A cable telephony deal at last for AT&T?

After months in the doldrums, AT&T's efforts to bundle its local and long-distance phone service with video and Internet services from other cable operators showed signs of life. Earlier this month, AT&T announced that it intends to form a joint operating venture with Insight Communications.

But the unveiling of a letter of intent with the eighth largest U.S. multiple systems operator also highlighted that, one year after announcing its plan to place its phone service on other cable operators' networks, AT&T has not signed an agreement.

"This has been a long time coming," said James Hern, an analyst with Olde Discount. "What looked like an armor-plated idea for sidestepping the RBOCs and getting phone service into homes has taken a few hits in the last year. Suddenly, it looks less like a certainty than it once did."

The letter of intent with Insight, which has about 1 million subscribers mainly in the Midwest, calls for Insight to market, maintain and bill customers for the phone service. AT&T will install switching equipment at the cable headends and will serve as the local carrier of record. AT&T will pay Insight for use of its local network, which passes about 1.6 million homes, and for installation and maintenance performed at subscribers' homes. It also will pay Insight commissions for phone services sold to its customers.

The two companies expect that Insight will sell AT&T's local and long-distance residential service in its markets, probably separately and as part of a bundle with Insight's own video and Internet services. Where or when the joint operation will first roll out and the cost of the bundled offering have not been determined.

Insight CEO Michael Willner is confident that a joint operating partnership with AT&T will be reached. "We already had a relationship with AT&T in some of our systems, so the people aspect of [the agreement] was easily assembled," he said. "We felt that if we could do the right deal, having the AT&T brand name would ultimately sell more customers on switching their phone service to us."

If it comes to pass, the Insight deal will be the first such partnership that AT&T has achieved with a cable operator. But it's not the first joint venture the carrier has announced. Last year AT&T unveiled a planned joint venture with Time Warner, the nation's largest cable operator. That deal outlined an elaborate revenue-sharing scheme for getting AT&T phone service onto Time Warner's network.

By the end of last year, though, AT&T chairman and CEO C. Michael Armstrong acknowledged that the Time Warner arrangement was in limbo, stalled by disputes over specific terms and by AT&T's pending merger with MediaOne, which holds a stake in Time Warner Enterprises.

"I think we'll end up with a [Time Warner] relationship that is good, solid and robust," said Dan Somers, president and CEO of AT&T Broadband, in December. "The economics have to be right."

The January announcement that Time Warner intended to merge with America Online has only served to sink the joint venture talks with AT&T deeper. At the time, AT&T general counsel James Cicconi said that the AOL merger was "a net positive for our relationship [with Time Warner] and for that potential telephony deal."

But many observers think that while the AOL/Time Warner combination helped AT&T relieve some pressure to open its cable systems to competing ISPs, it also has muddied the prospects of getting AT&T phone service to Time Warner's 33-state subscriber base.

"AT&T's not dealing from a position of strength anymore," Hern said. "The company that seemed unstoppable has been stopped or at least slowed. That means the planned deal goes back to the drawing board."

Earlier this month, AT&T announced joint marketing agreements with Cablevision Systems and Time Warner Cable. In those deals, the participants will pitch their services to each other's customers, but the level of engagement is nowhere near as deep as in the proposed Insight pact.

The Insight deal - simpler than the complex revenue-sharing joint venture planned with Time Warner - may prove a more effective template for future cable phone agreements, Hern said.