DSL and cable vie for market share

AT&T will tout high-speed Net access via cable through its newly acquired controlling stake in @Home. Meanwhile, Baby Bells such as SBC Communications and Ameritech will push Net access over copper wires, dubbed DSL.

AT&T has another weapon in its "bundling" arsenal, too: cable TV. The Baby Bells have lagged in providing television, so this battle will be closely watched as well.

"If the telcos weren't taking the threat of cable modems seriously, the AT&T acquisition will drive that home," said Michael Harris, president of Kinetic Strategies, an industry consulting firm. "This will accelerate their plans."

Make no mistake: Bundling local and long distance phone service is a higher priority for AT&T and the Baby Bells compared with high-speed Net access--or with cable TV, for that matter.

While growing fast, high-speed Net access via cable is promising, bit it remains a relatively small business. The market has an estimated 250,000 customers, although this is expected to reach more than 10 percent of U.S. households by 2002. High-speed Net access also will help round out AT&T's product offerings.

In some markets, the DSL vs. cable modem shakeout will be intense. Take Silicon Valley and the rest of San Francisco Bay Area, for example. AT&T will offer cable modem Net access through @Home, while SBC will offer digital subscriber lines through Pacific Bell.

Both @Home and SBC recently have been on an expansion binge. @Home has been entering new cities as TCI upgrades its cable network to provide two-way service. That process is expected to accelerate now that AT&T's financial muscle is behind the company. As @Home chief executive Tom Jermoluk put it yesterday, the AT&T buyout will let @Home offer a broader range of services "quicker and cheaper."

The AT&T name will provide marketing clout, too. Jermoluk noted the power of the Ma Bell brand yesterday.

Pacific Bell, meanwhile, has been expanding its DSL rollout. Last month, the phone company said it would expand its DSL launch to more than 200 communities in California, including more of the San Francisco Bay Area.

"Everybody is working hard to provide customers with a full range of service," said a spokesman for SBC, parent of PacBell.

This same competitive landscape is expected to play out in the Chicago metropolitan area, too. TCI, through @Home, provides Net access there as well. On the DSL side, Ameritech has been rolling out the product, with help from Microsoft. SBC could add further muscle, because it is proposing to buy out Ameritech, subject to regulatory approval.

According to TeleChoice, an industry consulting firm, the North American DSL market is expected to reach an installed base of 110,000 lines this year, 355,000 in 1999, and more than 1 million in 2001.

AT&T now has one offering that most of the Baby Bells don't, however--cable television. About three years ago, some of the Baby Bells teamed up on an interactive TV venture dubbed "Tele-TV." The venture included Pacific Bell, Bell Atlantic, and Nynex, and it hired former CBS top executive Howard Stringer to launch a full-fledged TV service.

But the Baby Bells got caught up in merger mania: Bell Atlantic and Nynex merged, and SBC bought Pacific Bell. As a result of cost-cutting, Tele-TV was disbanded. SBC also scaled back the wireless digital TV efforts initiated by Pac Bell.

"[Cable TV] is a bonus, but it's not a do-or-die situation for the telcos," Harris said. "What's more important is bundling local and long distance phone service and Net access."

An SBC spokesman said the company remains committed to digital TV. If consumers demand it, he added, the telco will offer it.