AT&Ts Business Unit Adds Cable to Arsenal

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Pursuing a market that cable has historically
underpenetrated, AT&T Corp. is using its hybrid fiber-coaxial plant to create a new
suite of broadband-data offerings for businesses.

The AT&T Broadband Business Services lineup will
initially rely heavily on digital-subscriber-line technology using regular copper phone
wires, while MSO unit AT&T Broadband & Internet Services continues building
two-way 750-megahertz cable plant.

But as it plans with consumers, AT&T's business
broadband plan is to offer bundled voice, data and video services over cable as the
company progresses toward making two-way HFC coverage ubiquitous in major markets and in
some second- and third-tier cities.

"AT&T traditionally has served the corporate
customer," said Manish Malhotra, manager for the Broadband Business offering.
"Now that we have access to cable facilities, it's a matter of offering the customer
the same business-quality service and support we offer to customers across various other
options."

Cable's association with business historically has been
with the likes of entertainment and hospitality sectors, such as bars, restaurants and
hotels. Even with major operators feverishly upgrading their plant to two-way to provide
services such as high-speed Internet access and telephony, the idea of fostering a
business-oriented cable market has been slow to take off.

"The cable industry talks about 'homes passed' with
good reason -- that's where they have plant," said Michael Harris, president of
consulting and research firm Kinetic Strategies Inc. "With business customers, you're
talking about lots of 'new-build' propositions. Across the board, the justification for
serving businesses and the idea are further along than the reality."

Cable has largely stayed away from serving businesses
because of entrenched telco competitors, the cost of running cable out to business areas
without guaranteed revenue returns and a product lineup limited to one-way or telco-return
functions without the ability to guarantee customers bandwidth.

"HFC at this point is not considered to be a
business-class type of offering," said Jon Atkin, competitive-local-exchange-carrier
analyst for investment firm Ferris, Baker Watts Inc.

But AT&T said that's about to change, partly because of
its new identity as a cable operator and its ability to leverage its existing customer
base, rather than gambling on green-field build-outs.

"A lot of our customers who today don't buy any
services over cable infrastructure are coming to us and asking us how we plan to leverage
that infrastructure to meet their needs," Malhotra said. "Broadband --
especially IP over broadband -- is a big need."

AT&T Broadband senior vice president of business sales
and marketing Chris Coles said the MSO sees corporate demand not only for high-speed data
and telephony, but also for digital video, with its proliferation of channels devoted to
financial news, health-care information and other relevant topics.

"Packaging all three together, you have the value of
the customer escalating substantially from the historical video model," Coles said.
"When you get to that level of valuation, just on the revenue side and associated
cash flow, you're much more motivated to go places you haven't gone before."

Furthermore, about one-half of the businesses targeted by
AT&T already have access to or are connected to its cable plant, Coles said. Many are
home-based enterprises that already buy legitimate business services such as White and
Yellow Pages listings -- a profile that makes them strong data-service prospects, he
added.

AT&T will begin market trials of cable-based business
services next month in six metropolitan markets: suburban Chicago; Dallas; Denver;
Portland, Ore.; the San Francisco Bay area; and Seattle. General availability in
AT&T's two-way markets is planned for the first half of next year.

AT&T is also exploring the possibility of reselling
two-way HFC access from other operators in certain markets. But for now, the focus is on
its own plant, Malhotra said.

Although it will not be prominent in the product branding,
Excite@Home Corp. -- which offers its own DSL-based @Work broadband-data services to
business -- is working with AT&T to provide services on the cable side, such as
specialized content.

AT&T's DSL service is currently available in nearly 20
major markets, with another 26 expected to come online Oct. 15 and more than 100 targeted
by year-end 2000.

The carrier offers DSL over its own AT&T Local Services
unit -- primarily from its Teleport Communications Group acquisition -- and through new
contracts with competitive digital carriers Covad Communications Group Inc. and Rhythms
NetConnections Inc.

Malhotra said AT&T was targeting small businesses that
want high-speed Internet access and larger corporations interested in telecommuting access
for their remote workers -- a strategy where coverage will dictate which broadband
platform will be used.

For example, potential large customers interested in
broadband typically will provide AT&T with a list of maybe 10,000 employee addresses
and phone numbers, asking which broadband services can be made available to those
locations.

"At least over the next few years, we still don't see
ubiquitous access for either DSL or cable," Malhotra said. "But both certainly
get us to extended coverage in a certain area. Then, there are large metropolitan markets
where we have both DSL and cable. The strategy there is that in a single market, we need
both technologies."

Being able to offer both platforms in a single market also
gives AT&T greater technical flexibility. This means it can offer a solution based on
a variety of factors affecting each platform. Those include the customer's need for fixed
bandwidth, the customer's preference for symmetrical or asymmetrical bandwidth, the
distance from the customer premise to the nearest telco central office and the condition
of the local copper phone loops.

AT&T gains a time-to-market advantage by getting DSL
service from Rhythms and Covad, which are already colocated in hundreds of telco central
offices nationwide, and it was talking with other CLECs and data CLECs about further
deals.

"It's still going to be awhile before all of the HFC
assets are going to be two-way-capable," Atkin said. "Meanwhile, DSL is rapidly
reaching all markets."

Harris said AT&T could get some mileage by positioning
the cable solution as a product for a broad range of small businesses that might want
speeds faster than integrated-services-digital-network lines, but without the expense of
leasing T-1 lines.

"They have some education to do about the value
proposition of that solution," Harris said. "It's different, but not necessarily
inferior for folks who can't afford a more expensive option."

The DSL providers give the company greater entry to
customers such as large national and regional enterprises with significant operations in
second- and third-tier markets, Malhotra said.

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