COMCAST PULLS TELEPHONY TURNAROUND

“They're going to be watching him like a hawk,” said Michael Goodman, analyst for The Yankee Group. “The day they made the announcement from Comcast is the day he became a figurehead. He should be a CEO who can play a lot of golf.”

Goodman cited several examples in which Armstrong, the AT&T chairman, conflicts with Armstrong, the AT&T/Comcast chairman — as AT&T moves to establish a broadband strategy with its newly acquired assets from NorthPoint Communications.

“If I'm Michael Armstrong, I'm setting up a DSL product that's going to compete with my Comcast cable modem product,” Goodman said. “That's a conflict of interest if ever I saw one.”

That viewpoint was balanced by an unnamed analyst who suggested that Armstrong's position with Comcast will be relatively ceremonial. “To make such a scene as this, make such a fuss — give me a break,” said the analyst. “The Comcast shareholders are making sure that he's not going to have anything to do with that Comcast business at all.”

Armstrong's fate is just one of the details to be determined during the next year as AT&T/Comcast melds into a behemoth provider of voice, video and data services with a footprint that touches 17 of the 20 largest metropolitan markets in the U.S. This will carry massive weight with cable programmers as well as content developers.

“They want to become a bundled service provider and do all the services,” said Keith Kennebeck, a Strategis Group analyst. “Telephone is just one element of that.”

But it's an important element. While the combined company has 5 million deployed digital boxes, 2 million high-speed data customers and about 1 million voice customers, “this merger has really given cable telephony a tremendous boost because now you have the scale to really become a national local telephone service provider with a humongous subscriber base,” Kennebeck said.

AT&T/Comcast should pass about 11.2 million telephony-ready homes by the end of this year. Comcast, which is currently pushing video-on-demand, had been targeting telephony for 2003. “They're not touching circuit-switched telephony with a 10-foot pole,” Goodman said. “They'll maintain what AT&T has done because… the expense has already been incurred.”

That expense doesn't include buying switches, which Comcast repeatedly has disdained. AT&T Broadband leases its switches from AT&T Local Services, and Comcast could continue to roll out switched networks under those leases, then migrate to IP using technology developed through CableLabs' PacketCable IP telephony effort.

No matter the technology, Comcast's turnaround has juiced the cable telephony business. “Brian embraced the concept of going to telephony,” said Arris CEO Bob Stanzione. “Whether it's circuit switched to me doesn't matter; we're prepared to deploy either type of telephony.”

Arris is a leading provider of switched networks and has the lion's share of business from both AT&T and Cox — the industry's circuit-switched pioneers.

“This is going to start an avalanche,” Stanzione said. “Brian's statements about being in the telephone business are going to push everybody into it.”

In the end, it came down more to money than technology. AT&T Broadband appeared to have cleared a path for profitable telephony deployment, and Comcast became a believer.

“We don't have to build a new billing system and provisioning system and the switches and the [network operations centers],” Roberts said. “This accelerates an opportunity that we have endorsed and takes it from the world of academia to the real world.”

But that real world will take a year to happen, during which time other bidders like AOL and Cox may up the ante.