. "It may
have been the most expensive pizza-delivery system ever invented," the
newsweekly reported.
Some things are different this time around. For a variety of reasons --
including the falling price of computer hardware -- the technology should
be easier and cheaper for Microsoft and AT&T than it was for Time Warner,
SGI and the other companies who worked on FSN. With the commercial
incarnation of the Internet, there's a huge variety of content and services
to potentially offer customers -- not just the stores, games and
information services that Time Warner cobbled together for FSN. Plus, the
Internet has created an audience and whetted its appetite for these
services, points out Gary Arlen, president of research firm Arlen
Communications.
But other things haven't changed. Executives still don't know what
consumers want from these systems. As AT&T Chairman Michael Armstrong said
in a conference call with reporters and analysts Thursday morning, it's one
thing to sit around a conference room and decide what the service should
look like. It's another for your consumers to tell you what they want.
You've got to believe, Armstrong said, that AT&T will come out of the model
cities "being smarter" -- armed with applications that consumers want,
packages of services that work in the market and a sense of how much
consumers will pay.
Also, the development will not be as fast as the hype machine proclaims.
"It never happens as fast as these guys dream," says Arlen. "This is in
some degree wishful thinking from Microsoft, that it speeds the process
[broadband services], because it just takes time." It's unclear from
Armstrong himself what the pace is. He called 1999 "our year of piloting"
on the conference call, but AT&T's press release puts mid-2000 as the
deadline for putting Microsoft's TV software into the two showcase cities,
which the companies appear not to have selected yet. Arlen, citing
logistical hurdles like getting the set-top boxes into the retail market,
says it will take four or five years before AT&T's scenario becomes
widespread. "I think it's going to be very small in the next two, three
years," he says.
Of course, there are other factors too, such as regulatory issues,
primarily concerning AT&T's acquisition of MediaOne, but Armstrong is
confident that the deal will go through. "I believe, when the scrutiny is
over, we will indeed pass muster," he said.
One wild card concerns the access that companies other than Microsoft will
have to AT&T's cable network. In addition to the two cities relying
completely on Microsoft's Windows CE platform, AT&T and Microsoft say
they'll establish a third city that will rely partly on Microsoft software,
but allow other companies to supply their own software to work with it.
America Online (AOL:NYSE) and other Internet service providers have been
pushing for open access to AT&T's cable network, and Armstrong said he'd be
happy to let other subscription-based companies "ride on the interface."
"If AOL would like to sit down at the table and negotiate a commercial
arrangement, we welcome that," Armstrong said. Regarding past negotiations
with AOL, he said, "The truth is, every time we start, there's some event
that stops us, and they get on the other side. And we have a falling-out."
AOL had no comment on Thursday's announcement by deadline.>> |
