Devil in the details

Sometimes the biggest news out of trade shows is the stuff that isn't announced. In the weeks leading up to this year's Western Cable Show, rumors were flying that AT&T and Tele-Communications Inc. would use the Anaheim, Calif., event as a stage to announce a telephony alliance with several other major cable players.

The deal would go like this: AT&T would lease capacity on cable operators' networks and brand service under its own name, completely bypassing local exchange carriers. Negotiations around such an arrangement have been an open secret since AT&T announced its acquisition of TCI, and in fact, Time Warner has publicly stated its desire to link up.

At first glance, the deal, if it ever comes about, appears to be a win-win situation. AT&T gains access to a huge number of residential customers at a time when the market is less and less attached to LECs. On the other side, cable operators get some very deep pockets and at the same time are relieved of what was once their secret nightmare-trying to convince a skeptical public that a cable company could handle lifeline voice service.

So what's the problem? Details, details. Specifically, the form any alliance might take. Detail No. 1, though, is the recent reality of voice over cable.

TCI and Time Warner may be anxious to unload their voice operations to AT&T, but the feeling may not be universal. Cox Communications, MediaOne and Cablevision have discovered what was once thought impossible. Selling voice service to residential users isn't as difficult as everyone told them it would be.

Concentrating on basics like putting together easy-to-understand feature packages and giving discounts to high-end users, all three are reporting 20%-plus penetration rates in single-family residential markets. In the multidwelling market, the numbers are even bigger. Even the most optimistic forecasts of two years ago put those numbers closer to 12%.

To expand services further, operators need cash. AT&T has it, but just how much it's willing to give up is detail No. 2.

Linked closely is detail No. 3-AT&T's role in cable-based, high-speed Internet access services. By virtue of its TCI deal, the company will likely play a big role in the @Home network group. Others, especially RoadRunner, may not be quite so anxious to let big brother AT&T play with its newest toy.

But regardless of the form, AT&T is set to deliver a message to local loop providers: Ready or not, here we come.