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Technology Stocks : Voice-on-the-net (VON), VoIP, Internet (IP) Telephony -- Ignore unavailable to you. Want to Upgrade?

To: Ray Jensen who wrote (834)	6/24/1998 10:41:00 PM
From: Tim J. Flick	Respond to of 3178

Ray... This story bares out your concern. AT&T-TCI Plans Hinge on Unproven Technology By George Mannes Staff Reporter 6/24/98 5:13 PM ET Buying the cable giant Tele-Communications Inc. (TCOMA:Nasdaq) may answer AT&T's (T:NYSE) prayers of breaking into the $100 billion-plus local telephone market. But technological complexities related to the move make the strategy harder than it first appears. There's no question that AT&T hopes to offer local telephone service through TCI's cables, which the companies say will pass by the doorsteps of about a third of America's households. "Today we are beginning to answer a big part of the question about how we will provide local service to U.S. consumers," said AT&T chairman and CEO C. Michael Armstrong in a statement the company released today as it announced the $32 billion deal. In a follow-up press conference, Armstrong explained how AT&T expects to offer local phone service, using Internet protocols, over TCI's broadband cable connections to people's homes. The merged company also expects to sell a host of other services to customers over that cable wire, such as movies on demand and high-speed data connections. There's just one problem: The technology on which AT&T and TCI are basing their grand vision of local phone service -- using Internet telephony over a cable system's wires -- doesn't exist yet. At least not outside the lab. "It's not something you can buy off the shelf today, but we hope you can do that in a reasonable time frame going forward," says David Reed, vice president of strategic assessment at Cable Television Laboratories. The nonprofit organization, known as CableLabs, is the high-profile research and development consortium funded by TCI and numerous other companies in the cable industry. Reed said he couldn't comment on what achievements TCI or AT&T might have made on their own in the area of Internet protocol (IP) telephony. But he said that CableLabs, which started a project nine months ago to build specifications for IP phone calls over cable networks, will likely spend a year more on the project before cable operators can use it on a limited basis. "You're probably looking at a 12 to 24 month type thing for initial equipment to be available," he said. (TSC did a four-part series on Internet telephony earlier this year.) Berge Ayvazian, executive vice president of the Yankee Group, a technology market research firm, said the AT&T-TCI deal anticipates a world where telephone conversations will be running over the cable network along with high-speed Internet traffic. "That's where we're headed here, and that's what Mike Armstrong is anticipating," he said. But although IP telephony does exist -- for example, AT&T is running a service in Boston that routes long-distance calls over an IP network -- no one is routing IP calls over local cable TV wires. Along with its legal and regulatory battles, AT&T has tried several different technical approaches to getting into the local phone market. It has licenses it can use for fixed wireless connections to home phones, and in January it agreed to purchase the local exchange carrier Teleport Communications Group (TCGI:Nasdaq). Meanwhile, cable operators have long tried to deliver telephone service via local cable TV wires. In 1993, for example, Cablevision Systems (CVC:AMEX) tested portable wireless phones that relied in part on TV cables snaking through Long Island neighborhoods. More recently, TCI has tested local telephone service via cable wires in three different communities around the U.S. Cox Communications (COX:NYSE) and MediaOne (UMG:NYSE) have brought the service to market as well. These phone systems, however, don't employ IP, but an older communications system known as "circuit-switched." Adding to the technical challenge for TCI, the cable operator's network is not yet ready for IP telephony. The phone system requires what's known as a "hybrid fiber-coax" network, or what TCI chairman and CEO John Malone referred to in today's press conference as "fiber to the node." In such a cable network, fiber optic lines link a cable system's headquarters directly to neighborhoods of roughly 200 to 2,000 homes; from there, each home is linked to the network via the cable industry's traditional coaxial cable. Only 60% of TCI's plant is fiber-to-the-node, Malone said in yesterday's press conference. Furthermore, no more than half of the fiber-to-the-node network is ready for two-way communications, though the upgrade process is simple, Malone said. TCI, which put the brakes on a planned network upgrade a year and a half ago, will be fully rebuilt as a fiber-to-the-node network by the end of the year 2000, Malone said. Armstrong said the cost of providing local phone service appeared to be about $400-$500 per customer, including not only equipment for the home but also end-to-end plant costs.