The deal between AT&T and MindSpring Enterprises will give the dial-up ISP access to AT&T's cable wires after 2002. Specific pricing and other technical details of the deal have yet to be determined.
That development--one analyst described it as "a treaty"--is the result of negotiations sought by the Federal Communications Commission and a protracted public debate over how cable networks should be regulated.
Cable networks, the high-speed pipes that carry TV broadcasts and Internet traffic, are currently closed to unaffiliated ISPs. AT&T has faced intense pressure from firms such as MindSpring and America Online to allow ISPs access to its high-speed networks, a policy generally called "open access."
Although the deal may please some critics, it falls far short of ending a larger debate over cable access for ISPs. Overall, AT&T's high-speed networks are still closed to other competing Net service providers, such as America Online. As such, sweeping rules addressing open access are still in the works. A federal appellate court in Portland, Ore., is expected to rule on the issue early next year, while ISPs have vowed to continue lobbying local and federal officials for a comprehensive national policy.
Today's announcement wasn't entirely unexpected; AT&T previously said it intended to offer service from other ISPs.
"If we have more content on our system we'll have more customers. The only way we make money is if people are on our system," AT&T chief executive C. Michael Armstrong said at a press conference today. "We're doing this not necessarily out of fear of regulation or the public perception, but because it's good for business."
Yet the decision comes just as Excite@Home, the cable modem service provider owned in large part by AT&T, had laid to rest some questions over its business strategy and future course.
Two weeks ago, Excite@Home announced it would offer a tracking stock for its media assets, a move intended to put to rest rumors that the company might sell off Excite.com and other content properties. Separately, the company recently topped 1 million subscribers, meeting analysts' expectations and catapulting the company into a limited group of large, national ISPs.
Excite@Home's dominance in the high-speed access business has largely been protected by its exclusive position with cable companies. Yet analysts and company executives said the AT&T-MindSpring pact could ultimately prove to be a boon for the Net-over-cable firm by providing new revenue streams.
"How MindSpring will deliver Internet access will very likely involve using the @Home network. I think that's a good thing because it means less disruption for our customers and there's also a revenue opportunity there," Milo Medin, chief technical officer for Excite@Home, said.
Additionally, Excite@Home executives expect to offer the high-speed content service via other technologies once the exclusive agreements with its cable partners expire. Most of the agreements are scheduled to expire after 2002.
"If we're no longer exclusive to AT&T, that means AT&T is no longer exclusive to us--which means we can offer our service over fixed wireless, satellite and maybe even DSL [digital subscriber lines] at some point in time," Medin said.
Some analysts expect the cable operators to continue primarily pushing Excite@Home's services, despite offering other choices.
"The cable operators will begin to offer their customers a choice of ISP, but I would be quite surprised if they didn't continue to offer @Home as the house brand," said Michael Harris, a high-speed Internet industry analyst for Kinetic Strategies.
Harris said he expects the majority of cable modem customers to continue to use Excite@Home's Net access and content service, particularly because it will be integrated with the company's interactive TV service. @Home TV is set to launch in a limited number of markets next year.
"[Excite@Home] may actually get more revenue," Harris said. "The damage to them isn't that bad."
Much of Excite@Home's valuation, however, has been linked to its exclusive contracts with cable partners.
In a research report today, Merrill Lynch financial analyst Henry Blodget wrote that "[the MindSpring deal] could represent another step on the road to a market in which cable operators sell access to the highest bidder--a situation that would reduce the value of Excite@Home's exclusive cable contracts and stock."
Stock in Excite@Home slipped nearly six percent to 49 following the news. MindSpring shares gained nearly 12 percent to 36.06.
The move gives AT&T, which has argued for marketplace-driven agreements rather than new regulations, some temporary relief from critics who support open access.
"With this announcement AT&T has finally admitted that open access is the best policy for consumers," said Greg Simon, co-director of the openNET Coalition.
Other consumer groups, however, are not ready to embrace the agreement.
"A self-enforcing open access agreement sounds good in theory, but may not mean much in practice," said Mike McCurry, co-chairman of iAdvance, a communications group supportive of open access.
The communications industry will continue to watch for a federal appeals court ruling on the controversial issue, and final business terms for the MindSpring deal.
MindSpring executives reject suggestions that AT&T used the company to placate federal regulators and its critics.
"We have compromised none of our positions," said Dave Baker, vice president of legal and regulatory affairs for MindSpring. "This needed to happen sooner or later They see the writing on the wall. No one is going to stand for a closed system."