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AT&T's bid for TCI raises questions: Impregnable local monopoly? AT&T's $48 billion says there is no such thing as a telco hammerlock on the local exchange. The local exchange market's future is up in the air (perhaps literally). Traditional competitors will enjoy significant advantages-and bear some significant disadvantages. Likewise, new competitors-when was the last time AT&T could be classified among the new competitors?-will enter with a list of major advantages and disadvantages.

But isn't that what competition is all about?

A great bet or wishful thinking? A single, unproven strategic marketing concept-bundling-serves as the foundation for this deal. AT&T wants to "bundle" long-distance, cable entertainment, Internet and local voice into a single offering.

In the past two decades, consumers have shown that they can make smart choices among service options. AT&T believes consumers will prefer to make a single choice, if they are confident that choice will produce quality services at an acceptable price. From a provider's point of view, this means powerful networks, economies of scale and commitment to quality-all traditional strengths of the Jersey giant.

AT&T's making a big bet that the public will respond favorably to bundling. It's an excellent bet.

Who's next? Within the cable industry, TCI does not enjoy a reputation for technical quality. Cable people often chuckle about TCI's rep outside the industry as a technology leader, crediting shrewd Chairman and CEO John Malone's remarkable powers of persuasion with creating an inaccurate image to mask an inadequate network.

Because the current quality of a cable network determines the investment necessary to build a two-way business, this suggests that other cable companies are more valuable acquisition targets for telecom companies with a more selective (or sub-national) strategy.

Smaller cable companies such as Cablevision will find themselves in a strong position when suitors come calling, according to coverage in Cable World (another PRIMEDIA Intertec publication).

Brand danger? AT&T has had every problem (many self-inflicted) under the sun in the past few years. But one constant throughout was its solid-gold brand. So how can it handle the TCI acquisition without soiling the AT&T brand?

TCI's cable service has a terrible reputation. Worse still is TCI's reputation for customer service. (It's one thing to have poor service that generates customer complaints, but to then treat the complaining customers poorly is like treating a hangnail by amputating the hand.)

AT&T's biggest advantage in its pursuit of a bundling strategy is its powerful brand. Anything that dilutes the strength of its brand undermines the strategy.

Integrating TCI into AT&T may present the biggest brand management challenge of the decade.

Investment woes? Wall Street reacted with something less than a standing O. AT&T's share price quickly plunged by 13%.

The market's major concern was the quality of TCI's network and, hence, the investment necessary to build a two-way local business. TCI and AT&T executives stoutly defend the quality of TCI's network and note that the additional investment, whatever it ultimately may be, will come from an AT&T subsidiary whose stock will be separately traded.

So far, AT&T's response to Street jitters has been to jawbone with great vigor. Hopefully, AT&T will quickly provide a detailed description of how it intends to upgrade the cable plant.

Strong medicine? AT&T Chairman C. Michael Armstrong inherited an absolute mess last year. Predecessor Robert Allen had capped a rough decade with a disastrous last year before being moved out by a repentant and previously supine board.

Armstrong has aggressively attacked AT&T's problems. He's cut costs, reorganized businesses and made acquisitions.

The TCI deal may fall apart, but can anybody imagine Bob Allen making this kind of bold decision?

Sure. In fact, Allen made an equally momentous acquisition decision. He tried to make AT&T a leader in the computer business with his stunning 1991 NCR purchase.

Allen's decision was bold but catastrophic.

Bold isn't necessarily best.