semi on topic.......convergence concerns
Fears Rise of a 'Digital Divide'
TV-Phone-Internet 'Convergence' Leaves Many Out, Groups Say
By Paul Farhi
Washington Post Staff Writer
Tuesday, May 25, 1999; Page E01
Within a few years, says AT&T Corp., a household revolution will be at hand: Millions of Americans will be able to buy all of their telecommunications services from a single company for less than they pay now. Someday, the company predicts, the phone, the TV and the personal computer will converge, all fed by the same cable TV wire.
So far, however, the oft-promised "convergence" has been something less than the landscape-altering innovation that AT&T and other competitors envision. In the few places where prophecy has become reality, consumers seem less than dazzled. That could change, of course, as technology improves, investment proceeds and brand-name outfits such as AT&T pour on the marketing.
But like so many highly touted ideas before it -- remember "interactive TV," "video on demand," 500 channels? -- early experiments in convergence suggest that a host of technological, administrative, regulatory and marketing hurdles lie ahead. Even if AT&T can do everything it's planning, it could takes years for many consumers to embrace it, experts said.
There's also a potential dark cloud behind this silver lining. Consumer organizations suggest the steep costs of retrofitting today's networks for tomorrow's services could make convergence primarily of benefit to the well-heeled. Gee-whiz services at jaw-dropping prices would leave large numbers of consumers out of the picture, stuck with the same old monopoly phone and cable providers, they said.
The presumed future of telecommunications is already on display in Alexandria. Jones Communications, Alexandria's cable operator, began selling cable TV service coupled with local phone service in 1996, one of the first such "bundled" offerings in the nation. Jones's prices undercut Bell Atlantic Corp., the Washington area's local phone monopoly, by about 10 percent. Jones, which was acquired in April by Comcast Corp., another cable company, recently added high-speed Internet connections to the package and rolled out cable-phone service to Prince George's and Prince William counties.
Three years after the service was first offered, Jones and Comcast have signed up nearly 11,000 customers for the bundled cable-phone package. That sounds impressive, but it's really only a scratch. It amounts to 5 percent of the company's cable-only customer base in Alexandria and Prince George's County, and just 3 percent of all the households in the two jurisdictions.
The anemic response rate reflects some of the difficulties facing new-tech pioneers. Comcast can't market the package to just anyone in Alexandria and Prince George's County. It has limited itself to apartment buildings, where it can snag multiple customers at relatively low cost. Given the state of technology, Comcast would lose money if it had to provide the same service to widely dispersed single-family houses.
"As with any technology, there is some build-out required," said Jaye Gamble, a Comcast vice president. "We are progressing, but it's not available everywhere."
Wary of making predictions, Comcast won't say when its bundled services will be universally available throughout the Washington area. Comcast owns, or has options to buy, cable systems that serve more than 1 million households in the region.
To win customers, cable companies will have to do some hard selling. Convincing people that a cable company can provide phone service as reliable as Bell Atlantic's could be a formidable task, given cable's less-than-stellar service record, which may be one reason Comcast and other cable companies will market telephone services under AT&T's familiar name.
Bell Atlantic, which has its own plans to market bundled services, has a huge head start, with a virtual monopoly on local phone calling and its own trusty brand name.
"There's a lot of inertia involved" in getting someone to switch, said David Simons, managing director of the research firm Digital Video Investments. "Once you've got a particular service, it takes a significant price incentive to get you to switch to someone else's."
What's more, convergence still is predicated on some technological optimism. At the moment, the digital technology that cable companies hope to use to switch phone calls around "is less than optimal," said Gary Arlen, a Bethesda telecommunications consultant. In spite of continuing improvements, it still provides "herky-jerky sound," he said.
Further, it's unclear how a cable system, which was originally designed to send MTV and CNN one way will respond when burdened with massive volumes of two-way traffic, such as phone conversations and Internet downloads. Early experience suggests it's something like a two-lane road at rush hour. "When you get large-scale usage, it slows down," Arlen said.
AT&T won't -- and can't -- say when it will begin marketing its bundled services. It won't because it considers such information useful to would-be competitors; it can't because the decision isn't entirely up to AT&T. The com pany's proposed $58 billion acquisition of MediaOne Group Inc., a big cable company, is subject to approval by the Federal Communications Commission, which has signaled that it will closely examine the deal. Bell Atlantic and others have already begun offering objections.
As a practical matter, AT&T acknowledges some challenges. Despite sinking almost $130 billion over the past few months into buying cable companies -- whose wires AT&T hopes to use to create its all-in-one network -- the company still has some tinkering to do. It said it will test its offerings in three as-yet-unannounced cities later this year to ensure that it can do what it promises.
None of this will come quickly or easily, said AT&T spokeswoman Eileen Connolly. "We have to work out the billing systems," she said, "the infrastructure, the marketing. . . ."
Among other things, she said, "we've got to be sure the system doesn't go out in a thunderstorm. It's one thing for your cable to go dead, but it better not happen to your phone."
Adds Connolly: "Once we're ready to roll this out, we firmly believe that we'll provide a [better value]" than the regional phone companies do now.
AT&T hasn't established its prices, though Chairman C. Michael Armstrong suggests the company could sell "buckets" of time, with volume discounts. Subscribers might, for example, buy 500 minutes of service and use it any way they see fit -- watching pay-per-view movies, making long-distance calls, spending time on the Internet or some combination of these.
Anyone who buys a full package, or bundle, from AT&T -- Internet access, cable, local and long-distance service -- might end up paying proportionately less for these services than a customer buying one or two services a la carte, the company said.
But critics said it could cost a bundle to get a bundle.
Two organizations, the Consumer Federation of America and Consumers Union, talk about a "digital divide" emerging in telecommunications services, with upscale consumers enjoying relatively cheaper services than the less affluent. AT&T and other long-distance carriers, for instance, now offer their biggest discounts to high-volume callers; low-volume customers pay relatively more on a minute-by-minute basis.
The two groups said this disparity is likely to increase as AT&T and other companies invest heavily in their networks. The costs are so profound, the groups said, that only customers with big monthly bills will be attractive to the companies. Worse, they suggest the companies will have to raise prices to their many low volume consumers to make their infrastructure investments pay off.
AT&T said its $58 billion offer for MediaOne equates to almost $5,000 for each of MediaOne's cable TV subscribers; an earlier acquisition of cable giant Tele-Communications Inc. came to about $3,000 per subscriber. Only a year ago, cable systems were selling for the equivalent of about $2,000 per subscriber.
AT&T's costs don't end there. To complete the upgrade jobs and make households capable of receiving multiple services, the company said, it would have to spend about $750 per home for newfangled set-top boxes and other equipment.
With so much invested, the companies' marketing efforts "have to focus on the $250-a-month customer to get any kind of return," said Mark Cooper, the Consumer Federation's research director.
"They will compete like crazy for those people," Cooper said. "The problem is, if you don't spend that much, they'll have to squeeze you.
"There isn't going to be much competition for [low-end customers], so you won't have any place to go. You're a captive customer."
AT&T disputes this analysis, to a point. It said all consumers will benefit, but the value won't be measured only by the size of your monthly bill.
For example, by switching to AT&T's local phone service, a customer might be able to add a second phone line, plus call waiting, call forwarding and caller ID, for the same price the customer pays Bell Atlantic now for just a single line.
"We'll have a greater array of service without additional costs," Connolly said.
Digital Differences
Families with higher incomes make up only a quarter of the market for telecommunications services but provide almost half of its revenue. This could mean that less affluent families won't want -- or won't be able to afford -- the new "convergence" services being contemplated by AT&T and others.
Premier
Median household income
$53,800 annually
Average total monthly telecommunications spending
$200: $100 for telephone, $40 for cable, $25 Internet, $35 cell phone
Percent of population
24%
Percent of telecommunications spending
43%
Mobile
Median household income
$41,200 annually
Average total monthly telecommunications spending
$110: $50 for telephone, $30 cable, $30 cell phone
Percent of population
16%
Percent of telecommunications spending
15%
Transitional
Median household income
$35,800 annually
Average total monthly telecommunications spending
$125: $70 for telephone, $30 cable, $20 Internet, $5 cell phone
Percent of population
15%
Percent of telecommunications spending
17%
Modest
Median household income
$22,500 annually
Average total monthly telecommunications spending
$60: $40 for telephone, $20 cable
Percent of population
45%
Percent of telecommunications spending
24%
SOURCES: Consumers Union and Consumer Federation of America
© Copyright 1999 The Washington Post Company
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