X
Tech

AT&T to test cable-telephone waters

This year it's tests only, in fact, as the company looks to 2001 and beyond for full roll-out.
Written by Matthew Broersma, Contributor
AT&T plans to begin offering telephone service to some customers over Time Warner Inc.'s cable network later this year. But don't rush to sign up for the service just yet: The company and industry analysts agree that cable-based telephony is nowhere near ready for prime time.

"The main challenge is that the technology isn't there to deliver what they ultimately want to deliver," said Tom Rhinelander, an analyst at Forrester Research Inc. "The telephony out there in cable is circuit-switched, but what they want in the long haul is packet-switched. They're waiting for some aspects of that to come out of the cable industry."

Time Warner (NYSE:TWX) agreed Monday to allow AT&T (NYSE:T) to offer residential telephone service on Time Warner cable systems in a no-risk, no-cost deal that Wall Streeters estimate could eventually be worth several billion dollars to the entertainment giant.

Not only will Time Warner get hundreds of millions of dollars in fees and a minority equity stake in the telephony business, but it could also bundle its entertainment services, such as HBO or pay-per-view, with the telephone offering, Time Warner chairman Gerald Levin forecast.

Betting on IP
The deal is the beginning of AT&T's drive to get back into the local phone business via the network of cable-TV lines running into most homes.

To do that, AT&T ultimately plans to use Internet Protocol (IP), or packet-switched technology, to handle data and voice calls over both cable lines and long-distance phone lines. AT&T is in the process of completing its $43 billion acquisition of TCI, one of the largest cable providers, to give it its own network of cables.

The hope is that efficiencies from IP technology will allow AT&T to undercut local phone competitors by about 20 percent, while also offering cable TV and high-speed Internet access on one bill.

Stuck in old mode
But the service that will begin to appear this year will still use old-fashioned circuit-switched technology, an interim step that the telco giant will use to test how customers react to local telephone competition, and to the idea of a bundle of communications services.

"We're hoping to start a pilot program in one or two areas this year, to get a feel for how customers respond to it, and what improvements we need to make," said AT&T spokesman Berke Stintson. "Next year we'll really begin rolling it out."

Waiting game
But while you might be able to sign up for cheaper local phone service as early as 2000, AT&T will not really begin pushing its bundle of services until 2001 or 2002, observers say.

"They have a two-part strategy," said Jim Wahl, an analyst at Yankee Group Inc. "The first part is they deploy circuit-switched strategies. Then they'll move toward voice over modem or voice over a set-top type of device. But there's a lot of challenges before those solutions become a reality. It's going to happen, but there are some significant issues."

The good news is that, unlike interactive television or a few other futuristic communications plans, AT&T's vision of universal services over cable lines probably will come to pass.

Toward seamless service
Analyst Rhinelander pointed out that the technology to accomplish AT&T's plans has been tested in a limited form already; the main problem is to be able to guarantee service that is as seamless as traditional phone service.

"They're piggybacking on established standards now, they're not trying to come up with their own," Rhinelander said. "And they're leveraging the Internet, which has a host of companies making that succeed, and known consumer appeal. A lot of people are interested in the success of this, and the technology is there ... it's only a matter of time before it succeeds."

Reuters contributed to this report.





Editorial standards