THE NEW TECHNOLOGY: WHAT YOU NEED TO KNOW
The merger introduces more changes to the landscape
The merger of AT&T and Tele-Communications Inc. might look at first like that old Information Superhighway reborn. But forget the grandiose visions of expensive, built-from-scratch, interactive-TV systems--the stuff of convergence dreams in the early 1990s. In the four years since Bell Atlantic Corp. and TCI called off their proposed marriage, the Internet phenomenon has roared to life, and the technology behind convergence has changed--utterly. Here's a look at the new terrain and how the AT&T merger with TCI will alter it further.
THE INTERNET EFFECT. The Internet has leveled the playing field. Every communication company--whether a local or long-distance carrier, an Internet service provider, or a data-networking shop--uses a common language to send electronic packets of data back and forth. And that language, known as Internet protocol, can carry voice or video traffic, as well as E-mail and Web pages. What's more, the language works equally well over copper phone wires, satellite microwaves, and coaxial TV cables.
For AT&T, that makes TCI's huge cable system look less like an alien being--and more like a very fat pipe for carrying all sorts of communications services in and out of American homes. ''This merger positions AT&T to be the keeper of that pipe,'' says Van Baker, director of consumer research for market researcher Dataquest Inc. ''It may come faster than we thought.''
LOCAL TELCOS LOSE OUT. AT&T's bet on cable could hurt rival schemes for high-speed local Internet access. One technology that was pushed by local phone companies, known as integrated services digital network (ISDN), already looks fairly comatose. So phone companies are throwing their weight behind a faster, cheaper service called digital subscriber line, which runs over existing phone lines. But DSL, which moves data at up to 1.5 million bits per second, is slower than cable, which zips stuff along at up to 30 mbps. Moreover, as many as 50% of U.S. phone customers live too far away from their local phone offices to get DSL.
THE FINAL MILE. AT&T's rationale for buying TCI is to gain quick access to what is called the ''final mile''--the line into the home. Previously, AT&T tried to make this connection by leasing access from local phone companies. But that left it with slim margins and little control of the customer.
Building its own local phone lines, though, would have been economically unfeasible for AT&T. It's still pursuing an experimental wireless approach, but that, too, is still prohibitively expensive. That leaves cable, which was too costly back when specialized switches were required to adapt the system to phone calls. Now, however, cable companies can install off-the-shelf data networking gear and turn their coaxial cables into universal Internet pipes. Add a box in the home to convert phone calls into data packets, and suddenly the cable becomes a voice network.
CABLE IS NOT PERFECT. But cable systems were built to carry signals in one direction. Two-way traffic takes an upgrade that costs up to $300 a household. TCI still has about $2 billion to go in its system upgrade. ''There's immense work that has to be done on the facilities themselves to make them telephony-compatible,'' says William T. Esrey, chief executive officer of Sprint Corp., which tried but then abandoned a deal with cable companies.
WHAT ABOUT SATELLITES? With a rooftop dish, consumers can get TV and data feeds from the sky. The download speeds can knock your socks off--up to 100 mbps. But to talk back, consumers need a regular modem that connects to the Internet over phone lines. Affordable, two-way home satellite communications are still years away. One promising contender is the Teledesic network planned for 2003. Cooked up by billionaires Craig O. McCaw and William H. Gates III--recently joined by Motorola--it will rely on hundreds of satellites in low earth orbit. That will let consumers use relatively cheap devices to send and receive data.
Cable has the advantage: It is here today and passes 90% of U.S. homes. AT&T won't get all of those, of course. But working with TCI, it has a chance to lift cable above its pay-TV status and make it a star of the Internet Age.
By Andy Reinhardt in San Mateo, Calif., with Neil Gross in New York and Steven V. Brull in Los Angeles
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- COVER IMAGE: Telecom Unbound
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- PHOTO: C. Michael Armstrong, Chairman of AT&T
- PHOTO: John Malone, Chairman of TCI
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- ONLINE ORIGINAL: SHOULD INVESTORS GO WITH AT&T--OR A CABLE COMPANY?
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