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AT&T signs pacts with TCI cable partners

The long distance company inks deals with five of TCI's cable partners in another move to offer local voice service over cable networks.

AT&T struck deals with five of Tele-Communications Incorporated's cable operator partners today, marking another step forward in the long distance leader's plan to offer local voice service over cable.

AT&T, which today released the proxy statement for its $48 billion acquisition of TCI, has inked telephony agreements with Bresnan Communications, Falcon Cable, Insight Communications, InterMedia Partners, and Peak Cablevision.

The deals, separate joint ventures in which AT&T expects own between 51 percent and 65 percent each, will be finalized early this year. The cable companies will receive a one-time multimillion-dollar payment from AT&T when they reach performance goals, in addition to a cut of the monthly phone revenue, in exchange for long-term exclusive rights to use the cable systems for telephone services.

AT&T said it plans to begin offering local voice service, in addition to advanced communications offerings such as conference calling, call forwarding, and messaging, sometime next year.

Although TCI--with about 10.5 million subscribers and 17 million homes capable of receiving TCI programming--is the No. 2 cable operator, it reaches only about one-third of U.S. homes and businesses.

AT&T will need to strike deals with additional cable partners if it intends to offer nationwide local voice service, without the help of the Baby Bells. However, the deals today will give AT&T access to an additional five million U.S. households.

Analysts said the move was not unexpected, especially since these smaller operators already had existing relationships with TCI.

"This was inevitable," said Bruce Leichtman, director of media and entertainment strategies for The Yankee Group. "When they made the deal they said it was an infrastructure deal, but they do not get the infrastructure in these companies."

Analysts have said AT&T will have to strike additional marketing deals and other joint ventures in order to gain nationwide coverage.

Today's deals are regionally disperse. Bresnan reaches customers in Michigan, Minnesota, Wisconsin, and Nebraska, while Falcon has subscribers in Washington, Oregon, California, and 23 other states. Insight brings coverage in Illinois, Indiana, and Ohio, while InterMedia is focused in four southern states. Peak Cablevision offers services primarily in Utah and Oklahoma.

Under the deals, each cable partner will be financially responsible for upgrading its cable system to two-way cable, capable of handling more advanced communications services.

Many analysts expect AT&T to ink deals with most of the 18 cable partners that have a stake in the @Home Network cable modem service. The company also is rumored to be in talks with Time Warner for a telephony or Internet deal.

"They want to become the de facto phone company of the cable industry," Yankee's Leichtman said. "They're certainly on their way to doing that."