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Magic words and real competition

By Scott Bradner

Judging from the AT&T stock price drop the second guessers don't much like what they have heard about the AT&T - TCI deal. There may be real reason to question some of the Pollyana-like belief that somehow transporting voice, video and data over IP will be easy enough and cheap enough to permit the new merged organization to compete with the regional telephone companies. But if one ignores some of the specifics (like the quality of much of the existing TCI cable network) this deal is a good development.

Ever since the Telecommunications Act of 1996 telephone customers have been waiting in vain for any sign of real competition in any part of the fixed line telephone business. About the only place there is actual competition in the telephone business is in cellular phones -- I was able to reduce the cost of my own cell phone by over 50% by changing providers. But so far the rest of the phone business has been able to avoid anything resembling actual company to company competition.

Competition in the long distance market is constrained by the regulation of AT&T -- AT&T sets its rates and its "competitors" price their services a bit lower. Competition in the local phone market is constrained by the fact that there is a monopoly supplier of the phone wire into the house.

Thus the AT&T - TCI deal does offer some potential for the introduction of an alternative to the phone company wires into the house, and the alternative offers a hope for real competition. But this hope does depend on the merged company being able to upgrade TCI's cable infrastructure, which most commentators say is the worst of any major cable company, and to develop the IP-based magic box that will integrate the voice, data and video services.

Experience has shown that a good cable infrastructure, when operated by a competent cable company, can do a very good job of supporting broadcast video and Internet service. My home Internet service is via MediaOne and has been amazingly reliable and high-performance. Adding reasonable quality voice service has been successful in England so it can be done. Fighting the often well-deserved reputation of poor customer service that personifies the cable TV industry may be as hard as getting the technology right.

I am more than a bit curious if there is more than the muttering of magic words behind the assertions made by the AT&T engineers to the stock market analysts the other day. "IP" and "Cisco" are nice magic words but the development of a comprehensive set of home to network equipment may be quite a challenge, particularly in light of the Lucent sell-off two years ago.

The pundits may be right about the specifics of the AT&T-TCI deal (the Wall Street Journal said that the "technical underpinnings are more faith than science ") but finding a way to introduce actual competition for the local phone and Internet businesses would be a boon to us all.

disclaimer: Harvard deals with both faith and science (with a bit of law & business thrown in) but the above is my optimism