Industry praises, puzzles over AT&T;'s @Home rumor
After stepping out of the digital broadcast satellite industry, AT&T; is reportedly ready to jump into bed with the cable providers.
Yet industry experts believed that a rumored $1.25 billion deal for Internet cable provider @Home Network is exceedingly pricy with only few benefits for AT&T;'s strategy. (And speaking of pricy, AT&T; may bid $10 billion for Teleport Communications.)
Still, there was no doubt that such a deal, if true, would be a boon for @Home and the nascent Internet-over-cable industry.
"This could be one of the best things to happen for the business," said Tim Evard, president of @Home rival Road Runner. "It reaffirms the value of our vision."
The possible deal was first reported in USA Today.
On Wednesday, Road Runner, a subsidiary of Time Warner Cable, and rival MediaOne, owned by U.S. West Media Group, announced that the two companies would merge. The yet-unnamed company will replace @Home as the leader in the infant Internet-over-cable market, which still consists of less than 50,000 subscribers.
Because of the small numbers, analysts could only speculate on what such a deal would mean to AT&T.; "They could be looking at making use of @Home's high-speed backbone," said Harvey Morrison, senior analyst with industry consultancy Ryan Hankin & Kent Inc. "@Home's capacity is underutilized, so they are aggressively going after new subscribers."
Analysts expected that AT&T; would be entering the Internet backbone market in 1998. The @Home deal would give the company a head start.
Other analysts thought the deal made a lot of sense as a way for long-distance providers such as AT&T; to reach the home. "Long-distance providers have had a lot of difficulty breaking into the local market," said Yvette DeBow, vice president and senior analyst for market watcher Jupiter Communications.
According to Jupiter estimates, Internet-ready cable TV households reached 12.5 million this year. By the year 2000, 2.2 million of those households will be using cable modems, while another 1.7 million will use the telcos' alternative -- asymmetric digital subscriber loop, or ADSL.
The Internet is a big deal for AT&T;, said DeBow, and @Home is the cutting edge of its Internet strategy. "Until now, AT&T; has been very unimaginative in marketing the Internet," she said. "This gives AT&T; a local provider for its Internet services, which is much less expensive than buying their own."
As of yet, the long-distance provider's Internet service -- WorldNet -- has only captured about 1 million users -- a paltry amount considering the power of its brand names, said Jupiter's DeBow.
Yet, AT&T; has been making other deals to strengthen its position as a provider of Internet services. On Wednesday, the telecommunications provider announced new services aimed at small- and medium-sized businesses as well as a deal with Verisign to provider the company's digital certificates to users.
The courting of cable is a big departure for the long-distance firm. Only last week, AT&T; canceled a marketing agreement with digital broadcast satellite company DirecTV. The switch in focus could mean that AT&T; is concentrating on ways of access to local markets that can support interactivity -- a problem with today's satellite services.
While AT&T;'s stock barely moved on the news, @Home was up $2.31 to $25.88 in Thursday's trading.