AT&T's foray into cable to redefine 2 industries

OUTLOOK

Are its recent takeovers in the best interests of U.S. consumers?

May 02, 1999|By Mark Ribbing

AT&T Corp.'s bid for MediaOne Group Inc. represents another step in Ma Bell's effort to buy cable television lines to use for local telephone and other communi-cations services. AT&T agreed in June to buy another large cable company, Tele-Communications Inc. AT&T has also entered a partnership with cable firm Time Warner Inc.

AT&T's campaign stands to redefine not only the nation's largest long-distance company, but also the telephone and cable industries themselves. What does this mean for consumers?

Does AT&T's purchase of cable companies give it a decent shot at competing with Bell Atlantic Corp. and other regional Bell companies for the lucrative local telephone market?

Is AT&T building a cable monopoly that could ultimately harm consumers?

Jeffrey Kagan

Independent telecommunications analyst, Atlanta

There are two wires that go into the home -- the phone wire and the cable wire. AT&T and the Bells haven't played well together, so AT&T is going to follow that other wire. They're betting their future on cable.

Because it has so many customers, AT&T has the best chance of providing local [telephone] competition, but there are no guarantees. TCI only addresses 11 million of their customers.

Even if you add MediaOne and Time Warner together, you're still talking only 26 million customers. There's no way AT&T is going to have cable to all of their [70 million] customers, but they have to get their hands on as many lines as they can.

It's a scary bet, because it's unproven technology, but it's better than the alternative. The problem is, cable networks are not seen as being as reliable as phone networks.

AT&T has to update the network, and convince the marketplace that they've done it -- two big challenges.

They're scaring the cable industry. The cable industry's fearing it's going to become irrelevant, that it will get swallowed by the phone industry.

Whenever you have one company holding so many cards, you're going to have a lot of red flags being raised from regulators, from competitors, from consumer groups.

Gene Kimmelman

Washington office co-director, Consumers Union

I think the hidden strategy that no one focuses on is the ability to take advantage of a monopoly cable structure and possibly just cherry-pick lucrative markets where it's worth doing the very expensive combinations of services.

You have a cable world that has been deregulated; AT&T purchases that base, which is an opportunity to increase cash flow.

They have a strong base for driving up cable rates without facing a competitive threat.

If it is possible to use cable wire to provide cable service, the economics of this make it a very dubious proposition.

It will cost between $500 and $900 per customer to be able to combine telephone, cable and high-speed Internet access. That is an enormous cost on top of purchase price of these [cable companies].

You can make these combined services available to everybody, but the price may be high enough that not everyone will be able to afford competition.

That danger far outweighs the potential of what AT&T may be able to do in the telephone space.

If one cable company has too much geographic power and at the same time has substantial ownership of cable channels, they have significant influence over what gets on cable channels and what people pay.

It means anyone who tries to make it in the video business must make it onto AT&T's systems. That gives them market dominance.

With MediaOne they will have a significant ownership stake in cable systems that serve about 60 percent of the country. They will own at least a third of the most popular cable TV channels.

This makes them just enormous.

Beyond the traditional cable market, the fastest-growing market is high-speed Internet access, and that has been effectively done only on cable.

If AT&T has such a high percentage of the cable wires, businesses that want high-speed Internet access will have to affiliate with AT&T.

Robert B. Wilkes

Analyst, Brown Brothers Harriman & Co., New York

I think the cable strategy will allow them to compete for local phone customers. I think it's an important part of their strategy to be a viable competitor to the [Bell companies] nationwide.

They only expect to reach 60 percent of available homes by cable, and the rest of it would be filled in by wireless and/or use of the [Bells'] networks -- but not through resale of the Bells' service.

There are some regulatory uncertainties and there is the technological uncertainty of getting technology to the point where voice can be delivered in good quality using Internet protocol technology whereby voice, data, video or whatever are going through the broadband pipe as separate bits.

I think AT&T is looking to make a certain amount of money right now and local phone rates are regulated, while we just had a sunset of cable regulation. Is there some risk AT&T might use higher cable rates to subsidize telephone competition? I think the answer is yes.

Pub Date: 5/02/99

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