The RACE to BROADBAND -- NY TIMES
nytimes.com
January 12, 2000
THE IMPACT
A Rush to Provide High-Speed Internet
Access
Related Article
The Behemoth: Merger May Produce Rival Microsoft Has Dreaded
By SETH SCHIESEL
For most Americans, linking to cyberspace from home is akin to
trying to eat a vat of thick, rich soup with a straw. With their
$165 billion merger deal, America Online and Time Warner
intend to start handing out ladles.
The agreement between America Online, the No. 1 Internet provider,
and Time Warner, the media and cable television titan, is
reverberating throughout the communications and media industries.
But the most important impact for consumers may be how the deal
advances the deployment of high-speed Internet access.
America Online is hoping to use Time Warner's extensive cable
television systems to deliver torrents of digital data. Time Warner's
systems reach only about a fifth of the nation's homes -- roughly 21
million households -- but Monday's deal may well set off a chain
reaction among local phone companies, long-distance giants, other
cable providers and wireless carriers to step up their high-speed
Internet strategies.
That scramble will include companies ranging from AT&T to Bell
Atlantic, though all of them face serious technical, financial and
regulatory challenges before they can make high-speed, or
broadband, access as pervasive as the telephone.
Still, even as the America Online-Time Warner deal reshapes the
competitive landscape within the communications business, many
analysts believe that consumers stand to benefit.
"The race to provide broadband access will only accelerate from
here," said Daniel P. Reingold, chief telecommunications analyst for
Credit Suisse First Boston, the investment bank. "It's always been in
AOL's interest to have multiple suppliers of high-speed access, and
that interest dovetails with the consumers' interest."
Time Warner's cable systems cross the nation, but New York City
appears set to become a prime battleground. Time Warner provides
cable television service in parts of Brooklyn and Queens and is the
dominant cable provider in Staten Island and Manhattan.
Even before its deal with America Online, Time Warner was planning
to offer high-speed Internet service throughout Manhattan by this
fall. But Time Warner's linking with America Online, may prompt Bell
Atlantic and other, smaller companies to accelerate their own
high-speed Internet agendas.
"This deal creates new energy about access to the Internet, and if you
peel back the onion a little bit it's really about high-speed access to the
Internet," said David Gallemore, executive vice president for strategic
planning and marketing for SBC Communications Inc., the Bell local
phone giant that does business as Ameritech, Pacific Bell, Southern
New England Telecommunications and Southwestern Bell.
America Online's interests appeared to reflect Time Warner's. The
owner of high-profile media products ranging from People magazine
to the Cable News Network, Time Warner wants to extend the reach
of those brands into the Internet.
Coupled with expanded availability of lightning-quick data
connections, the migration of Time Warner's media properties into
cyberspace could help remake the Internet over the next few years
from a largely static environment of pictures and text to a dynamic
arena of television-quality video and CD-quality sound.
But in forging a merger with Time Warner, the No. 2 cable provider,
America Online's interests did not necessarily dovetail with those of
the other communications behemoths jockeying to lead the digital
revolution. How these other companies cope with the new giant in
their midst will have important implications for how, when and from
whom consumers are finally able to buy a ticket to the digital future.
The most intriguing questions, and the murkiest answers, are about
AT&T.
Since C. Michael Armstrong took over as AT&T's chairman in 1997,
the company has agreed to spend more than $100 billion to acquire
the cable giants Tele-Communications Inc. and Mediaone Group Inc.
With those deals, AT&T, already the biggest phone company, has
become the biggest cable television provider in the nation. But AT&T
wants to use the systems it has acquired to deliver far more than
television. It also wants to offer local telephone service and
high-speed Internet links using the same systems.
Publicly, AT&T and America Online have been at odds over the last
year over whether AT&T should have to open its cable systems to
allow other Internet companies, like America Online, easy access to
AT&T's cable subscribers. Late last year, AT&T tried to forestall any
potential new regulation by announcing a set of principles for open
access supported by Mindspring, the big independent Internet service
provider.
Privately, however, AT&T has been working hard, at least since last
summer, to cut a side deal with America Online, according to
executives close to the talks. Such a deal would help AT&T drive
penetration of its high-speed Internet service by marketing it to
America Online's 20 million customers.
Now that America Online is set to control millions of cable lines of its
own, AT&T may find its bargaining position weakened, some analysts
said yesterday. If AT&T fails to make a deal with America Online, it
could become more difficult for AT&T to sign up millions of customers
for its cable modem service.
Ultimately, however, AT&T, Time Warner and America Online appear
to have a common interest. Because most cable systems are local
monopolies, AT&T's cable operation does not compete directly against
Time Warner's. And despite the size of the deal, merging with Time
Warner still will get America Online direct cable access to only about
20 percent of the nation's homes.
So in the end, many analysts expect the three companies to form at
least a loose alliance, especially since AT&T can help a combined AOL
Time Warner deliver telephone service over its cable lines.
Such an alliance, however, could further strain America Online's
relationship with the Bell local telephone giants.
Even as cable television companies across the nation are upgrading
their systems to deliver advanced Internet services, local phone
companies are racing to beat them to the punch using D.S.L., a
technology that transmits huge volumes of digital data over standard
phone lines.
Last year, America Online announced agreements with the two
biggest local phone carriers, Bell Atlantic and SBC Communications
Inc., to market the Bells' D.S.L. Internet service to America Online's
customers.
But now, America Online is set to own cable systems in New York
City, in the heart of Bell Atlantic's territory, and in Houston, in the
heart of SBC's. Not surprisingly, executives close to Bell Atlantic and
SBC said yesterday that they were somewhat disappointed in the
Time Warner deal because it could impede their plans to deliver
high-speed Internet service over phone lines.
"This probably pushes AOL closer to AT&T and other cable operators
and away from the Bell operating companies in terms of broadband
distribution," said Eric Strumingher, a communications analyst for
Paine Webber. "I think AOL's vision is to have the type of customer
experience that is going to require massive amounts of broadband
capacity, and the cable industry is well ahead of where the Bells are in
terms of delivering this."
The fact that the merger was seen as a general vote of confidence in
high-speed Internet service over cable buoyed the stocks of many
cable companies Monday. But even that could not help Excite@Home,
the cable modem venture, yesterday as many communications analysts
and executives said the venture, which has tried to compete against
America Online, appeared to have been outmaneuvered.
Excite@Home's shares fell $2.875, to $37.25, in Nasdaq trading.
Excite@Home has exclusive deals to offer Internet services over the
lines of a roster of cable companies, but many of those deals run out
in two years. Excite@Home has signed up about a million customers,
but now America Online has waded into the cable business with its 20
million users and a great chance to take Excite@Home's cable partners
when the arrangements expire.
George Bell, Excite@Home's president, said yesterday that the
America Online-Time Warner deal underscored the importance in the
communications industry of broadband and of owning popular media
brands.
"This places broadband at the center of how these content forms are
delivered," Mr. Bell said. "The broadband platform becomes very
much a centerpiece for any company that wants to be a leader in any
sort of media in the future."
But to many analysts, what the deal truly underscores is the value of
customers. America Online has them, and as communications carriers
of every description vie to offer high-speed Internet service, they are
all waiting to see just how the company chooses to throw its
customers' weight around.
Sounds like broadband is a buy,
Michael |
