AT&Ts N.Y. Phone Entry Is Likely Via RBOC Lines

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AT&T Corp.'s entrance into local telephony in the
giant New York market will not have a cable component, at least initially, as the
long-distance giant expects to lease lines from Bell Atlantic Corp. to provide telephony
service in the state.

The deal comes after reports that AT&T's
telephony-over-cable agreement with Time Warner Inc. would not close in time to meet the
long-distance carrier's self-imposed April 30 deadline.

And AT&T has not yet reached even a preliminary phone
deal with Cablevision Systems Corp., the other big MSO in the region and a cable company
with its own commercial and residential phone business.

AT&T owns about a 35 percent stake in Cablevision,
which came from Tele-Communications Inc., the big MSO that AT&T bought for about $55
billion, largely for the "last-mile" connection to provide local and
long-distance phone service.

AT&T spokesman Gary Morgenstern said the LDC plans to
purchase "unbundled network elements" from Bell Atlantic, rather than just
reselling the telephone company's service.

However, the deal is contingent upon Bell Atlantic being
able to deliver "a system that works and that can move mass numbers of
customers," Morgenstern said.

Bell Atlantic has had some trouble moving business
customers from its network to AT&T in the past -- it has a 25 percent fail rate in
instances where it tried to do so. But Bell Atlantic said it has ironed out those
problems.

If all goes according to plan, AT&T could begin
offering local service in New York state in August. The service would be priced
competitively with that of Bell Atlantic, according to AT&T. Morgenstern said AT&T
will be buying capacity from the telco at about 50 percent of the full retail cost.

The deal also is important for Bell Atlantic, which is
trying to gain state and federal approval to provide long-distance service. To do that, it
must first show that its markets are open to competition.

Bell Atlantic spokesman Mark Marchand said the AT&T
deal goes a long way toward showing that his company's markets are open to everyone.

"Local [telephone] markets are open in New York,
whether it be to a colossus like AT&T or a small reselling firm," Marchand said.

Although the agreement appears to fly in the face of
AT&T's local telephony strategy -- chairman C. Michael Armstrong quashed plans to
resell local service shortly after he joined the company -- this pact is a bit different.
AT&T is buying network components from Bell Atlantic, and not the total service
package.

This arrangement helps AT&T to avoid paying access fees
to Bell Atlantic -- the main reason why the LDC wants to offer local service in the first
place. By purchasing network components, AT&T becomes a competitive local-exchange
carrier, and it is not required to pay access fees.

AT&T vice president of law and government affairs
Michael Morrissey said the agreement will extend to other Bell Atlantic territories in New
England and the mid-Atlantic states. However, this is contingent upon whether the
telco's network in those states can deliver the level of service that AT&T
requires.

Morgenstern added that AT&T has been talking to other
regional Bell operating companies throughout the country, including SBC Communications
Inc. in Texas, and other agreements are sure to follow.

"This strategy will play out nationally," he
said.

He added that this deal and any future deals with RBOCs
will have no impact on AT&T's relationships with other cable operators. AT&T
has been negotiating with several different cable companies to provide local phone service
over their networks.

AT&T plans to migrate customers from the telephone
company service onto the cable service once it becomes available.

Morrissey said most cable operators have expected AT&T
to forge agreements with RBOCs, mainly because the cable footprint does not cover the
entire country.

He added that telco agreements aren't the only way
that AT&T can connect directly with customers. The company has stated that it is
looking at a number of different technologies, including fixed wireless.

"There are chronological and geographical gaps in the
footprint," Morrissey said. "TCI has no properties in New York. Our cable
[telephony] entrance in New York has to be through Time Warner and Cablevision. Until
those deals are worked out, we will go through [Bell Atlantic]."

The Time Warner deal is expected to close soon. Even if it
did meet AT&T's April 30 deadline, it would likely take at least a year before
Time Warner could start offering telephony in New York on a wide-scale basis.

Time Warner is also gearing up to launch digital cable and
high-speed Internet service in the New York area later this year.

According to Time Warner Cable of New York City spokeswoman
Geri Warren-Merrick, the company will begin testing digital cable in Queens and its Road
Runner high-speed Internet service in Manhattan in the fourth quarter. She declined to
give further details.

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