AOL & Bell Atlantic to Take On AT&T?

The recent blockbuster deal AT&T made to buy MediaOne could have the unintended consequence of sparking an alliance between two of its biggest rivals — plus energize a technology that’s been slow to take off.

Both AOL and Bell Atlantic stand to lose a great deal of high-speed modem capacity if the $58 billion (US$) deal to make AT&T the largest U.S. cable operator is approved by the U.S. Federal Communications Commission.

For a while last week, when the AT&T and MediaOne’s merger seemed uncertain. Microsoft acted as though it would join AOL in bidding war against AT&T. But when the tide turned, Bill Gates quickly switched allegiance by putting $5 billion of Microsoft’s money into the MediaOne deal. In return, some analysts say, Microsoft got assurances from AT&T that its cable box software would be one of the systems used by the telecommunication giant’s subscribers.

Meanwhile, AOL was left out in the cold. But industry experts say AT&T’s archrival, Bell Atlantic, is eager to let AOL warm up in front of its fire.

The rumor is churning that many of AOL’s 17-million subscribers could soon be using Bell Atlantic’s high-speed digital-subscriber-line technology — thrusting DSL from obscurity into prominence. Industry analysts add that this could be just the boost the much touted but underused DSL needs — since being created in Bell labs during the 1980s.

The Yin and Yang of DSL

Like a high-speed cable connection, DSL is on all the time and runs at about 50 times faster than the fastest dial-up service, but through copper wires. This kind of speed will open the door to video and CD e-commerce markets by shortening the amount of time it takes to download from hours to minutes.

The downside of DSL is that subscribers must live no more than a few miles from the phone companies’ switching stations — or the speed diminishes. This is one reason that since Bell Atlantic has rolled out the DSL technology, so far, getting subscribers has been an uphill battle. According to Forrester Research, a consulting firm based in Cambridge, Massachusetts, only 50,000 homes in the U.S. are currently wired for DSL — which also requires a special modem, just like high-speed cable does. In contrast, 750,000 U.S. households are already equipped with high-speed cable modems. Yet, analysts also say the efficiency of cable high-speed connections will suffer as more and more people sign up and begin to crowd the service. In addition, they point out that cable companies are notoriously fragmented and don’t have the service experience of Bell Atlantic.

Enter AOL

If suddenly millions of AOL’s subscribers begin to use Bell Atlantic copper it could easily create an instant nationwide DSL footprint. Especially when you consider that Bell Atlantic’s merger with GTE just got the green light from the Justice Department last week. By cooperating and quickly developing DSL, both companies would be taking out an insurance policy against being crushed by AT&T.

After all, isn’t necessity still the mother of invention?

What do you think? Let’s talk about it.

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