There's a hole in the loop> AT&T Searches For Right Connection
February 4, 1999
AT&T remains far short of fulfilling its vision
to make cable TV companies its local service
path to consumers, leaving all sides to
contemplate what could turn out to be the
most rancorous state of industry affairs since
the cable franchise wars of the early 1980s.
AT&T and its presumptive merger partner
Tele-Communications Inc. have signed
telephony partnership agreements with a
handful of smaller companies closely affiliated
with TCI; however, the two have not been
able to deliver on their promise to offer local
voice services over cable networks reaching
at least one-third of the nation's households.
Instead, with deals involving Bresnan
Communications, Falcon Cable, Insight
Communications, Intermedia Partners and
Peak Cablevision -- together with the 16
million households passed by TCI -- AT&T
has secured only about 20 percent of the
market base.
Despite publicity surrounding talks with Time
Warner Cable, the largest multiple system
operator (MSO) with 12 million customers and
19 million homes passed, sources say the
two sides remain far apart on issues of
control and technology. Other affiliations
appear to be eluding AT&T as well, including
a voice services agreement with No. 4 MSO
Comcast and the sixth largest MSO,
Cablevision Systems, which is 37 percent
owned by TCI.
"It's not the money part per se; it's the
control, which, of course, affects the
financial aspects of the deal," says a senior
executive from the TCI/ AT&T camp. "There's
some real poker playing going on."
Cablevision, for example, with a
phone-service-friendly clustering of
three-quarters of its 3 million customers in
the New York-metro region, already has a
commercial telecommunications business
running throughout Long Island and in some
other markets. In addition, it has launched
residential voice service in a small area of
Long Island.
"So why do we need to turn all that over to
AT&T to run?" asks a Cablevision executive.
With AT&T threatening to use new wideband
wireless technology to compete with cable
companies that don't get on board, some
observers anticipate that larger cable
operators who balk at a deal will explore
alternative long-distance carrier affiliations of
their own. This would secure the economies
of local- and long-distance call bundling, and
provide national marketing presence and
network integration to help balance the
market power of the AT&T alliance.
"It could still go in so many different
directions," says Lauren Fine, an analyst at
Merrill Lynch. "MSOs are really trying not to
lock themselves into anything yet, although
it looks like the lines are being drawn. "
Sources name Sprint and Denver-based
Qwest Communications International as
strong candidates for cable affiliations. A
Sprint spokesman says no negotiations are
under way, but the company intends to talk
to cable operators later this year.
Qwest, several MSO sources note, has
established the carrying capacity and
technological know-how to exploit
connections to local cable company
networks, and it has "bandwidth to burn," as
one executive puts it. Qwest
(www.qwest.com) representatives refuse to
talk about any interest they might have in
cable affiliations.
Time Warner Cable Chief Technical Officer
Jim Chiddix says his company likely will
partner with a phone company if it wants to
expand into the voice business beyond its
current operating base in Rochester, N.Y.
But Chiddix makes it clear that, should Time
Warner strike a deal with AT& T, it would
want to "wall off" the voice segment of the
business from the high-speed data side. This
is in contrast to the integrated
voice-over-Internet Protocol (IP) approach
that AT&T has embraced in its plans for TCI,
where the high-speed data channels carrying
@Home Network services could carry voice
as well.
TCI Chief Executive Officer John Malone says
that while he'd prefer an integrated, all-IP
approach, ultimately the issue is "sort of
irrelevant, " as long as all systems are
"integrated technologically." But, with a
nationally integrated data network,
"telephony could be very cheap, " Malone
adds.
Sources say Time Warner executives are not
convinced it makes sense to bet on IP
telephony coming together as a
first-line-quality technology when they and
other players are demonstrating the viability
of circuit-based, proprietary,
voice-over-cable systems right now. Further
complicating matters, they say, Time
Warner's partner in the Road Runner national
data operation, MediaOne Group, is resisting
any combining of Road Runner with rival
@Home Network in the interest of
accommodating integration.
One sign of how fractious things might
become is @Home CEO Tom Jermoluk's
assertion that his company intends to begin
competing with nonaffiliated cable companies
using telephone company Asymmetric Digital
Subscriber Line technology and wireless links
to deliver high-speed data.
<<Inter@ctive Week -- 02-01-99>>
[Copyright 1999, Ziff Wire] |
