MA CABLE?

May 6, 1999
		AT&T's acquisition of MediaOne will create the nation's largest cable company. Days after the deal was made, Microsoft announced that it will invest $5 billion in AT&T to help develop its interactive content. How will these deals affect the American consumer?

Nov. 24, 1998: AOL and Netscape merge Nov. 12, 1998: Did Microsoft engage in monopolistic practices? July 27, 1998: AT&T CEO discusses its alliance with BT July 27, 1998: AT&T acquires TCI Complete NewsHour coverage of business and media issues.   AT&T Microsoft MediaOne	JIM LEHRER: AT&T's big deals and to Terence Smith. TERENCE SMITH: There is a battle underway to control the cable lines coming in to the American home. And the biggest player in that battle, AT&T, won at least a skirmish yesterday when it announced its $58 billion acquisition of the Media-One Group, the nation's fourth largest cable company. The deal gives AT&T ownership of all or part of the cables reaching into 60 percent of American homes. Through its ownership of Liberty Media, AT&T is an owner of MacNeil-Lehrer Productions, the co-producer of this program. Today, Microsoft announced it is investing $5 billion in AT&T, a move that gives the software manufacturer a strong position in the market for operating systems used in set-top boxes for cable television. Now, to help us sort through this blur of billion-dollar deals, we are joined by Ken Auletta, author and media correspondent for the New Yorker magazine. Last year he published The Highwaymen: Warriors of the Information Superhighway. Ken, welcome. You know, years ago we used to call AT&T Ma Bell. Is she morphing that Ma Cable?
	Ma Cable, Ma Bell, Ma Internet
	KEN AULETTA: Ma Cable, Ma Bell, Ma Internet. They are basically a company that is trying to have real or partial control over the wire to your television, your computer, your telephone and your wireless telephone. TERENCE SMITH: So it's a huge package. Take it one by one. The Media-One deal. What's the significance and logic and rationale of that? KEN AULETTA: Well, the rationale of that is that, as you've said, it's the fourth largest cable company. And with that, AT&T either owns or has partial ownership of roughly 60 percent or two-thirds of all the cable companies. Their aim is to provide telephone service, local telephone service competing with the Baby Bells, using the cable wire as their means of doing that. TERENCE SMITH: And of course high-speed Internet access at some point? KEN AULETTA: They also own -- one of the things they purchased majority control of when they acquired the nation's first largest cable company, Telecommunications, Inc., or TCI, which owned Liberty, which is spun off, is a company called At Home. At Home is a high-speed cable modem which would allow AT&T potentially to become the gate keeper over the Internet, which is one of the reasons why company like AOL and other Internet service providers are very nervous about it. TERENCE SMITH: So all of this is leading, I gather, to that one-wire approach into the home that can bundle all these services and provide it under one umbrella? KEN AULETTA: One of the reasons why people in Washington say, or many of them are ambivalent about this deal is that, on the one hand, it provides something that people have long aspired to, which is to have -- to introduce local telephone service competition. By using the cable wire, AT&T is fulfilling that promise, which everyone has talked about for many, many years, and that pleases people immensely. On the other hand, Terry, the problem is that Americans have never much liked large companies bigness. And AT&T has just gotten bigger. TERENCE SMITH: And does the monopoly word start to come up? KEN AULETTA: Well, it does by people, and obviously it's being voiced within the Congress. AT&T is going to come back and say, "this is not a monopoly. We are introducing competition to telephone service. You've still got the Baby Bells, you've still got many different providers of information and data over the Internet and in local telephone service." But nevertheless, no question, consumer groups have raised some real questions about that. TERENCE SMITH: And in fact it's true, this will lead, I suppose, to more competition in terms of telephone service, but perhaps less for cable? KEN AULETTA: Less -- there is less. There's more concentration of ownership in the cable industry due to this. There is more competition due to this, as you say in local telephone service potentially. Don't forget, one of the things we ought to remember here is that, under Mr. Armstrong, who's the CEO, over the last 18 months or so of AT&T, they have done a blizzard of deals worth well over $100 billion in that period of time. But those deals, as potentially promising and potent as they are, they're just press releases. They're announcements. They actually have to manage and make these deals work, and that's a much more difficult thing to do than to make an announcement. TERENCE SMITH: And, in fact, AT&T has to introduce this technology and get it working, up and running and functioning and will do so, I gather, community by community? KEN AULETTA: And they will have to spend a fair amount of billions of dollars to upgrade the cable wire in order to be able to do that. This will not roll out instantaneously. This will roll out over a period of time.
	A huge gamble?
	TERENCE SMITH: But it is a huge gamble, is it not, for Michael Armstrong, the head of AT&T? He's betting the farm on this? KEN AULETTA: He's betting the farm. And it's a very bold move. I mean we've tended over the years to think of the telephone companies as regulated monopolies with all the sins of a regulated monopoly caution, bureaucracy. We don't think of them as entrepreneurial companies. He is acting like an entrepreneur. TERENCE SMITH: Explain to us, also, Ken, the logic of the Microsoft involvement. Now, they're interested, they've come along and said, "we'll pay $5 billion, approximately, for 2 percent to 3 percent of AT&T." KEN AULETTA: Microsoft has tried to get a seat at the cable table. Several years ago, they invested $1 billion in Comcast, which is now the fourth largest cable company, to try and do that. And their hope was to have the kind of position in the cable box, which is basically a microprocessor, a computer sitting atop your television set to have the operating system be in that cable box the way they have the operating system in your computer box. They were spurned in their effort to do that by the cable industry. They just got a little toe hold in there. This is an attempt to increase that toe hold and maybe get their whole foot in there. But they wish to -- as these instruments in the home merge or converge, as you can watch television on your computer or watch the Internet or work on the Internet on your television set, the hope for a company like Microsoft is to be able to do the operating system for both of these boxes. TERENCE SMITH: Explain to us in the simplest of terms, Ken, why the consumer should care about this, what his or her stake is in this. KEN AULETTA: Well, the consumer has, again reasons for some ambivalence, but also a huge stake. The reason for ambivalence is, on the one hand, the consumer wants to have one telephone bill, one cable bill, one Internet bill, one wireless service bill that you could look at and know what things are going to cost you. And the ease of dealing with one service provider for all of these services is very attractive potentially to consumers. On the other hand, we worry if it lessens competition, say, on the Internet be able to jack up our prices? Will they be able to not improve our services? These are always the tensions that a consumer feels when you're dealing with these contradictory issues of, on the one hand, ease of use and on the other hand, a large company that has less incentive potentially to drop prices and to improve services. TERENCE SMITH: Where does this leave independent companies like AOL, which provides Internet service to 17 million subscribers, or to the other telephone companies, you know, MCI, Sprint, et cetera? KEN AULETTA: Well, you see, the cable modem wire, that At Home piece that AOL -- that-- I'm sorry-- AT&T dominates, their hope is to be able to provide your access. You will pay them a monthly fee for Internet access -- and potentially what AOL worries about is that AT&T will knock them off, will basically say, "You pay us $20 a month, rather than paying AOL the $20 a month for your basic Internet access service, including e-mail and news services, et cetera. AOL is terrified by that. On the other hand, AOL has gone to the Baby Bells and said, "Look, instead of using the cable modem, I'll use your telephone modem." So the local telephone companies are competing with AT&T, and the winner of that is the one that hopes to provide Internet service and become basically a gatekeeper over the Internet. TERENCE SMITH: Very briefly, the reaction from government regulators, what do you predict? KEN AULETTA: Confusion. And let some time go by and we're studying the matter, I think you'll find. TERENCE SMITH: Okay, thanks Ken Auletta, very much.