@Home for the Holidays

Is AT&T President and CEO C. Michael Armstrong playing Santa Claus in declaring the company's intent to share its cable transport facilities? Or is he more like the Grinch that finessed open access? Are ISPs being Scrooged?

by Patricia Fusco ISP-Planet Managing Editor [December 16, 1999]

[December 16, 1999] Last week AT&T Corp. outlined its corporate commitment to provide the online community with a choice of Internet Service Providers for high-speed Internet access over their broadband cable and fixed wireless systems.

MindSpring Enterprises was named as the first ISP to benefit from AT&T's grand gesture—its publicly stated intention to begin sharing access to its cable networks sometime in the summer of 2002, when AT&T's exclusive contract with Excite@Home expires.

Let's get this straight!
Shall we take a moment to put AT&T's watershed announcement in perspective with a brief industry timeline? Consider first that only 30 months ago AT&T completed its divestitures of Lucent Technologies and NCR, as part of fulfilling the Federal Communications Commission's razing of their telephone monopoly.

Way back  During a like timeframe, the Telecommunications Act of 1996 was upheld on appeal after Regional Bell Operating Centers and long distance carriers battled over lines on a map. Bell Atlantic won approval to take over NYNEX. SBC won approval to purchase Pacific Telesis. The original seven "Baby Bells" were merged down to five RBOCs. Ameritech and BellSouth filed to provide long distance services within their service areas; both companies were refused permission to do so. British Telecom lost its bid for MCI to WorldCom. Lucent Technologies acquired Octel Communications. Internet users were wowed by speedy 14.4Kbps modems for access to the Net.

Recently  About a year ago, AT&T acquired Teleport Communications. SBC acquired Southern New England Telephone (SNET) of Connecticut. AT&T announced its intent to merge with TCI. WorldCom sold its Internet unit to Cable & Wireless. Meanwhile, the WorldCom purchase of MCI was approved. SBC received approval to merge with Ameritech. Bell Atlantic got the green light to merge with GTE, leaving only four of the seven original Baby Bells. Bell Atlantic's and Bell South's bids to enter the long distance market were denied. Excite and @Home became one. Internet users were wowed by speedy 33.6Kbps modems for access to the Net.

More recently  In the past six months, Internet advertising mavens DoubleClick merged with NetGravity Inc. and Global Crossing Ltd. and U S WEST were wed. Qwest and U S WEST are feeling the urge to merge, EarthLink desires to acquire MindSpring, MCI WorldCom and Sprint want to partner-up to take on AT&T. Internet users have been wowed by speedy 56Kbps modems for access to the Net.

Future  In the next 30 months, industry analysts universally anticipate that Web-World as we know it will have moved onward. Prognosticators foretell that bandwidth will be plentiful, streaming video and conferencing will be the norm, remote access will be commonplace, and wireless devices will prevail. Internet users will have been wowed by all manner of high-speed access options.

Merry Xmas to all?
Upon review, AT&T's " intent" to provide MindSpring with broadband transport services in 2002 is about as sweet and extravagant a gift to the online community, as a lump of coal would be in my 3-year-old nephew's Christmas stocking.

MindSpring and 6,000 other ISPs that covet AT&T's cable network are not the true beneficiaries of Armstrong's grand gesture. Due to AT&T's actions, the only immediate winner in the broadband marketplace is Excite@Home.

After all, AT&T executives are committed to constructing the largest cable footprint in the nation. Their $120 million network build-out will take some time to earn a return on investment; in effect, it's a short-term financial bust rather than boom. In the meantime, the Excite@Home brand owns the cable access market, and will continued to do so through 2002, according to industry analysts.

Even after Excite@Home's exclusive contract with AT&T expires, the company possess a three-year extension of preferred access to the cable infrastructure built by AT&T. Excite@Home will also be free to develop broadband service offerings via satellite systems, wireless networks, and high-speed Digital Subscriber Line services.

As if that weren't enough, Excite@Home has assembled a unique lineup of content partnerships that already score a million hits each day at their @Home Web site. As a result of their cable market leadership, Excite@Home is in a prime position to garner gross advertising revenues.

Visions of sugar plums
Currently, cable access providers sign up about 750 new users each day. That rate is expected to triple next year, which means Excite@Home could own the lions share of some 2 million new cable access users by 2002.

By delaying open access to their cable networks behind the shield of an exclusive contract, AT&T has created a monopolistic coup for Excite@Home and its affiliates. AT&T will not work to break its exclusive contract with Excite because it remains a majority stockholder in the firm. It would cost AT&T dearly to divest its investment in Excite and break its exclusive contract while its network build-out is under way.

Even though Excite@Home is clearly a short-term winner in AT&T's cable strategy, AT&T will garner the long-term proceeds. It's just too bad that by the time they get there, the industry will have moved on to greener, more profitable pastures free from regulatory toils and contractual obligations.

—End