Ackerman Still High on Cable

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BellSouth Corp., under chairman and CEO Duane Ackerman, may
just ride out the telecommunications-consolidation waves as an independent, enjoying its
spot in the fast-growing Southeast. Ackerman is also the only Bell CEO actively keeping
faith in wireless cable after kicking off digital service in New Orleans, with plans to
hit Georgia and Florida later. BellSouth has some wired cable franchises, too. But, unlike
Ameritech Corp., it's not an aggressive overbuilder. Meanwhile, phone competition
from MSOs MediaOne and Cox Communications Inc. is here or coming soon. Ackerman discussed
video, competition and even AT&T Corp. rumors with
Multichannel News finance
editor Kent Gibbons last week. An edited transcript follows:

MCN: You guys are now selling digital MMDS
(wireless cable) in New Orleans. Have you seen enough yet to say whether you've got a
hit on your hands there?

Ackerman: We began the system really in
late November, and we have not really pushed the marketing of it. We were sort of getting
it up, getting the kinks out and handling demand. I suspect that we probably have about
1,000 users on it at this point. And in the next week, we will be significantly increasing
the marketing push.

We have had some early returns that are quite impressive to
us. First of all, the weather has been absolutely terrible in New Orleans the last few
weeks, and the system has performed very well. We're getting good comments about the
system. People are saying that it is an outstanding picture, that they like the service
they are getting and that they are comfortable with the programming. We think that we are
in excellent shape to turn up the volume as it relates to marketing.

MCN: What do you mean by 'turning up
the volume on marketing?'

Ackerman: We will begin to advertise. We will begin to
actually market this service through our existing distribution channels, as well as in
other ways. We currently are able to see approximately 285,000 households down there with
our system, so we will begin to just market in earnest.

MCN: What about other MMDS deployments?

Ackerman: As you know, we do have some other frequencies in
our top markets, and we will move into Florida and into Georgia and, I suspect, we will
build out these top five or six cities with the technology. If we build out the top five
or six, we'll be looking at 3 million households that we believe we will have in line
of sight. I think that will give us a very good look at the technology and the
opportunity.

MCN: Is wireless cable your principal
video play?

Ackerman: We've never driven a stake
in the ground and said that we were going to overbuild umpteen-million households by date
certain. What we've tried to do is, No. 1, find a technology or a capability that
gives us a high-quality product that will enable us to serve our customers in the near
term.

We've always had an eye, at the same time, toward a
long-term solution that would include a high-quality, integrated-facility offering, where
we would be able to integrate our telephony and data and video all along or together. We
want to be financially sound. We want to take a reasoned approach. This is something that
we feel is a natural extension of our core business.

MCN: What about your cable franchises?

Ackerman: In our franchised areas,
especially in 'green field' [new] builds, we will be building out an
integrated-facility approach. Right now, we have approximately 18 franchises.

We have applications pending for about seven more. Those
franchises don't require us to have complete build-outs, so we're able to work
in the new areas of growth. And here in Atlanta, we've had pretty good success with
that.

If we go into a subdivision that is being built new, while
we are providing the telephone facility, we can lay in the fiber and the coaxial cable
where it is appropriate and save significantly on installation costs. We're getting
about a 60 percent take rate in that environment. We also have overbuilds in Chamblee
[Ga.] and Vestavia Hills [Ala.], and that is more expensive. The take rate is a little
lower -- we're running at about the high 30s or 40 percent. I suspect that if we find
the right deal, we might even include an application of some kind of DBS [direct-broadcast
satellite].

MCN: Do you think that integrated solution
is hybrid fiber-coaxial cable?

Ackerman: I really don't. I think
that integrated solution, at some point in the future, is going to be fiber-to-the-curb,
and I think that if you did it today, it would be hybrid fiber-coax. If you look to the
future, and you are doing this thing the way that we are doing it, I would not be at all
surprised to see that as a fiber solution not too far down the road.

MCN: How far down the road?

Ackerman: I think we're talking
within months. Whether it is eight months or 16, I don't know for sure.

MCN: As far as DSL (digital subscriber
line) technology -- the telcos' answer to cable modems -- will you be able to deliver
a widespread, easy-to-install service soon? And if so, how do you think you'll stack
up against cable modems?

Ackerman: I think that it will stack up
very well. I think that we've known for some time that we needed an additional
alternative, and it was clear that Internet access was providing us with volume
opportunities to get some action on the part of our major suppliers.

So yes, ADSL is coming. Yes, we do have it in trial.
We've got a little bit more to do before we turn it loose, but I think that you will
see that reasonably early in 1998, and we will be in the marketplace with an ADSL
offering.

MCN: What about phone service over the
Internet? How big a product do you think that will be, and how much of a threat to your
turf?

Ackerman: We are paying a lot of attention
to Internet protocol voice. I think that in the early stages, you'll see IP voice as
an application for international calling, and perhaps for some Intranet services within
business where it is computer/desktop-to-desktop.

I suspect that it will be several years before it becomes a
major threat on a broad application, but I think that we are going to see specific
applications starting to come out soon.

MCN: Do you think that the fact that cable
has actually been kind of slow to get into the local phone market has hurt your company
and the other phone companies as you try to get into long distance?

Ackerman: Well, there is one issue there,
and that is the residential marketplace. When we opened our networks, we did not put a
sign on those networks to say that they are open for business [customers] only, but
certainly, that is the only, or the primary, competition that we've attracted to
date. It is an issue, and we continue to find regulators who say that we must have
competition in the consumer marketplace.

At the time of the legislation, I think that it was
expected that there would be cable competition in the consumer marketplace. Quite frankly,
I expect us to see more and more consumer competition. But to date, it has been an issue
and, in fact, a roadblock for our entry into long distance.

MCN: The Federal Communications Commission
doesn't seem to agree with you on the openness of markets.

Ackerman: We opened our networks, and
competitors have come, but they've only come on the business side. As a matter of
fact, we've had all kinds of competitors on the business side. We've had
facilities-based competitors on the business side. We also have competitors who have
bought 200,000 lines, but it is almost all business [resale], and not residential.

MCN: Today (Jan. 26), AT&T Corp. is
apparently supposed to announce its new strategy. Part of it has already been announced --
its acquisition of Teleport Communications Group -- and it looks like AT&T will have
some sort of cable component. What do you think it has in mind?

Ackerman: No. 1, I'd have to say that
I don't really know what they will do or if they will have that cable component.

If I were to speculate, I would say that one might look at
using the cable network as an extension into the residential marketplace and to small
businesses that haven't been reached to date. At the same time, there are a series of
issues about service, about quality of network and about the capital and construction of
those networks. So I still say that it sounds like somewhat of an open question as to the
extent to which they will utilize those networks in their telephony business.

MCN: Your company keeps getting mentioned
as a possible AT&T acquisition target, and there has been so much merging among the
Bells. What is your stance on possibly being consolidated?

Ackerman: I read those same things myself,
and I really have no comment on it one way or the other. I read it with interest.

MCN: My impression has been that you have
felt that you are in a position where you can remain independent. Do you still feel that
way, as the consolidation winds continue to blow?

Ackerman: Well, we are a big company. I
think that you always worry about whether or not you have enough scale, but, you know, we
are zeroing in on 23 million access lines. We have billions of minutes of use. We have a
market cap of around $58 billion. So we think that we have scale.

Do we have to be bigger? Obviously, that is a question that
everyone entertains. So far, we have been very disciplined in saying that we don't
want to just get bigger unless there is significant value there for our shareholders.

MCN: As Congress and the FCC start to look
at ways to fix what they think may be broken from the Telecommunications Act of 1996 --
and cable certainly hasn't been spared any scrutiny on that front -- are you afraid
that the Bells might bear the brunt of new regulation intended to spur competition?

Ackerman: At this stage, I don't look
for new regulation. I believe that the act itself was OK. It was a good act. I disagree
with the way that the FCC has implemented it. We are discussing those matters with the
FCC.

We also have watched with interest and have participated in
some of the court decisions. We believe that we have satisfied the requirements of the
act. We believe that we ought to be in long distance. We think that customers are being
denied choice.

MCN: Practically speaking, if you are
going to win that argument, won't it have to be in the courts? It seems like the FCC
is pretty well stacked against you.

Ackerman: I'd say that is not clear.
We believe that through some direct understanding by all parties, there is a great
opportunity to move this thing forward over the next few months.

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