Valued at $31.7 billion, the acquisition will allow long-distance giant AT&T to join forces with TCI, a TV cable provider. With the acquisition of TCI, AT&T has essentially bought a direct connection to one-third of all U.S. homes — that’s how many residences have TCI’s coaxial cable installed, and that’s how many homes may soon have the option of bypassing the local exchange carrier entirely. Imagine: an alternative "local pipe."

And the new pipe won’t just duplicate the existing offerings. Since it’s coaxial, not twisted pair, the new pipe could easily accommodate new bandwidth-hungry services. Potential offerings include such enhanced services as e-commerce and video conferencing. And, by utilizing voice over IP technology over this pipe, AT&T may be able to deliver services more efficiently (and inexpensively) than services over circuit-based networks. AT&T may well enjoy a price advantage over the incumbent local exchange carriers.

WHY NOW?
Even with the Telecommunications Act of 1996, which was supposed to promote competition, the long-distance carriers, including AT&T, have found it difficult — some would say impossible — to crack the $110 billion local services market. But that may change soon. Certainly, the carriers have more than enough motivation. AT&T, for example, wouldn’t mind improving its less-than-dazzling financial performance, garnering local services revenue to increase its cash flow. In addition, AT&T might view the TCI acquisition as a way to respond to competitive pressures from aggressive CLECs, RBOCs, and CAPs such as MCI/WorldCom.

So, the slow-moving AT&T may actually be ready to move into high gear. In USA Today’s online Tech Report, dated July 9,1998, AT&T’s chairman, C. Michael Armstrong, was quoted as saying, "Two ingredients have changed the utility company of yesterday to the broadband and global communications company of tomorrow, and [these are] the opportunity — the market, the applications and the services —and the driving force of technology." An encouraging sentiment. But what about execution?

HOW COULD THINGS GO WRONG?
AT&T faces several challenges: the need to address technical difficulties peculiar to IP telephony; the need to upgrade substandard infrastructure; and the need to overcome skepticism within the financial community. As for the technical challenges, IP switches lack telephony features we take for granted on Class 5 switches, such as call waiting, call forwarding, and caller ID. There are also many technical issues that complicate IP-based billing and reporting and the delivery of high-speed Internet access, digital video, and IP telephony to the home.

Technical hurdles aren’t AT&T’s only worries. TCI needs to upgrade its infrastructure to support Internet telephony, video, high-speed Internet access, and other bandwidth-hungry applications. Accordingly, TCI is spending $1.8 billion to upgrade its equipment for two-way transmission by the year 2000.

These complications haven’t gone unnoticed by Wall Street. AT&T’s shares have fallen as much as 16 percent since the merger was announced. Not exactly a strong endorsement. In fact, according to TCI chairman John Malone, Wall Street’s reaction was so negative that AT&T shareholders might reject the deal. AT&T shareholders, according to Malone, might be tempted to focus on the short term, losing patience with the deal’s complexity, overlooking the deal’s strategic value, and fretting over the company’s temporary devaluation.

WHAT ABOUT UNCLE SAM?
Washington has also kept a close eye on the proposed merger, which promises to fulfill, at least in part, the intent of the 1996 Telecommunica-tions Act. By and large, Washington seems to approve of the deal, which may finally introduce competition to the regional telephone markets.

FCC chairman William Kennard has already signaled his approval. In addition, according to a July Associated Press article, the Senate’s top antitrust lawmakers are looking at the AT&T/TCI proposal, weighing the benefits and the drawbacks. At a hearing on the matter, Sen. Mike DeWine (R-Ohio, chairman of the Judiciary Committee’s antitrust, business rights, and competition subcommittee), Sen. Herb Kohl (D-Wisconsin), and Sen. Patrick Leahy (D-Vermont) indicated that the merger does indeed hold great promise for cracking local phone monopolies.

WHY SHOULD BUSINESS USERS CARE?
While the proposed AT&T/TCI merger concerns consumers directly, it also concerns general business, if indirectly. Since AT&T decided to make its move sooner rather than later, to bring high-speed Internet access and enhanced services to the home, AT&T’s competitors, which include as Sprint, WorldCom, CLECs, and RBOCs, will have to roll out xDSL services quickly. Otherwise, they’ll risk losing market share. Up to now, these companies felt no urgency about bringing DSL services. In any case, they wanted to avoid cannibalizing their lucrative T1 services. But now, these companies may be forced to offer DSL services for businesses on a mass scale much sooner than they had wished. This means cheaper and faster Internet access for everyone, businesses and home users alike.

I should point out that fax board prices have not dropped nearly as much as voice processing boards. What I really like about NMS’s entry into the 4-port fax market is that it should encourage lower fax board prices, and make the already active 4-port fax business grow even faster. Prices should drop simply because there will now be three major players in the lower-end 4-port fax market. Moreover, according to NMS, their price point for a 4-port fax board will be $1,000, which is over $1,400 cheaper than an equivalent Brooktrout or Dialogic fax board!

Why so much cheaper? NMS has informed me that their manufacturing costs are much lower than those of their competitors. NMS attributes their cost advantage to the DSP architecture, which lets them use a single DSP to handle multiple fax ports, whereas competitors use a single chip for every fax port.

It remains to be seen how Dialogic and Brooktrout will respond to this pricepoint set by NMS. Although NMS may have a better pricepoint, Dialogic and Brooktrout are well established in the developer, reseller, and LAN fax software markets. Dialogic and Brooktrout are also working on similar solutions using inexpensive DSPs to bring their pricepoints down, but certainly NMS has a headstart.