this was on the front page of Friday's New York Times.  America's largest
long distance telephone company is now one of America's largest cable
companies as well.  the vision is to merge long distance, local telephone
service, cable tv and the internet into one service.  The article below
discusses this vision.

kelly

From the New York Times


May 7, 1999

AT&T Conjures Up Its Vision for Cable, but Can It Deliver?

By SETH SCHIESEL

     In a series of deals over the last year that culminated in its
     agreement this week to acquire Mediaone Group Inc., AT&T Corp. has
     committed itself to spending more than $90 billion on a
     technological vision that is largely untested and that may not
     exist anywhere on but AT&T's drawing boards.

     The promise is great: a system that could allow AT&T to provide
     competition against Baby Bells in local phone markets through cable
     connections -- even while delivering interactive television, which
     could allow viewers to select their own camera angles or replays,
     and lightning-quick Internet access to households more accustomed
     to molasses-like speeds.

     But the technical and organizational challenges standing between
     that vision and AT&T's present are so great that one AT&T executive
     likened AT&T's ambitions to launching a space station. It is one of
     the most grand technical voyages in communications since the old Ma
     Bell starting stringing telephone wires across the nation.

     "We need to figure out how to build it, how to deploy it, how to
     support it, how to maintain it," C. Michael Armstrong, AT&T's
     chairman, said Thursday in an interview. Referring to new
     customers, he added: "The issue is not doing this for a few hundred
     people a month. It's for tens of thousands of people a month."

     On Thursday, AT&T enlisted Microsoft Corp., the leviathan of
     software, to help in that effort. As expected, Microsoft agreed to
     invest $5 billion in AT&T, while AT&T agreed to use Microsoft's
     software in some of the advanced television set-top boxes that AT&T
     plans to use to bring its vision into living rooms.

     But the $90 billion that AT&T has already committed to its vision
     is just to acquire Tele-Communications Inc. in a deal that was
     announced last summer, and MediaOne, in an agreement formalized
     Thursday. Now billions more must be spent turning relatively raw
     assets into systems that can deliver the dream.

     It will probably take years for most people, even those in AT&T's
     cable markets, to see tangible results of the company's ambitions.
     And it is not clear if customers will end up footing the bill,
     though AT&T is well aware that its pricing will have to undercut
     local telephone incumbents if it is to have much chance of success.

     Put simply, the main technical challenge for AT&T is to get cable
     television networks to do things that they were never meant to.

     Traditional cable networks are well suited for their original job:
     transmitting television images. Cable networks have very high
     capacities for information; a cable subscriber's home is generally
     receiving every channel at once while the set-top box serves only
     as a filter to display one at a time.

     But traditional cable networks are built to transmit information in
     only one direction: from the cable company toward the user, and not
     the reverse.

     That poses a problem for telephones, which provide a two-way
     service. Traditional telephone networks are in some way the obverse
     of cable systems: They easily transmit communications in two
     directions, but they do not have to carry much information at the
     same time.

     "Think of the copper telephone wire as a very thin but very
     intelligent pipe," said Sender Cohen, a data communications analyst
     at Lehman Brothers, "and the cable wire as very fat but very dumb."

     So AT&T's first challenge is to make all of the cable systems it
     has agreed to acquire in some ways more like two-way telephone
     systems. That project, which requires the deployment of new
     equipment into cable hubs across the country, has already cost the
     cable industry billions of dollars, and in Mediaone, AT&T is set to
     acquire a cable operator with one of the most advanced networks in
     the industry, but one that still requires significant upgrades.
     AT&T has also struck partnerships with the Comcast Corp. and Time
     Warner Inc., two big cable operators, to offer telephone service
     using those companies' systems.

     But even once a cable system has been adapted to send and receive
     data, voice and television signals, it is still not ready for the
     digital future. To offer high-speed Internet service, huge
     investments must be made in high-speed Internet switches that can
     route millions, even billions of bits of digital information every
     second. Even more daunting is the prospect of offering telephone
     service.

     Every house that intends to switch from conventional to cable-based
     phone service must be visited by a trained technician to install an
     electronic box outside the house to connect the home's inside
     telephone wiring to the external cable wire. Big telephone switches
     the size of a van must be purchased and configured, almost by hand,
     to link with the cable network.

     Then there are a myriad of seemingly mundane concerns that could be
     vital to consumers. For instance, allowing people to keep the same
     phone number when they switch to cable-based phone service is quite
     complicated.

     Another challenge is that traditional cable systems generally use
     public power. When there is an electrical blackout, the cable
     television also fails, but the phone almost always works. That is
     because telephone wires carry power as well as communications,
     allowing most phones to work without being plugged in. To match the
     reliability of standard phone service using cable systems requires
     big investments of money and ingenuity in complicated power
     generation systems.

     All of these technical challenges are just to offer phone service
     using conventional telephone technology, known as circuit
     switching, albeit over cable wires. To offer phone service over
     cable lines using Internet technology is even more complicated. In
     fact, the technology to do so reliably does not even exist yet.
     Armstrong said that he does not anticipate using Internet phone
     systems until 2001.

     The upshot for AT&T is that all of the billions of dollars and
     millions of hours it will spend on the obvious technical challenges
     may pale beside the time, effort and money it will spend revamping
     its organization and deploying the anonymous "back office" computer
     systems that are the backbone of any modern business.

     Thousands of trucks may have to be purchased, thousands of
     technicians hired and trained. Customer service representatives who
     now work for cable companies will have to be trained to answer
     questions about telephone and Internet service. One challenge in
     finding qualified dispatchers, supervisors and other sorts of
     support personnel is that almost no company in the world has tried
     to sell integrated bundles of telephone, television and Internet
     services to residential consumers who might not know a modem from a
     remote control. (RCN Corp. is one company that has tried.)

     Moreover, internal billing and customer information systems for
     AT&T will have to be added and revamped to support a broad range of
     services for millions of customers who expect to be billed promptly
     and accurately.

     "These companies will win or lose on the billing battlefield," said
     Howard Anderson, managing director of the Yankee Group, a
     technology consulting firm in Boston. "If your bill is wrong or it
     doesn't go through, you're going to have a fit. Billing is the
     Achilles heel of this whole thing."

     Referring to AT&T's main business of selling long-distance service,
     a relatively simple product, he added: "It's one thing to send you
     a bill for long-distance minutes. It's just the time of day, the
     price and whatever stupid plan you bought. But when you start
     talking about different television packages and different speeds of
     data, you're talking about many more variables. And soon those
     bills will have to be delivered electronically."

     AT&T is well aware of the incredible complexity of its ambitions.
     It has enlisted Lockheed Martin, the big military contractor with
     experience in managing complex projects, to help keep track of all
     of the undertaking's moving parts.

     "The biggest issue where management attention has to be applied is
     to integrate all these things and cause them to come together in a
     way that's coherent," said John C. Petrillo, AT&T's executive vice
     president for strategy.

     The stakes are especially high for AT&T because its reputation with
     consumers will be on the line. When a telephone cuts off for no
     apparent reason, when an Internet connection drops in the middle of
     a big download, when the television shuts off during the big game,
     customers rarely forget.


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