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Stake in @Home a bonus for AT&T

The cable Net service is expected to play a pivotal role in AT&T's strategy to expand online and provide local phone service via cable.

AT&T's buyout of Tele-Communications Incorporated gets it a controlling stake in @Home, an alliance that is expected to play a pivotal role in the telecommunication giant's strategy to expand its Net access and provide local phone service via cable.

AT&T already had been considering teaming up with the cable Net service before it decided to buy TCI. The company saw an opportunity to use the high-speed network for both data and voice communications.

"Through the acquisition of TCI, AT&T Consumer See special coverage:
A giant awakens Services will also hold a controlling interest in the @Home Network, the leading provider of high-speed Internet access and content services," the companies said today.

@Home's stock surged more than 30 percent in today's trading, gaining 11.9375 to close at a new high of 51.1875.

@Home was founded in May 1995 by Silicon Valley venture capitalist firm Kleiner Perkins Caufield & Byers, and a group of engineers and managers that included William Randolph Hearst III, grandson of the man who inspired the Orson Wells epic Citizen Kane.

The plan: provide high-speed Net access through cable systems. The idea was met with great skepticism at first, but now is catching on as the Internet becomes more popular--and congested. @Home's service, which typically costs $30 to $50 per month, promises speeds that are up to 100 times faster than standard dial-up modem connections.

"[AT&T is] spending $48 billion because they believe in broadband. That's a ringing endorsement of cable," said Tom Jermoluk, chief executive of @Home. With AT&T, "We have the opportunity to offer a broader range of services quicker and cheaper."

One benefit: marketing @Home with the AT&T logo.

@Home went public in July 1997 and immediately became a high-flying Internet stock. The company's major stakeholders now include TCI, Cox Communications, and Comcast. TCI has the controlling voting stake.

The company now has more than 100,000 subscribers, and has signed enough distribution deals with cable TV providers to gain access to nearly 50 percent of all homes connected by cable in North America. It recently announced plans to expand in Europe.

Still, @Home faces intense competition. The company's chief cable rival, the Road Runner service operated by Time Warner and Media One, just received a combined $425 million investment by Microsoft and Compaq Computer, providing a formidable competitor when it comes to signing up cable TV partners and content providers.

Technologies other than cable also pose a threat. The Baby Bells are rolling out high-speed Net access through copper wires, a technology dubbed DSL, for digital subscriber lines.

AT&T, however, sees @Home as a way to help provide what the industry calls the elusive "last mile" of connectivity to its customers for Net access and phone service. Although still in the embryonic stages, @Home is helping to develop the next-generation set-top television box that is supposed to become the "network hub of the home," offering TV as well as video on demand, in addition to email, Internet browsing, and telephone connections.

"This addresses the high end and the low end of Internet access space for AT&T," said Abhi Chaki, an analyst with Jupiter Communications. "People in territories that do not qualify for cable modem service will get AT&T WorldNet [dial-up access], whereas people in areas served by TCI, Cox, and Comcast will get @Home service."

Both are important: Jupiter predicts that, by the year 2002, 12 percent of all online households in the United States will get cable modems. The other 78 still will require dial-up access.

For AT&T, @Home could be the cornerstone for an enormous new service to provide both data and voice communications to consumers. Long distance carriers such as AT&T, MCI, Sprint, and WorldCom face hurdles entering the local phone market, and a service such as @Home provides an entrance.

@Home is expected to benefit from the alliance as well. AT&T's huge marketing and distribution clout could help it expand its reach into more markets, as well as compete with Road Runner for distribution and content deals.

Before today's announcement, the two companies already were connected indirectly. In January, AT&T said it had signed a merger pact with Teleport in a deal valued at $11.3 billion. @Home is under a five-year strategic pact with Teleport to provide high-speed Net access to businesses.