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Can Road Runner run fast enough?

Now that Time Warner and AT&T have finalized their long-awaited voice communications deal, a pact to meld their high-speed Internet services may not be far behind.

Now that Time Warner and AT&T have finalized their long-awaited voice communications deal, a pact to meld their high-speed Internet services may not be far behind.

Although the joint venture announced today does not include the companies' respective high-speed cable Internet services, the relationship between the leading cable operator and the largest long distance company may eventually lead to a more comprehensive alliance, analysts speculate.

A deal between @Home and Road Runner, cable modem-based Net access services that are No. 1 and No. 2 respectively, would allow the companies to save money on advertising and infrastructure costs, analysts said. But the companies have held talks before that failed, which some experts said leaves any possible future deal in question.

AT&T is currently finalizing the purchase of TCI, the second-largest cable operator nationwide and the largest shareholder in @Home, as part of a $48 billion deal. AT&T plans to use TCI's cable networks to provide local voice service in the same way it will use Time Warner's cables. The merger is expected to close during the first half of the year.

Representatives from Road Runner and @Home declined to speculate whether today's telephony deal could pave the way for a future alliance. A Time Warner Cable spokesman as well would not comment on any possible deals, but addressed the company's ability to bundle high-speed Internet and telephone service.

"It certainly allows us to leverage the marketing two of Road Runner with this new local telephony service," said Michael Luftman of Time Warner Cable.

Analysts say it is a foregone conclusion that today's move presages closer cable ties between Ma Bell and the largest cable company in the United States.

"I definitely see an alliance between @Home and Road Runner down the line," said Bruce Leichtman, director of media and entertainment strategies for The Yankee Group. "Eventually it will be in the interest of @Home and Road Runner to align."

A sensible deal
Because the coverage areas of the data-over-cable companies' do not overlap--fewer than five percent of households have a choice of which cable operator to use--@Home, Road Runner, and their respective partners do not directly compete for subscribers.

The companies do compete for content partners and technology alliances, but in a larger context, it is in their interest to market their services together, analysts said, while alternatives like digital subscriber lines (DSL) continue to gain popularity.

"It makes sense to start with marketing alliances and potentially a more formal relationship down the line," Leichtman said.

Although the AT&T-Time Warner deal will initially use circuit-switched voice technology, the companies will implement advanced packet-switched methods after Time Warner's networks are upgraded.

Analysts said a tight integration between the Internet Protocol-based voice and data services could lead to cost savings, not to mention the advantages of being able to bundle voice, video, and data services on one bill for consumers.

"It becomes more important when you start offering IP telephony, and that's post-2000," said Michael Harris, president of Kinetic Strategies, a broadband market research firm.

AT&T, which will be the controlling shareholder in @Home once its acquisition of TCI closes, could integrate Road Runner if it had an alliance with the company but "at this point in the game AT&T didn't want that to be a sticking point," Harris said.

Other analysts said a deal is a good idea regardless of today's venture deal.

"I think it makes sense for Road Runner and @Home to work together, and would have made sense with or without this telephony deal," said Alan Gould, a financial analyst at Gerard Klauer Mattison.

Missing in action
There has been a dearth of strategic moves from Road Runner in recent months.

The company today added Net access service in Kansas, Oklahoma, and North Carolina via Multimedia Cablevision. Multimedia reaches more than 800,000 households.

Last week, Road Runner inked deals to deliver service in Pennsylvania and, later this year, Los Angeles.

But news from the company has been otherwise scant. At the same time, @Home has been busy buying Net directory Excite and striking backbone deals with AT&T.

Road Runner is operating with an interim chief executive. Carl Rossetti, an executive vice president at Time Warner Cable has been running the company for months while an executive search continues.

The company, which will move into new corporate offices later this year, continues to offer two separate cable modem services for the time being.

Road Runner is currently marketed in two different forms by its two largest investors, Time Warner and MediaOne. Time Warner offers the Road Runner service to about 100,000 customers while MediaOne Group markets to about 80,000 customers as MediaOne Express.

The two leading partners eventually plan to bring the services together and market them as Road Runner.