Armstrong to FCC: Were Open to All

Author:
Publish date:

Washington -- AT&T Corp. chairman C.
Michael Armstrong assured regulators last week that the merger with Tele-Communications
Inc.
will result in an "open broadband strategy."

Armstrong -- speaking at a Federal Communications
Commission
forum on the TCI merger, as well as on others planned by large phone
companies -- urged the agency to make a quick decision.

TCI president and chief operating officer Leo J. Hindery
Jr. -- in line for the No. 2 job at AT&T Consumer Services, the company that will be
created upon completion of the deal -- also spoke at the forum, backing Armstrong's
calls for speedy approval.

Hindery said the merger presented the first real
opportunity for widespread competition in the local telephony business.

Their appearance at the FCC came the day after AT&T
reported, in a short statement filed at the Securities and Exchange Commission, that the
$48 billion merger with TCI was on schedule to close sometime in the first half of 1999.

All local, state and federal regulatory filings have been
made, including a detailed proxy and prospectus for shareholders, which won't be made
public until after it's reviewed by the SEC, AT&T said.

The developments – especially the news that the proxy
had been filed -- seemed to make investors feel better about the deal's prospects.
AT&T's stock price rose by $2.25 last Thursday, to $64.38, or within $1 of its
price the day before the merger was announced in June. TCI's share price rose $2, to
$43.75, a shade below its 52-week high of $44.

The companies may also have benefited from reports last
week about AT&T's talks with Time Warner Inc. -- parent of the nation's
biggest MSO, Time Warner Cable -- and with other cable operators about telephony
affiliations. Such deals would help AT&T to extend its broadband reach, and they would
help operators to wring more revenue and cash flow from their upgraded networks.

Armstrong -- after urging the FCC commissioners to help him
compete for local phone customers by ensuring access to regional Bell operating company
facilities -- declared that the modern, two-way networks that TCI cable wires will become
will be open to all content providers.

But he urged the FCC not to interfere with the terms and
conditions that are negotiated between facilities providers and content providers.

The commissioners, in their polite questioning, seemed to
indicate that equal access to cable's high-speed-data platform is rising in
importance in their review of the AT&T-TCI merger.

FCC sources said that although cable and Internet companies
had not been lobbying them extensively on the subject, they were expecting the traffic to
pick up in the weeks ahead.

Armstrong and Hindery -- facing questions from FCC chairman
William Kennard and commissioner Susan Ness -- said their networks would be open, and they
would benefit from large volumes of data traffic.

Armstrong said his network needed to be filled with content
providers because their high levels of utilization would help AT&T to recover the
network's large fixed costs.

"That would be our business philosophy and our
business strategy," Armstrong said. "To invite as much content over that
broadband set of network facilities is absolutely ... what we want to do."

At one point, Armstrong volunteered that cable modems would
be unbundled from TCI's @Home Network high-speed-data service, but an industry source
said later that Armstrong meant only that cable modems would be commercially available at
retail outlets.

Ness pressed Hindery on an issue being pushed hard by
America Online Inc. She said she wanted to know whether @Home subscribers would have to
pay twice if they wanted to access an online-service provider like AOL (see story, page
12).

"So, bottom line, if one wanted to have a different
online-service provider, one would not have to pay twice effectively for the same service.
Is that correct?" Ness asked.

"That is correct," Hindery replied.

Hindery then offered an elaboration that suggested that a
double charge was inevitable.

He said the cable-modem subscriber would have to pay the
monthly @Home fee and pay still more to access AOL's service.

But Hindery pointed out that under his scenario, the AOL
subscriber would pay $9.95 per month to AOL, rather than $21.95, because Internet access
had already been provided -- by @Home.

One way to interpret Hindery's statement was that
there would be no double charge because AOL subscribers would save by bringing their own
access. But his statement seemed to rule out the possibility that @Home would waive
content fees to AOL subscribers that just wanted to pay for the underlying high-speed
network.

AOL's fear is that the allure of @Home's speed
and content will prompt an unknown number of its subscribers to either downgrade to $9.95
or drop the service entirely. Analysts have reported that about one-half of @Home's
subscribers were former AOL customers.

Hindery said the model that he outlined to Ness was no
different from the "bring-your-own-access" model that exists in the dial-up
market today.

Hindery indicated that he had spoken with AOL -- he
referred to the company as "the dominant OSP [online-service provider]" -- to
assure it that bring-your-own-access would be available over @Home.

"We have already offered the very same access
opportunity that they have in the narrowband dial-up world, without any reservation or
limitation," Hindery said.

Hindery added that TCI's Internet-access strategy was
based on a "concept of complete neutrality for any and all OSPs, portals and
aggregators."

Hindery said @Home would be a gateway, and subscribers who
want to visit Web portals like those provided by Excite Inc. and Yahoo! Inc., or to browse
various Web pages, could do so "without any interference through my system."

While FCC commissioners have expressed concern about TCI
and other operators selectively avoiding poor and minority populations when introducing
advanced services, they didn't question Hindery and Armstrong on that topic directly.
Hindery, though, did volunteer that such a practice would be "rude" and
"bad business."

Hindery also restated TCI's expectation that it would
have to divest its stake in the Sprint PCS wireless venture, or place it in a nonvoting
trust, because of the conflict with AT&T's huge wireless interests.

Kent Gibbons contributed to this report.

Related