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Consumers contemplate AT&T, TCI world

Federal antitrust regulators' approval of the merger sets the stage for a very different communications world, if not necessarily a cheaper one, for consumers.

Federal antitrust regulators' approval of AT&T and Tele-Communications Incorporated's pending merger sets the stage for a very different communications world, if not necessarily a cheaper one, for consumers.

AT&T has said that its primary motivation in the merger is gaining access directly to consumers' homes, giving it the ability to offer local phone service without going through the networks of existing local phone companies.

Once the See special coverage:
A giant awakens company gains this access through TCI's cables, the newly-merged business will be able to offer consumers a broad package of services--including cable TV; local, long distance, and wireless telephone service; high-speed Internet access; and paging services.

While the telecommunications industry is watching the day-to-day machinations of the merger closely, why should consumers care?

"I think consumers will certainly get more functionality for about the same price," said Boyd Peterson, a senior telecommunications analyst with the Yankee Group in Boston. "I'm not sure whether or not that means less money will actually be flying out of their wallet."

Customers that are satisfied with relatively low-tech services, eschewing Internet access and wireless phones for traditional phone service, are less likely to see substantial changes in the price or quality of their service as a result of the merger, Peterson said. "For them, the benefits of all of this might be hard to find," he noted.

Even if the merger is approved by the FCC, which many expect will happen early in the new year, it may still take a while for the companies' merged technologies to hit the market.

"It's not going to be a situation where an AT&T salesman suddenly shows up on your doorstep and hands you a mobile phone and a cable modem," Peterson said. "It's going to be more incremental than that."

Most likely, the two companies will start out offering marketing crossovers, such as discounts on TCI cable and video services for customers who sign up for AT&T long distance packages, Peterson said. Over the next few years, the company plans to begin rolling out voice phone service over cable lines.

The landscape likely will begin to change even more dramatically when the company is able to offer IP, or Internet protocol-based, phone service. This will allow the merged company to roll out new services such as cheap multiple phone lines, and offer tighter integration between data and voice services.

All eyes on the local lines
Chief among the benefits AT&T gets by acquiring TCI is direct "local loop" access to consumers through TCI's cable networks. The cable company, like the Baby Bells, has networks of wires entering millions of homes and businesses--something Ma Bell had to give up when its monopoly was deconstructed more than a decade ago.

The company may also expand this new capability by striking deals with other cable companies. Rumors have circulated for weeks that AT&T and Time Warner, one of the largest cable operators in the country, are close to a deal for local phone service through Time Warner's cable systems. Any such deal would significantly expand AT&T's end-run around the Baby Bells, as TCI's networks only reach about one-third of U.S. households.

But should consumers care who their local phone service comes from?

Lawmakers, when they passed the 1996 Telecommunications Act, hoped that by introducing competition to the local market, consumers would enjoy cheaper service than what they had under AT&T's one-time monopoly, and the subsequent years of regulated Baby Bell monopolies.

So far, competition for residential consumers has been almost nonexistent, and local rates have not dropped substantially. But many analysts expect 1999 to be the year when the Baby Bells open their local markets further, winning the right to enter the long distance market themselves under the provisions of the 1996 law.

That kind of competition is likely to begin lowering the cost of phone service for consumers as companies fight for market share.

Data, data, everywhere
As the information age speeds skyward, companies such as AT&T are scrambling to keep up with consumer demand for high-speed Internet access, advanced data services such as virtual private networks (VPNs), and even video services such as videoconferencing and video-on-demand.

As part of the multibillion-dollar deal, AT&T will get TCI's stake in @Home, a high-speed Net-over-cable service aimed at the home and small-business user. Using the hybrid fiber coaxial (HFC) networks built by many cable television operators, cable access services such as @Home--and competitor Road Runner--offer data download speeds up to 100 times faster than dial-up modems.

If the merger is completed, AT&T's consumer services unit will have a controlling stake in @Home. Coupled with the telephone giant's WorldNet dial-up service, the company will be able to provide a wide range of Internet access options for consumers and small to medium-sized businesses.

The price of cable access services such Road Runner and @Home are expected to fall next year, once standards-based modems are available in retail stores--freeing cable operators such as TCI from the capital costs of purchasing the modems and leasing them to subscribers.

Meanwhile, the rumor mill continues to whisper that AT&T and Time Warner will ink some sort of a deal, possibly to provide high-speed Internet access over the cable company's networks.

Time Warner operates Road Runner in conjunction with MediaOne, and a deal would give AT&T access to the top two high-speed cable Internet services. AT&T has said it will not discuss rumors.

All bundled up
Ultimately the deal with TCI gives AT&T the ability to provide more services, as well as offer consumers more conveniences, with the promise of one monthly bill covering all their telecommunications needs.

AT&T would be able to bundle voice, video, and data services together as one package for consumers and small and medium-sized businesses, with different offerings and pricing schemes for different needs.

Already the top long distance carrier and the No. 1 wireless service provider in the United States, AT&T will be able to offer consumers a full package of voice services including long distance, mobile phone and paging, and finally, local dial tone service.

Finally, AT&T will offer TCI's core multichannel video programming product and future video applications such as videoconferencing for telecommuters, or video-on-demand for the entertainment junkie.

While these services will not necessarily be cheaper, the ability to bundle them together and offer possible discounts on cable TV to AT&T customers who already use them for long distance might just save consumers some money.