The Battle Over Bundles
AT&T wants to become your one-stop information provider
The lure of the elusive triple play never fades. In announcing the $67 billion buyout of BellSouth last week, AT&T executives said they want to speed the rollout of new services, particularly the television that will give them a complete telecom bundle to counter those offered by their new archrivals, the cable companies that are invading telco turf with phone service.
Successfully pumping video over phone lines is no given. But if a once again giant AT&T can succeed, consumers will most likely see bundle prices fall and whiz-bang features rise as competitors battle for their loyalty. AT&T execs, for example, have predicted a price of $100 a month for TV, high-speed Internet access, and phone and say the merger will get them there sooner. The bundles target the tech-savvy households that might commit to a menu of wired and wireless services from one company--a siren that has seduced telecom execs for more than a decade. In fact, an earlier version of AT&T, the once mighty Ma Bell that struggled after its court-mandated breakup in 1984, accelerated its decline with a premature bet on the same triple-play bundle in the 1990s. The tech then was too awkward and expensive and consumers too indifferent.
Baby fat. Today's AT&T is actually SBC, a former Baby Bell with a name it bought at its parent's graveside. The new AT&T and Verizon, another now-big Bell sibling, are rolling their nascent TV services into a few communities with some positive reports--Verizon says 1 in 5 households has bought its TV offering in a pilot market in Texas. Demos of the Verizon and AT&T services are impressive, with AT&T's in particular showing promise for creatively blending multiple technologies--like Web search with TV viewing, maybe helping you decipher Jon Stewart's latest joke about today's news. AT&T is gambling its new services on wholly Internet technology, making them easier to mix and match. It's an ambitious approach and one untested in mass markets, says Jim Penhune, a market analyst with Strategy Analytics: "Making it all work together with the software is very tricky."
The use of Internet tech also helps spur vocal criticism from consumer groups, who worry that AT&T is building a network that will give it too much control over what arrives at a home. In particular, AT&T execs have talked about charging Internet sites--such as Google or eBay--to get access to that high-speed pipe that will deliver the telco's video to living rooms, where consumers are also paying extra. "It's as if Federal Express started charging both the sender and the recipient for overnight delivery," says Jeannine Kenney of Consumers Union, which publishes Consumer Reports. Companies that can't afford to pay would fade, as would the innovation from start-ups that today enjoy universal and equal access to consumers. She and others are arguing that regulators or Congress should impose "network neutrality" on AT&T.
But AT&T says it will do nothing to block or degrade access to the public Internet. It's simply adding a premium sideband of video streaming and other services, says Jim Cicconi, a senior executive vice president. "To compete, we need to deliver a high-quality video product at a competitive price," he says. That means charging others who want to piggyback on its new network.
The emphasis on bundling also is worrisome to consumer groups, which fear less competition for basic, stand-alone services and less government pressure to keep them affordable for middle- and low-income consumers. The fear, too, is that the vigorous rivalry between cable and telco will eventually settle into a comfortable duopoly, pushing up prices on bundles. But telco execs dismiss the idea, citing new pipes appearing on the horizon--including fast data delivered over the airwaves, power lines, or even gas lines. And if those technologies prove successful, then satellite, electric, and gas companies, too, will undoubtedly be tempted to try their own triple plays.
THE BIG TWO
AT&T
Bell South
CEO: Edward Whitacre
Revenues: $64.4 billion*
Employees: 253,016*
Wireless customers: 54 million**
Verizon
CEO: Ivan Seidenberg
Revenues: $75.1 billion
Employees: 217,000
Wireless customers: 51.3 million
*Combined 2005 data from AT&T and BellSouth reports**Customers of the jointly owned Cingular WirelessSource: Company data
This story appears in the March 20, 2006 print edition of U.S. News & World Report.