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Is a 3Com product in AT&T's future?

As AT&T forges ahead with its buyout of TCI, 3Com's name surfaces as a provider of a next-generation phone for the merged company.

Tech Industry

As AT&T forges ahead with its buyout of Tele-Communications Incorporated, 3Com's name has surfaced as a provider of a next-generation phone for the merged company, according to internal AT&T memos.

An AT&T source cautioned, however, that no deal was imminent and that the See special coverage:
A giant awakens 3Com connection is just one option being considered. Still, the memo provides insight to AT&T's thinking since it agreed to buy TCI in June. Both sides have said little about their deal since it was forged.

In June, AT&T said its buyout of TCI will allow the company to "bring to people's homes the first fully integrated package of communications, electronic commerce, and video entertainment services." The marriage of the two giants has come to symbolize the ballyhooed convergence of cable and telephone services, brought on by deregulation and new technologies.

The 3Com proposal centers on creating a television-video phone to round out AT&T's product offerings, according to in-house memos sent to AT&T chief executive Michael Armstrong in late July that discuss 3Com's Bigpicture video phone product line, which includes cable modem, TV phone, and modem with phone speaker offerings.

Other players in the video phone market include the Boca Video Phone kit, Diamond Supra Video Phone Kit, Panasonic EggCam, and Intel ProShare videoconferencing technology. (Intel is an investor in CNET: The Computer Network.)

"Once we have access to our customer's premises directly through cable wires, we will have tremendous opportunities to grow our business," one memo stated. "First, let us deploy the next generation phone that is the TV/video phone. The technology is readily available. There are products on the market from 3Com. With the cable modem bandwidth, we can provide several high-quality TV/video phone lines to our customers' homes."

AT&T has forged deals with 3Com in the past. Last July, an AT&T special promotion with 3Com offered free external 3Com 56-kbps modems to AT&T's mySite personal Internet service customers, who agreed to subscribe to AT&T's service for one year.

One AT&T source put the 3Com proposal in perspective this way: "This is one of the significant things AT&T may do with its TCI merger, but its not the top one. Getting into the local telephony market is the key driver."

AT&T spokeswoman Eileen Connolly declined to comment on the proposal because the company is in a "quiet period" related to its pending buyout of TCI, which is expected to be completed during the first half of next year. A 3Com spokeswoman also declined comment on the AT&T memos, which also advocated using the cable modem as a hub with multiple video phones connected to the 3Com device.

"All current telephone features can be extended to the TVPLs?. [and ] AT&T can offer the TVP [television video phone] answering machine service, which can also include receiving faxes. All the incoming video/audio calls and faxes can be stored at the AT&T back-end computer servers," stated one memo.

The same memo also noted that many companies already have offered or will offer telco-related services via the Net.

"Let's call these services IP-centric services," the memo stated. "Without TVPL, IP-centric services will eventually penetrate and replace the traditional phone-centric telecommunication services market. If this is indeed the case, AT&T will only get marginal benefits from the growth of the Internet backbone traffic supported by AT&T. "However, AT&T will gradually lose the traditional phone-centric services market to IP-centric services that many small- or mid-size companies offer."

Analysts, meanwhile, remain skeptical about a telco taking the plunge into the video phone market.

"Video phones have potential down the road, but what's it going to cost to provide it?" said Brian Eisenbarth, an analyst with Collins & Co. "If it's too expensive, they will only get some techies and high-end customers willing to pay for it."

Bruce Kasrel, a senior analyst with Forrester Research, noted that the video phone concept has been around since the 1950s and has yet to take off in the mass market.

"Video calls make the most sense between New York to California. But most of the cable companies aren't national," Kasrel said. "AT&T is national and TCI has the most subscribers, so they have the best chance. But will the telephone companies charge a lot but to get customers using it for only a few minutes, or will they charge very little to get a lot of minutes?"

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