AT&T Keeps Stretching Cable

Leo Hindery's resignation as head of AT&T's cable and Internet operations last week added more fuel to cable industry fears that AT&T plans on going its own way in trying to shape the future of the business.

Industry insiders said efforts by Hindery, a longtime cable industry executive, to convince his peers at other cable companies that AT&T was on the same page with them had been repeatedly undermined by AT&T's actions, most recently in its efforts to convince the Federal Communications Commission that it had found the technology to support access by Internet service providers (ISPs) to cable data networks. The industry had been making the case to regulators that a policy of forced open access not only represented an untenable government intrusion but also was technically impractical.

In a related area sure to fuel industry concern about AT&T's plans, Excite@Home - in which AT&T is the major stakeholder - is preparing to expand the availability of broadband content beyond the networks of its cable partners. Such a move would give competitors to those partners a shot at offering Excite@Home's content, while the partners themselves are barred from carrying other ISPs' services under terms of their exclusivity contracts with Excite@Home.

Hindery, who had unsuccessfully campaigned for a breakup of Excite@Home, formed by the merger of Internet portal Excite with @Home Network prior to the completion of the AT&T/Tele-Communications Inc. merger, was seen as a staunch protector of cable's interests where Excite-@Home is concerned. Earlier this year, he denounced the assertion by Excite@Home Chief Executive Tom Jermoluk that the newly formed company would make broadband content available to customers via Digital Subscriber Line service as well as cable. But judging from the plans unfolding at Excite@Home, Hindery's opposition to that plan was overridden.

"We soon will be rolling out our first integrated broadband version of Excite," said Milo Medin, chief technology officer at Excite@Home. "Our goal is to try to build a unified broadband experience."

This means that customers with any high-speed access service will be able to get to much the same content through the Excite broadband portal that they can get through @Home. "You may see caches with localized content in the @Home experience that's not available through Excite, but otherwise it will be fairly integrated," Medin said.

An executive at one of Excite@Home's cable affiliates expressed surprise at the service provider's unfolding broadband strategy. "This is the first I've heard about it, but it doesn't sound to me like it's in the spirit of their stand on exclusivity in their dealings with us," the executive said, speaking on background.

The overarching concern in the cable industry about AT&T is that the carrier is willing to compromise the industry's stance on open access in the interest of winning the FCC's support for its planned acquisition of MediaOne Group, the nation's third-largest cable company.

"The fear is that any concessions will start us down the slippery slope to common carrier status," said another industry executive, who also agreed to speak only on background. "This has been a really collegial industry, but AT&T has changed that. By their actions, if not their words, their guys have said, 'We're the big gorilla here, and we'll do as we please.' "

But if tension was high within the cable industry over AT&T's intentions, the internal battles seemed to be of little consequence on Wall Street, where AT&T's stock rose by $1.63 the day Hindery's departure was announced. "The market reaction was that it was a nonevent," said Tom Wolzien, senior media analyst at Sanford C. Bernstein & Sons.

Wolzien laid some of the blame for Hindery's resignation on AT&T's partners in the Excite@Home venture, saying that their stance on the terms they would accept from America Online to open their networks to that ISP made it impossible for Hindery to deliver on AT&T's desire for a deal.

"Their unwillingness to be flexible made his job very difficult," Wolzien said. "It's in the best interest of the cable industry to be able to do a deal with AOL, but being harnessed to @Home has prevented that from happening. So far, @Home's management doesn't appear to recognize that it's playing in a larger sandbox when it comes to its arrangements with cable companies."

AT&T officials last week stressed their loyalty to cable's interests, characterizing Hindery's resignation as an amicable one that had long been a subject of discussion between him and AT&T CEO C. Michael Armstrong.

The company said cable veteran and board member Amos Hostetter, who helped engineer the MediaOne deal, will spend more time at the cable unit's headquarters in Denver, and that Chief Financial Officer Daniel Somers will temporarily assume operational leadership of the unit, until a permanent replacement can be found.

Hindery, through a spokeswoman, denied there was "any precipitous event" behind his resignation.

AT&T officials refused to discuss the company's technical plan to accommodate access to its networks by ISPs other than Excite@Home. An industry source said the plan suggested such access could be achieved by equipping Excite@Home's regional routers with "packet sniffers" that would automatically connect cable customers with information flowing from the points of presence of other ISPs.

Industry executives involved in a blowup that occurred last week when the proposal was first disclosed confirmed it had become a sticking point, especially since AT&T suggested it would test the concept with an ISP in the Atlanta area, which the The Wall Street Journal identified as MindSpring Enterprises. Atlanta is served by MediaOne, which is not under the exclusivity arrangements that force AT&T to use Excite@Home as its high-speed access provider.

Assuming AT&T can consummate its deal with MediaOne, it would be able to implement an access deal with MindSpring or anybody else long before the exclusivity provisions with Excite@Home expire in 2002.

"The question in the regulators' eyes becomes, if AT&T is willing to do it, why doesn't everyone else?" said one of the cable executives.

Wolzien, however, suggested AT&T's partners were overreacting to the Atlanta proposal. "Going to the FCC with a plan that says you can do multiple access from a technical standpoint makes a lot of sense, because it tells the commission that, if the industry doesn't strike deals on its own, the government always has the recourse to force it to later on," he said.

But in the eyes of cable operators, telling the FCC it has the option to regulate if it has to could be tantamount to inviting the regulators in. To AT&T's cable partners, the carrier's pursuit of the strategy without keeping them in the loop was just another reason to interpret Hindery's resignation as a message that the old-boy network was coming apart.