Road Runner, @Home, AT&T Tango

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Despite a rash of stories about a merger of high-speed-data
firms @Home Network and Time Warner Cable's Road Runner, executives close to both
companies reiterated last week that nothing seems imminent.

Still, one developer of content technologies who claimed to
be close to a deal with @Home last week said his negotiations found him placing calls to
Connecticut to reach @Home's attorneys. Time Warner is headquartered in Stamford,
Conn.

As is becoming rote with the persistent rumors about
AT&T Corp., @Home and Road Runner, executives on all sides responded to that situation
and to all other questions with a flat, 'No comment.'

Sandra Colony, corporate spokeswoman for Road Runner, said
her only comment was to echo Time Warner Inc. chairman Gerald Levin's sentiments:
'We're not sure what a deal with @Home offers.'

AT&T chairman and CEO Michael Armstrong told Multichannel
News
after a speech last week in Washington, D.C., that he 'couldn't
discuss' whether AT&T is negotiating with @Home.

'As far as @Home or Road Runner ... AT&T is
interested in three of the alternatives to the resale of the wire,' including cable,
fixed wireless and mobile wireless techniques, Armstrong said. 'We think [that they
all] have potential. They give us different advantages and different costs, and we are in
discussions.'

'The cable reach is a broadband reach, and it attaches
to 65 million homes and passes 100 million homes. It is an alternative connection to the
home that, if the infrastructure is upgraded, can accommodate telephone
applications,' Armstrong said.

AT&T has been trying to secure direct connections to
the home, including through cable and its high-speed platforms for IP (Internet protocol)
telephony, to cut out some of the 40 cents to 45 cents of each dollar in revenue that it
hands over to local-exchange carriers in access fees.

An AT&T spokesman didn't quantify how much the
telco spends annually on access fees paid to local telcos, except to say, 'It's
a big, big number.'

AT&T -- which agreed last month to buy MSO-controlled
competitive LEC Teleport Communications Group for $11.3 billion -- launched a pair of
IP-telephony calling plans last month. In a briefing with analysts last week, AT&T
consumer markets division vice president Dan Schulman said the company figures that up to
15 percent of domestic long-distance minutes of use and up to 20 percent of international
calling minutes will be carried on IP networks within five years.

'There's no question that IP communications is
critical to the future growth and success of AT&T,' Schulman said.

Cable operators, notably Tele-Communications Inc. (which
has voting control over @Home), have also been talking up the potential of IP telephony.
And TCI president and chief operating officer Leo J. Hindery Jr. told analysts at an
investment conference in December that he wanted outside help in developing that service.

'I can tell you that I do not want to exploit IP
telephony alone,' he said at the time.

Since then, AT&T and operators in the @Home consortium
have been discussing how to structure a deal. Some high-ranked cable executives said last
week that they do not think a deal will happen soon.

Reports that AT&T was deciding whether to pump $1
billion into cable high-speed-data platforms appeared to help lift some stocks, including
TCI's, early last week. Ted Henderson, an analyst at Janco Partners in Denver, said
he thinks that cable stocks have benefited somewhat from a belief that more AT&T deals
beyond the TCG deal will get done. If AT&T does funnel money into cable upgrades, that
will probably drive prices higher, he said.

On the downside, if no other AT&T deals get done,
Henderson thinks that stocks will drop somewhat, but that they will continue to trade in a
narrow range for the foreseeable future. Operators 'have a lot on their plates
now' in rolling out new services, and the market is waiting to see how well they
deliver, he said.

Several other industry executives said an @Home/Road Runner
merger, or some form of high-speed backbone cooperation, makes sense for everybody
involved.

'I honestly don't know if what I've been
reading in all of the papers is actually happening,' said Alex Best, senior vice
president of engineering for Cox Communications Inc., a partner in @Home.

Best added, 'I do think that it makes a lot of sense.
If you had @Home and Road Runner and MediaOne Express all aligned technologywise, and you
then interconnected all of our systems and had the ability to interconnect with a company
like AT&T, then, all of a sudden, you have the ability, with IP telephony, to make a
local or long-distance call without ever having to embrace the local-exchange network and
without ever having to purchase large, expensive switches.'

'I think that's a gleam in a lot of folks'
eyes,' Best said.

Ted Hearn contributed to this story.

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