AT&T Deals for Palo Alto Co-op


AT&T Broadband & Internet Services will extend its
reach in the Silicon Valley should members of the Cable Co-op of Palo Alto go along with a
deal, blessed by the co-op board, which includes a rare vow to honor the contract of a
competing Internet-service provider.

At a time when AT&T has battled against being compelled
to sell cable access to rival Internet providers, it reached an agreement with the
managers of the 28,000-subscriber system that will allow ISP Channel to continue serving
approximately 2,000 consumers in Palo Alto, Menlo Park and Atherton.

The co-op's service region has not been upgraded to
fiber, but is fully activated two-way via coaxial cable.

Ron Kirkeeng, interim CEO of the co-op, said executives for
the new owner realized that @Home Networks, which is partly owned by AT&T. would be
unable to use the plant without an upgrade. It is better to retain ISP Channel than to
impose @Home on customers when use of the latter technology means having to install and
use a telephone return path until a promised $20 million upgrade is completed, he said.

"We have 2,000 happy, paying customers. A change would
alienate them and once you lose them, they won't come back," he added.

According to the plan approved by the co-op board, AT&T
Cable Services will pay $70 million for the system in addition to the upgrade investment.

That totals out to about $2,500 per subscriber, which is
about $1,000 more than the going rate for systems of the size of the co-op. But the
market, which serves Stanford University and is populated by communications-rich
consumers, is considered to be underdeveloped.

The co-op's growth was hampered by millions in debt
owed to banks, shareholders and members. The deal should retire that debt and fund a new,
$17 million non-profit local programming organization to be known as Silicon Valley
Community Communications.

The vote by the board should hasten the end of what co-op
officials believe is the nation's last subscriber-owned cable system.

The Palo Alto owner-operators will have the last say, but
approval requires only the blessing of a majority of the 28,000 customers who return their
votes. Ron Kirkeeng, interim CEO of the co-op, said typically only about 3,000 household
return ballots during periodic board member elections.

The co-op will prepare voter packets during the next month
with the vote anticipated sometime in November. The sale should close in the first quarter
of 2000, he said.