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usatoday.com
AOL, AT&T may be talking, some say
By Kevin Maney, USA TODAY
When writers at other newspapers think they might have some new information, and it comes from weaselly people who don't want to own up to having leaked it, the writers start their stories with a priggish, authoritative sentence ending in the words, "sources said." This tactic is meant to make you believe you are getting solid information straight from people who really have inside access, such as the president's dog groomer.
I'll attempt a more honest form of journalism by beginning this way:
America Online and AT&T are on the verge of dividing up the cable modem world like Stalin and Roosevelt at Yalta, say friends of mine in the industry who also said they'd drop a hungry ferret in my shorts if I named them.
My friends added that they were unsure of the "on the verge" part. The companies might be just, like, thinking about it.
In theory, though, this makes sense. Let me explain what these friends were talking about, at least in their moments of sobriety.
AT&T recently took control of Excite At Home, which -- as an entity owned by AT&T, Comcast, Cox Communications and Microsoft (through an AT&T investment) -- has been about as cohesive as the former Yugoslavia. At Home is the USA's biggest supplier of high-speed Internet service over cable lines. Now AT&T can direct At Home, unencumbered.
On the other side is AOL, which is buying Time Warner. As part of the deal, AOL will get control of Road Runner, the No. 2 cable modem service. Road Runner has its own eclectic group of investors -- including Microsoft -- but AOL will have the reins.
My friends' scenario would have AT&T and AOL forging some kind of deal to put At Home and Road Runner together. Then the two corporations would open At Home's network to allow AOL to use it to offer its service and open Road Runner to AT&T services.
This would not only give AOL and AT&T broadband access to the homes passed by both networks, it would also muffle all the brouhaha over open access of cable modem networks.
The intriguing part, though, is what AT&T and AOL would probably not say in public if they cut such a deal. That is: AT&T would offer only phone and communication services over the networks and stay out of content and particularly video. AOL, for its part, would stay out of phone offerings and only do content.
Why would they do that? To try to maintain their sanity in a world of brain-twisting digital convergence.
This became obvious during a recent visit with Jeff Huber, a tightly wound manager for a new interactive television service from Excite At Home. He fired up a demo of the service, which is meant to be seen and used on a TV set connected to a special cable TV set-top box. The main goal of the service is to add Internet elements to TV viewing, so you can see statistics in a corner during an extreme yodeling match on ESPN2 or click on and buy an Abdominizer during an infomercial.
But he also showed that a customer could use the At Home TV service to go onto the Web, much as you'd do on a PC.
Remember, this is broadband Internet access, so video through the Net could be the quality of a broadcast TV show.
Remember, too, that AOL is buying Time Warner, which owns CNN, a movie studio and piles of video programming. Plus, Net companies such as Intertainer have been buying rights to old TV show reruns so they can broadcast those shows over the Net.
So, let's say you're sitting at home watching your TV, which is connected through a Comcast cable system to At Home's service, and you have an AOL membership. You don't like anything on cable or broadcast TV. So you pull up AOL and use it to watch AOL-CNN or maybe go to Intertainer and watch Petticoat Junction.
Now you're on a cable system watching TV that's not part of the cable system's lineup. Essentially, the cable guy has just lost a customer. They hate when that happens.
There are all kinds of permutations, because in a broadband digital world, bits are indistinguishable from other bits. A phone call looks just like a TV show, which looks like an e-mail, which looks like www.askagayguy.com ("Answers to the important questions in life."). You connect broadband Internet to the TV, and the different players can't know who's doing what with whom.
Worse, customers might not know -- and shouldn't have to know -- who they're using for what service. If you're watching Intertainer video through AOL on At Home's network connected through Comcast's cable system, who the heck do you call if it doesn't work? Who do you call if you want to watch The Sopranos? Maybe AOL, which will own Time Warner, which owns HBO, which airs The Sopranos and might be willing to sell it to you through AOL, cutting Comcast out of the deal.
By this point, I asked Excite At Home's Huber if this wasn't going to become a major mess. He looked at me with impatience. "It's a new medium," he said.
But a messy medium. If AOL and AT&T don't work something out, they'll end up colliding and stepping all over each other and never reach all the customers they want to. My friends are probably onto something.
Of course, a good journalist doesn't just trust his friends. I'm confident of this story, because I checked it with people who really know and have the inside track. I asked some sources.
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