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AT&T nabs content for broadband bid

After years of searching for an entry into the online world's elite company club, AT&T is finally nearing its goal--and is looking more and more like AOL along the way.

After years of searching for an entry into the online world's elite club of top companies, AT&T is finally nearing its goal--and is looking more and more like America Online along the way.

Today's merger of @Home and Excite will give AT&T the final pieces to create a package that looks very much like AOL, once a string of pending acquisitions have gone through.

The long distance company is close to completing its acquisition of Tele-Communications Incorporated, which has a controlling stake in @Home. Today's addition of Excite to its portfolio will give the company a new mix of broadband access and a well-known Internet content brand.

"AT&T is trying to be the puppet master in this deal," said Zona Research analyst Ron Rappaport. "It's pulling strings to buy the Web strategy it couldn't create."

The deal comes after AT&T was identified as one of several companies, including Microsoft, interested in taking over the Redwood City, California-based Excite.

While executives remained mum on exactly what role AT&T's management played in sealing the deal, it is clear chairman C. Michael Armstrong was close to the merger negotiations, which were completed over the weekend.

"The chairman was consulted on these transactions," confirmed AT&T spokesman Pat Stortz. "We clearly have an interest in @Home's success post-merger."

Giant tripping over the Net
For several years AT&T has played the role of a stumbling giant online, failing to live up to its huge potential in creating an Internet powerhouse. Its three-year old WorldNet ISP service has reached close to 1.4 million subscribers-while AOL claims a subscriber base some ten times that amount.

Meanwhile, its efforts to secure itself a content niche with WorldNet and a host of partnerships with companies like Excite, Yahoo, and the ABC television network failed to turn the telephone company into a content company.

"AT&T has a pretty dismal record on the new media side, particularly on the content side," said Jupiter Communications senior analyst Mark Morradian.

Some telecommunications analysts have said that the long distance giant should stay out of the content business, and focus on packaging its Internet products as part of its larger communications bundle, including traditional telephone and wireless services.

Nevertheless, analysts say the company has continued to see the content-focused AOL as a rival and a model, even trying to buy the online service several years ago.

"It's notorious for its attempts to try to build a consumer Internet service," Rappaport said. "AT&T has had the most severe case of AOL envy in the industry."

Buy what it can't build
Once the acquisition of TCI goes though, and Armstrong's company gains official control of @Home, AT&T will at last have a stable of companies that can match or better AOL's online offerings.

The combination of WorldNet and the @Home cable service will allow users of dial-up, digital subscriber line (DSL) or cable modems to get online through AT&T. Excite and @Home's own content could be merged as a powerful front door for these services, with Web community and other online utilities similar to those that have attracted some 15 million subscribers to AOL.

This access-plus-content mix could finally be what brings AT&T to the top of consumers' minds as an Internet powerhouse, analysts said.

"Users associate themselves with content, not with the pipes it's provided on," Rappaport noted.

The trick for AT&T will be in meshing these services, and in marketing them with the same blitzkrieg energy made famous by America Online.

The company will keep its dial-up WorldNet service, while merging its new acquisitions content into its current front door, the company says. "WorldNet has an existing relationship with Excite, but we're looking to enhance this relationship with the combined portal," AT&T's Stortz said.

With the addition of Excite's front door to @Home's own content and cable Net service, the company also appears to be staking out a role as a full-service broadband provider, hoping to take over AOL's dominant market position as more users migrate away from dial-up service.

But America Online is moving in the same direction, posing a serious threat to AT&T's ambitions for broadband dominance, analysts noted. AOL signed a deal to provide its services over Bell Atlantic's high-speed phone lines last week, and is also working on similar trial projects with MCI WorldCom and GTE.

And despite serving as long distance provider to more than half the country's phone users, AT&T has not proven it can turn that head start into a successful online marketing effort. "It's important to remember, they still have less than a tenth of what AOL has as subscribers," Morradian said.

Companies providing Internet access will need a link to Internet content, no matter how large the rest of their business, Rappaport said. Other ISPs, telcos, and media companies are likely to follow in AT&T's--and AOL's--wake, he said.

"If that's the tail wagging the dog, so be it," Rappaport said. "This is not going to stop in Redwood City." Links