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At&T And Tci: Unblocking The I Way


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AT&T AND TCI: UNBLOCKING THE I-WAY

Monopolists, paid-for politicians, and incompetent regulators are all taking it on the chin with AT&T's purchase of TCI. It's quite a sight to see. In one fell swoop, the merger of America's biggest long-distance phone carrier and its second-largest cable company promises to bring competition, finally, to local phone service. The deal circumvents the Baby Bell monopolies and highlights the failure of the Telecom Act of 1996, which promised competition and produced zip. Most important, AT&T is now in a position to deliver what local phone and cable companies have been unwilling or unable to offer--bandwidth, lots of bandwidth.

The whole promise of Internet access and electronic commerce depends on homes, schools, hotels, and small businesses getting the same kind of broad bandwidth now available to big companies. Anyone using the Net outside the corporate network knows how slow and frustrating it is. Despite rising prices, cable companies have been painfully slow in upgrading their coaxial wires from one- to two-way traffic. Local phone carriers have done little to transform their old copper wires into high-tech carriers of digital information. With cushy monopolies, the Bells and cable companies had little incentive to upgrade.

Until now. The AT&T-TCI deal is a transformative event that can break the logjam and unleash technologies that can bring the Net to everyone. AT&T has the deep pockets to finance the upgrading of TCI's cable system that's needed to pump in bandwidth and bring about fast, two-way Internet service. It can finance much of the expense by offering local service at cheaper rates than the Bells. And when AT&T begins to do all this, both the Bells and cable companies will have to compete and improve their own networks (page 24).

The ramifications are massive. First, billions soon will be spent on fiber-optic cable, routers, and other high-tech equipment. The size of the national "upgrade" is big enough to further enliven the high-tech sector of the economy and provide a new boost to growth. Then, once families and merchants are plugged in with high-speed lines, doing business on the Internet will take off. Even with slow-mo online connections, people are beginning to buy books, CDs, stocks, and cars on the Net. Add the new bandwidth, and E-commerce will zoom.

AT&T must move fast to make its deal pay off. Wireless is waiting in the wings to boost bandwidth so that it can transmit data as well as voice. A covey of new broadband satellite networks is ready to take flight soon. If wireless succeeds in mastering the technology and prices its services low enough, it could undercut all the hardwired providers of Net access, including AT&T.

But that's the miracle of market competition. Rarely has the marketplace shown so much promise to blow apart so many monopolies. Rarely has one deal provided a way to break through a legal and regulatory logjam to unfetter new technologies and new opportunities so quickly. The AT&T-TCI deal is the best kind of merger for the new economy. It boosts capital spending, increases competition, and lowers prices. If it works, it may be the deal of the decade.


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