AT&T aims to boost local access with bold cable bid

NEW YORK - AT&T's $58 billion bid last week for No. 4 cable TV operator MediaOne may go a long way toward strengthening AT&T's local service strategy, but it could ultimately make it easier for Bell Atlantic and other regional Bell operating companies to jump into the long-distance market.

AT&T's unsolicited bid, which could stop a planned $53 billion merger between No. 3 cable operator Comcast and MediaOne, is the latest in a series of high-stakes bets placed by aggressive AT&T CEO C. Michael Armstrong. The firm has spent almost $74 billion on four major acquisitions since 1997, when Armstrong took over the reins of AT&T.

AT&T's vision is to be able to offer businesses and consumers Internet access, as well as merged voice and data services over a single network that reaches across the U.S. and the globe.

If AT&T's bid is accepted by MediaOne and approved by regulators - and that should be a battle - the carrier will be the largest cable service provider in the U.S. MediaOne would not comment on AT&T's acquisition bid, which some are calling a hostile takeover effort.

While AT&T is largely investing in cable companies for direct access to consumers, the cable facilities should also give businesses tying telecommuters into their networks another access option.

An AT&T/MediaOne deal could also result in more choice for long-distance services. For example, AT&T is fighting Bell Atlantic's application for long-distance authority in New York. The crux of AT&T's argument is that local telecom markets are still not open, more than three years after enactment of the Telecommunications Act of 1996.

But AT&T's purchase of cable giant Tele-Communications, Inc. (TCI) last June and bid for MediaOne could undercut that argument. Together, the cable networks would reach about 16 million customers through local hybrid fiber coax networks.

Bell Atlantic and other RBOCs are expected to tell the Federal Communications Commission that AT&T's moves into the local consumer market mean it's high time that RBOCs be allowed into the longdistance market. Such a decision could result in AT&T facing a marketing barrage from Bell Atlantic on long-distance voice and data services before AT&T even has a chance to convert its cable systems to telephony and Internet applications.

"As AT&T's direct access to customers grows by leaps and bounds, it becomes harder and harder - indeed impossible - to say there is no local competition," says Robert Blau, BellSouth's vice president of federal regulatory affairs.

The road ahead for regulatory approval of any MediaOne deal could be long. Two senior members of the Senate anti-trust subcommittee indicated they are going to take a close look at this new deal if Media-One accepts AT&T's offer.

"If the MediaOne deal creates increased local telephone competition, that's good," said Sen. Michael DeWine (R-Ohio) and Sen. Herbert Kohl (D-Wis.) in a joint statement. "But in many ways it raises a whole host of tough questions regarding cable concentration. Law-makers and regulators are going to take a serious look at this takeover attempt."

One likely area of examination: an FCC ruling that AT&T does not have to open the TCI network to competitors, including non-AT&T ISPs that want to use the TCI pipe to offer broadband services. If AT&T continues to buy cable companies so it can advertise nationally and be confident of reaching most consumers, pressure will grow on the FCC to open all of AT&T's cable lines, just as RBOC last-mile facilities are supposed to be open to leasing by RBOC competitors.

AT&T's local market strategy creates competition, says Dan-iel Briere, president of Tele-Choice, a consulting firm in Boston. But it will take AT&T about two years before the carrier is able to upgrade its network to support two-way traffic such as voice services, so the FCC may still hold off giving Bell Atlantic the nod to offer long-distance services.

Meanwhile, AT&T clearly does not want to be dependent on incumbent local exchange carriers to bridge the carrier's long-distance customers to local networks around the country. AT&T cannot resell competitors' services, and owning digital, high-speed networks throughout the U.S. will let AT&T differentiate itself from other carriers, Armstrong says.

"AT&T cannot afford, in the telephony business, to simply be a regional player," Armstrong says. "We must be a national player."

While AT&T's goal is to be a force in the local market, it could also get a big boost with MediaOne's high-speed Internet access services. MediaOne has aggressively rolled out a 10M bit/sec cable modem service called MediaOne Interactive. Of MediaOne's five million customers, 84,000 subscribe to this service. This is a much higher concentration of broadband service customers than AT&T has right now through its TCI acquisition. Of AT&T Broadband's 10.7 million cable customers, only 29,000 are using broadband services.

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More details from AT&T

AT&T makes a play for MediaOne
Network World Fusion, 4/22/99.

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