One-stop shopping when? Telephone service via cable network poses difficulties

June 25, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

To hear AT&T and TCI tell it, their $48 billion merger will allow millions of customers to get convenient one-stop shopping for virtually all telecommunications services, from long distance calling to cable TV to high-speed Internet access.

Industry analysts generally agreed that the union of the two communications giants is likely to improve convenience and choice for consumers, and might lower costs for some services.

However, the analysts say the development of such an ambitious array of offerings could turn out to be more difficult than either company is letting on.

AT&T Corp. is the nation's biggest long distance phone company, and Tele-Communications Inc. is the second-largest cable TV provider. In an era when communications companies )) are trying to lure customers by offering the fullest possible package of services, both companies are eager to branch out of their traditional businesses.

TCI, like other cable companies, is trying to use its high-capacity cable lines to get into the Internet business. AT&T sees TCI's cable lines -- which reach 33 million households, about a third of all U.S. residences -- as a conduit for offering local phone service in addition to long distance.

At the announcement of the merger yesterday, the heads of AT&T and TCI said all of those services would be available to customers through a single company. In addition, they said, such combinations will lead to hybrid services such as point-and-click shopping on the TV screen. Customers could pick and choose the services they wanted, dropping or adding services with the touch of a remote-control key.

AT&T Chairman and Chief Executive Officer C. Michael Armstrong said the deal "will enable us to offer a full portfolio of services with one connection, from one company."

Armstrong's counterpart at TCI, John C. Malone, described the proposed confluence of technologies a bit more colorfully: "Would you like to order Viagra while watching your favorite entertainment show?" he asked.

Malone said the combined companies' system would use a digital converter, into which customers could plug their phone lines.

He added that the company would offer to install a home network that would link a home's computer, television and other "intelligent machines" to take full advantage of the firm's services.

Other carriers, such as Sprint Corp., have also unveiled plans to combine the full range of communications services under one umbrella.

However, analysts said AT&T's strategy is the boldest step any major firm has yet taken in this direction.

Price drop

AT&T's move could cause some communications prices to drop, observers said. "I think the biggest impact will be on local telephone costs rather than long-distance costs," said Bill Gaik, an analyst with Deloitte Consulting in Atlanta.

The reason for this is simple: Increasingly sharp competition has already caused long-distance rates to fall, while local phone services have been dominated by the near-monopolies of the regional Bells.

The Bells may gain something from AT&T's gambit. They have longed to offer their local custom- ers long-distance service, but regulators have said the Bells can't do that until their own local markets become more open to competition.

Now that AT&T is moving forcefully into the local market, the dike may finally burst.

"It's clear now the [Bells] will make the case that competition is here," Gaik said.

The combination of services could lead to a blurring of old distinctions. The line between local and long distance could disappear, and some services could be offered free as an inducement for getting others.

"For consumers, it's not going to be easy to see discounts," said analyst Boyd Peterson of the Yankee Group in Boston.

"It's going to be difficult to do side-by-side comparisons [between AT&T and its rivals]. That's the beauty of offering a package of services."

Two-way traffic

Whether customers get AT&T's package soon could turn on the quality of TCI's network, analysts said.

Traditionally, cable TV networks have had to handle only one-way traffic. Programmers send shows into a customer's home, but the customer doesn't send anything back but a payment.

In the new age of interactive communications, TCI's lines will have to handle two-way traffic.

"It'll be a long time before consumers see any benefit," said Ford Cavallari, an Internet analyst with Renaissance Worldwide Inc. in Boston. "The cable TV network has never proven itself to be a viable telephone structure for lots of people."

Peterson said, "It's probably being a little bit generous to say AT&T now has [direct high-speed] access into all of these homes. TCI's plant isn't necessarily the most robust in the industry."

The Yankee Group analysts warned that any glitch in local phone services might turn customers off. "Consumers have come to rely on [the local network] as a lifeline," he said. "Being pretty good is not good enough."

TCI said 5.7 million homes in the company's network can handle two-way service, and Malone said the entire network should be ready for two-way signals by the end of 2000.

The company owns a majority of TCI Communications of Baltimore, the local affiliate that has a monopoly on cable service in the city.

TCI has 114,000 customers in Baltimore, and the company's network is in position for access to about 300,000 city households.

Coles Ruff, TCI of Baltimore's president and general manager, said he didn't yet know what the effect on city cable rates would be.

"We are still, ourselves, awaiting details of the merger and how it will be implemented," he said.

Pub Date: 6/25/98

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