Call their bluff

Maybe it was cable modem's early jump-start, but DSL deployments have accelerated during the past year to the point that cable can no longer claim the definitive edge in residential broadband.

As any good poker player knows, one of the keys to winning is knowing when to bluff and when to call your opponents on a bluff. Holding a hand of worthless cards can be valuable if the others around the table think you've got a fist full of aces.

In the big poker game that is telecom, bluffing has become an essential strategic move. Did Global Crossing ever really intend to acquire U S West? We may never know because the most important element of the bluff is never telling anyone when you're doing it.

In the case of AT&T and its efforts to maintain control over access to its cable plant, it's time for everyone around the table to call AT&T's bluff. In poker terms, the company's big bet on cable, which at the time was considered significantly behind the technical curve, was equivalent to playing seven-card stud with only five cards in hand. Admittedly a risky play, but one that could pay handsomely if others think you're holding an ace and four wild cards.

However, since the cards were dealt on this issue more than a year ago, a number of players and some of the rules have changed. Maybe it was cable modem's early jump-start (again, we may never know), but DSL deployments have accelerated during the past year to the point that cable can no longer claim the definitive edge in residential broadband. At the same time, cable's position as the dominant residential video provider could be threatened by recent congressional action that may let direct satellite operators carry local broadcast stations in their home markets.

AT&T's contention that it needs all the revenue from cable Internet service as an incentive to invest in the cable plant may have carried weight when the technology was in its embryonic stage. But with broadband deployment accelerating every quarter, that argument looks like AT&T's attempt to bluff its way into the most profitable segment of the market.

Meanwhile, last week's FCC line-sharing decision not only forces telcos to provide non-discriminatory access to its plant, but it denies them a significant amount of revenue for that access as well. And while the final order has yet to come to light, there's significant concern that competitive local exchange carriers will get a free ride on incumbents' copper networks while simultaneously stealing high-speed access market share. Suddenly, that cable hand has just been given the three extra cards.

A recent University of Michigan study concluded that if cable operators were required to open access to their plants (and were allowed to collect access revenue from ISPs), it would not reduce the value of that last-mile broadband transport. In analyzing the investments required and the expected revenues, the study found that AT&T and other operators would earn three times as much profit per dollar of additional investment from adding open access to their bundles as they would earn on the cable TV investments already made.

At the same time, AT&T continues to fight what amounts to a ground war in multiple jurisdictions over the open access question. And although it certainly has won some key victories, overall, it has gotten mixed results at best.

The fact that AT&T has bet so big on the cable hand necessitates that it dramatically increase revenue from that hybrid fiber/coax plant. And with pressure on its core video service expected to increase, that increase can only come froma mix of services, including voice and high-speed data. Will AT&T abandon its plans to offer voice and high-speed Internet service because it must compete with others? Regulators need to call the bluff.