AT&T; Hears Call of Local Service

AT&T; Corp.’s new joint venture with Time Warner Inc. promises to finally deliver two things many consumers have craved for years: a choice for local phone service and the ability to buy all their telecommunications services from one company.

With its pending purchase of Tele-Communications Inc. and its new partnerships with cable TV operators, AT&T; has lined up access to more than 40% of the nation’s households. The Time Warner deal announced Monday allows AT&T; to tap into the nation’s largest and most advanced cable network.

The long-distance giant is set to use those cable lines to launch the largest assault yet on the regional phone companies, which remain the dominant carriers in the $110-billion local phone market.

And none too soon. There is still little competition in the residential phone and cable markets, despite the Telecommunications Act, passed three years ago to spark competition in those industries.

“This might bring customers the first broad-scale alternative for telephone services that bypass the regional Bell companies,” said Roger Wery, a telecommunications specialist at Renaissance Worldwide Inc., a consulting firm based in Newton, Mass. “The intent is there to compete massively.”

New York-based AT&T; will absorb much of the costs of the venture in the initial years and will pay Time Warner a steady stream of monthly fees. But it gains a 77.5% ownership of the entity created by the deal and 20 years of exclusive use of Time Warner’s lines for phone service. Time Warner’s network reaches nearly 20 million homes.

AT&T; Chairman C. Michael Armstrong said the joint venture will begin testing phone service over Time Warner cable lines in two unidentified cities by the end of the year, with commercial service beginning more broadly in 2000.

The two companies promise to undercut the combined costs of video and phone services, including those offered by such firms as Pacific Bell and GTE, California’s dominant providers of local service.

In addition to offering long-distance phone service, AT&T; and its partners plan to offer customers high-speed Internet access, cable TV and wireless communications for up to 25% less than competitors--and, eventually, all on one bill.

“It’s been 15 years since people had one carrier for their network services,” said Ken McGee, a telecommunications analyst at GartnerGroup, a Stamford, Conn.-based research firm. “That’s where these people are heading, and that’s where people want to go.”

The AT&T-Time; Warner venture, though not a surprise, nonetheless marks a major realignment by bringing together the nation’s largest telecommunications company with the country’s largest cable operator.

In addition, the joint venture continues AT&T;’s steady transformation under Armstrong, who has been working to convert once-stodgy Ma Bell into a survivor in today’s fast-changing telecom industry.

Last year, AT&T; announced plans to buy the second-largest U.S. cable company for an estimated $45 billion in stock. As part of that deal, the phone giant will spend heavily to upgrade TCI’s cable network.

As Time Warner joins forces with AT&T;, some analysts believe that other cable firms are expected to also forgo the potential upside--as well as the risk and expense--of competing in the phone business on their own.

Cox Communications, Media One and Paul Allen’s Charter Communications could be more resistant to AT&T;’s overtures, analysts say. Cox and Media One have already invested heavily to provide phone service, while Allen, a co-founder of Microsoft Corp., has yet to join any industry initiative on new services.

The fledgling phone services run by Cox and Media One, offered in some areas within Los Angeles, Orange and San Diego counties, so far seem to target households seeking more than just basic service.

For that reason, at least one consumer group warns that the AT&T; expansion into local service may not bring widespread savings.

“I’m skeptical that this is a model that will yield mass market competition,” said Gene Kimmelman, a director at advocacy group Consumers Union.