The line between cable and telephone companies continued to blur in 2006.

Cable operators such as Comcast and Time Warner aggressively marketed their new "triple play" bundle that includes telephony, high-speed Internet access and television services. The strategy paid off. By midyear cable operators were reporting record subscription growth in their phone services, and phone companies such as AT&T acknowledged their business had taken a hit.

However, AT&T and the other major phone company in the U.S., Verizon Communications, also pushed ahead with their plans to offer TV service. AT&T introduced its Internet Protocol TV service, called U-verse, in San Antonio, Texas, in June. And in November it launched the service in a second city, Houston. AT&T says it expects to have U-verse up and running in 15 to 20 markets by the end of the year.

Verizon, which had started offering its TV service in 2005, continued to win video franchises across its service territory. And in August it reported strong momentum in getting customers to sign up for its Fios fiber-to-the home service.

The phone companies' merger mania of 2005 carried over to 2006. Before the ink on its deal to merge with SBC Communications was even dry, AT&T was back at the negotiating table finagling a deal to buy fellow Baby Bell BellSouth. Valued at about $67 billion when it was announced in March (it's now valued around $86 billion), a combined AT&T-BellSouth would be the largest phone company in the United States, servicing customers in 22 states. On the last business day of the year, the FCC ended a standoff and finally approved the deal.

The merger sailed through the regulatory approval process at the U.S. Department of Justice earlier in the year. But it stalled at the Federal Communications Commission, where the two Democratic commissioners, Jonathan Adelstein and Michael Copps, wanted to see more restrictions put on the merger. Two Republican commissioners, Chairman Kevin Martin and Deborah Taylor Tate, opposed the restrictions, while Commissioner Robert McDowell declined to vote on the matter, citing ethics considerations.

Speaking of political machinery in Washington, lobbyists and executives from the phone companies dealt with a wide variety of issues on Capitol Hill in 2006, ranging from Net neutrality to video franchise reform to answering questions about who was sharing customer records with the National Security Agency.

This was also the year that the Internet giants jumped into the telephony business. Yahoo, AOL, EarthLink and Google all launched new voice services. Meanwhile, voice over Internet Protocol pioneer Vonage went public. Unfortunately, for investors (many of whom were also Vonage customers) the hype fell short of expectations, and Vonage's debut on the Nasdaq tanked.

Last but not least among broadband news makers in 2006 was Wi-Fi. The proposed 802.11n standard, expected to supercharge Wi-Fi speeds, hit a few bumps on its road toward standardization. Equipment makers began selling prestandard products, but experts warned customers to wait before buying anything until interoperability issues were addressed. Ultimately, feuding WiFi-gear companies made peace with each other, and the Wi-Fi Alliance agreed to certify prestandard products starting in the first half of 2007.

After years of hype about citywide Wi-Fi, 2006 was also the year it started to come of age. EarthLink, which has won bids to build networks in several major cities, including San Francisco and Philadelphia, launched its first network in Anaheim, Calif., in June. As more municipalities introduce service, city officials are realizing Wi-Fi isn't as simple as it sounds. But companies such as EarthLink say that regardless of these early challenges, they will push forward and use the lessons learned to improve deployments in the future.

--Marguerite Reardon

2006 Highlights

AT&T enters TV market

Company offers Internet-based TV service to a limited number of customers in Texas.

AT&T to buy BellSouth for $67 billion

The combined company would generate about $130 billion in sales and serve nearly 70 million local phone customers.

Broadband giants say Net neutrality fears are misguided

Verizon, AT&T offer companies special pipes. They want to extend that concept to content delivery.

Wi-Fi consumers cautioned to wait on new gear

Testers unhappy with new Wi-Fi equipment that complies with the draft version of 802.11n standard.

Free Wi-Fi in S.F. more than flipping a switch

San Francisco, with its steep hills and urban valleys, will be a challenge to EarthLink and Google's ambitious project.

Telecom firms distance themselves from NSA flap

As outcry over Bush administration data mining grows, companies go out of their way to say they weren't involved.

IPTV promise meets reality

Rather than cheap prices and fancy features, first major IPTV deployments will offer fees, service similar to cable.

EarthLink christens its first citywide Wi-Fi

Will company's strategy of building wireless networks in U.S. cities fill a void left by exiting dial-up users?

'Vonage the Dog' bites back

A month after an IPO, company execs say they're ignoring pundit's insults and see strong prospects ahead.

VoIP: Quality is still a big concern

With Net telephony poised to hit the mainstream, experts say issues with service quality need to be worked out.

Comcast voice helps ring up profits

Cable operator reports better-than-expected revenue and profits, bolstered by strong subscriber growth.

Verizon's Fios services build momentum

For the first time, the company discusses market details of its fiber-to-the-home network.

AT&T and BellSouth: Why you should care

After its proposed merger with BellSouth, AT&T will in many ways be bigger and stronger than its monopolistic predecessor, Ma Bell.

Wi-Fi standards face patent threat

A patent ruling in favor of an Australian government agency could mean equipment makers will have to pay up.

FCC approves AT&T-BellSouth merger

After months of partisan deadlock, the Federal Communications Commission OKs the merger.