AT&T Outlines Set-Top, IP Strategies


Englewood, Colo. -- AT&T Broadband & Internet
Services will soon pick a second supplier of advanced digital set-top boxes as it aims for
retail availability of the devices by next Christmas.

At a Veterans Day briefing to reporters in AT&T
Broadband's headquarters here, the MSO also disclosed a midcourse change in the
technology it is deploying to provide telephony over cable, which could yield significant
cost savings and possibly speed its timetable for migrating from circuit-switched to
packet-switched service.

The news came from acting CEO Dan Somers and key executives
leading AT&T Broadband's rollout of advanced broadband services, which will
eventually complement digital video with Internet access over TV, cable telephony and a
variety of interactive functions such as chat, gaming and electronic commerce.

AT&T Broadband already has a commitment -- made by
Tele-Communications Inc. before it merged with AT&T Corp. earlier this year -- to buy
5 million "DCT-5000" advanced digital set-tops from General Instrument Corp.

Those set-tops will eventually replace the roughly 2
million "DCT-1000" and "DCT-2000" digital boxes AT&T Broadband has
already deployed -- as well as those being issued to the roughly 2,500 new digital
subscribers it is adding daily -- using the DCT-5000's PC-like architecture to
support the new advanced services.

AT&T Broadband expects to ramp up commercial deployment
of the DCT-5000 in the second quarter -- with 500,000 units to be deployed next year and
more than 1 million annually after that -- as the MSO aims for 70 percent digital
penetration of its existing subscriber base in the next three to five years, according to
Dave Rudnick, vice president of content and acquisition management at AT&T's
National Digital Television Center.

The DCT-1000s and DCT-2000s swapped out for DCT-5000s will
count toward the 5 million quota with GI, creating more leeway for AT&T Broadband to
offer set-tops from another vendor.

Somers and others said the company is examining boxes from
a variety of other undisclosed vendors that responded to a request for proposals in order
to create a secondary source of advanced set-tops intended primarily to create a
significant retail presence targeted for next Christmas.

Somers said only that AT&T Broadband would decide on
its secondary vendor "soon," so that it would have enough time to complete
development and integration of its desired operating software and applications.

Rudnick said the current software platform planned for the
DCT-5000 includes Microsoft Corp.'s "Windows CE" operating system, Sun
Microsystems Inc.'s "Java Virtual Machine" language, TV Guide Inc.'s
electronic program guide and navigation software developed by Excite@Home Corp. to create
a user-interface "shell" developed specifically for AT&T Broadband.

On the telephony front, AT&T Broadband outlined a plan
that relies more heavily than expected on circuit-switched technology for its migration to
the more bandwidth-efficient Internet-protocol-telephony platform, but that could yield
greater cost efficiencies.

The key to the plan -- which AT&T CEO C. Michael
Armstrong signed off on last week -- is to install at customer premises so-called
broadband-telecom interfaces that will forestall the need for the company to move advanced
calling features -- like call waiting or "star-69" callback -- from existing
circuit switches to expensive IP routers.

AT&T Broadband chief operating officer for telephony
operations Curt Hockemeier said technicians determined that manufacturing those features
into routers would be the most time-consuming element of the transition from circuit
switches, delaying the move to IP.

At the same time, prices of circuit-switched
network-interface equipment connecting customers' home or office phone wiring with
the cable network have dropped faster than expected, actually becoming cheaper than
IP-network interfaces, Hockemeier said.

Using the BTIs, AT&T Broadband can keep the advanced
calling features in circuit switches located in telco central offices and put a call agent
in the cable headend that makes those features available through the BTI, he added.

The BTIs installed on the outside of customers'
buildings also have integrated DOCSIS (Data Over Cable Service Interface Specification)
standards-based modems, creating economies of scale that AT&T Broadband would not get
by selling or deploying telephony and data gear separately, he said.

Although he did not quantify total potential cost savings,
Hockemeier said BTIs from GI would cost less than $300 apiece in volume, with deployments
beginning as early as the third quarter of next year.

He also acknowledged that the cost savings will be greater
when the change is eventually made from switches to routers, but the BTI plan has more
immediate capital and time-to-market advantages.

Hockemeier added that AT&T Broadband has seven trials
under way for telephone service over its hybrid fiber-coaxial plant, with an expected
launch in Portland, Ore., by year-end making it the eighth trial the company had promised
to begin this year. The others are in metropolitan Chicago, Denver, Dallas, Pittsburgh,
the San Francisco Bay area, Seattle and Salt Lake City.

Executives said AT&T Broadband was not having material
discussions with Time Warner Inc. about a telephony affiliation due to AT&T's
pending acquisition of MediaOne Group Inc., although talks are ongoing with Cablevision
Systems Corp., Insight Communications Co. Inc. and Comcast Corp.

Somers would not discuss any details of the talks, but said
he was sure that deals would be reached with a number of strategic partners, including
Time Warner. He would not put a time frame on completion.

"Trying to find the right relationship, scope, how it
works takes time," he said. "I don't think it's the end of the day if
it's not done next week."