Ma Bell confirmed yesterday that it is considering possible business deals related to the Net-over-cable firm Excite@Home.
In divulging its position, the communications behemoth offered the first real signs that a festering conflict between the Excite content business and @Home's Net access arm may be at odds with the AT&T's core strategy.
AT&T has spent more than $100 billion putting together a network of cable television systems that will allow it to sell consumers local phone service, cable TV, and high-speed Internet access, in addition to its traditional long distance services. Through all these deals, the company has focused on the so-called pipes, not necessarily the data that travels through them.
AT&T executives haven't made a secret of their lack of interest in creating and managing Internet content. But some analysts believe AT&T has very specific reasons for wanting to rid itself of Excite, including keeping regulators at bay while it continues to consolidate its cable properties.
The most prevalent rumor calls for AT&T to turn over control of the company's content to a third-party partner either via a buyout, equity investment, or alliance. A reorganization of executive management this week makes a split more likely by dividing the company along content and network lines, analysts say.
"I think AT&T knows that it doesn't understand content," said Jeannette Noyes, an industry analyst at International Data Corporation. "AT&T has sort of said, 'We've made mistakes in the past and we're going to stick to our knitting a little bit and just be a pipe company.'"
AT&T inherited a controlling stake in the @Home network last year with its acquisition of Tele-Communications Incorporated. When @Home acquired Web portal Excite earlier this year, AT&T approved the merger that created what is now known as Excite@Home.
"These other endeavors that @Home has ventured into have moved them away from their core business as a cable data service for consumers," said Joe Laszlo, an industry analyst at Jupiter Communications. "The [Excite@Home cable partners] would like to focus their strategy in being more attentive to data services for consumers."
AT&T executives weren't immediately available for comment.
"Excite wasn't part of the deal when [AT&T] initially signed on," Noyes said. "[@Home] has become something a little bit different than it was when [AT&T] bought TCI."
The divergent content strategies have been a source of tension that reportedly led to spats between Excite@Home chief executive Tom Jermoluk and top AT&T executives, according to sources.
Regulators at bay
In addition to allowing it to focus strictly on the high-speed networks, divesting its online content assets could serve as a way to keep regulators from scrutinizing AT&T's cable moves too closely.
AT&T, which formerly dominated the local telephone market, was split into several separate companies in 1984. It now faces a regulatory battle over how large a piece of the U.S. cable TV market it is allowed to own. It is also struggling with local and federal authorities over whether competing Internet service providers should be allowed to piggyback on its cable network.
A decision by the Federal Communications Commission over cable ownership is expected later this month. With its proposed purchase of MediaOne Group, AT&T is over the current federal cap, depending on how the rules are interpreted.
Meanwhile, AT&T is embroiled in a national debate that is being hashed out in a federal appellate court case in Portland, Oregon. At issue is open access to its cable wires by outside ISPs. AT&T opponents argue the firm could own a monopoly on high-speed Net access if all of its cable mergers are approved.
Some say AT&T is looking for an Excite@Home deal as a way to appease regulators.
"With two key dates fast approaching there is some indication that AT&T's cable unit, led by CEO Leo Hindery, could be pursuing pre-emptive deals to satisfy the federal authorities in both cases," Spencer Grimes, an securities analyst at Salomon Smith Barney, wrote in a recent research report.
"If indeed the case, this approach is vintage Hindery--who's a consummate consensus builder in his deal-making ways--but [it is] also a bit surprising and seems to conflict with AT&T's public comments that it is legally comfortable with its position, certainly in Portland but also with the FCC," Grimes wrote. "There is a conciliatory tone to these efforts."