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NEWS ANALYSIS

Better, Cheaper Telephone and Cable Service Expected

June 25, 1998|JAMES FLANIGAN and KAREN KAPLAN | TIMES STAFF WRITERS

Will AT&T Corp.'s acquisition of Tele-Communications Inc. bring consumers better and cheaper telephone and cable service? Surprisingly perhaps, the answer is yes, say numerous telecommunications consultants and analysts. But it may take several years.

If approved as expected by the Federal Communications Commission and shareholders of both companies, the deal would give AT&T, the nation's largest long-distance phone company, an outlet for local phone service. And it could add cable TV and even Internet services in one package.

Meanwhile, that new competitive challenge will grant local phone companies the regulatory ability to provide long-distance phone service. They will also be encouraged to offer video services through marketing agreements with satellite and cable companies. And ultimately, AT&T-TCI and many other cable and phone companies could join a small number of upstarts that offer cheaper telephone service via the Internet but with no loss in service quality.

Consumers will continue to use their telephones and televisions as they always have. But within a few years, they will find more companies competing to package a variety of communications services. As a result, discounting will become common, analysts say.

"The idea is that consumers have been frustrated by having to pay numerous bills and they haven't purchased as much as they may have if it was conveniently packaged like a McDonald's Happy Meal," said Peter Krasilovsky, vice president of Arlen Communications, a media consulting firm in Bethesda, Md.

With one bill for many services, consumers would buy more but pay less for each service, Krasilovsky believes.

To be sure, whether consumers go for "one-stop shopping," there is certainly room to bring lower prices to household budgets. Communications charges, for local and long-distance phone service plus cable plus computer online service, can easily reach $100 a month--"as much as a car payment," said one analyst.

The connecting point for most of those services has been the local phone service provider, typically a local Bell operating company or GTE. The Telecommunications Act of 1996 deregulated local phone service in hopes of bringing competition to the field and lower prices to consumers. But the cost of building telephone switching and distribution networks was prohibitive, even for giant AT&T.

Because of this, competition was stalled. But Wednesday's proposed deal could give it the needed jump start, analysts say.

"This lets the games begin. AT&T-TCI unfreezes competition in local service," says William Davidson, head of Mesa Research, a Redondo Beach telecommunications consulting firm.

The deal already received an implied blessing from William Kennard, chairman of the FCC. "If AT&T and TCI make a strong commitment to bring residential consumers more choice in local telephone and high-speed Internet access services, then this proposed merger is eminently thinkable," Kennard said Wednesday.

Not only does AT&T's acquisition give it the ability to compete locally, it could enable the company to offer improved phone service over the Internet.

"Cable is the best way to deliver full digital services to the home," says Regis McKenna, a Silicon Valley technology expert.

But cable companies have been poor at customer service. AT&T, with a century of catering to consumer needs behind it, says it will improve consumer service as it and TCI overhaul and expand the cable network.

As competition heats up and the companies begin to meld their technologies, customers will see ways to use communications differently, experts say. "We'll see data integrating in some of the traditional media, like being able to have statistics pop up on your television screen or [phones and computers] making it possible to do videoconferencing," Krasilovsky said.

The area with the most near-term potential is in telephone services over the Internet, analysts say. "Internet telephony is going to take off far faster than investment analysts are predicting," says Peter Bernstein, head of Infonauticas Consulting, a telecommunications research firm in Ramsey, N.J.

The big attraction will be price. Already calls are being routed over the Internet at nearly half the cost of conventional long-distance phone service. With more competitors vying for customers, prices are likely to fall even faster.

Most technological changes will evolve only slowly, said Andy Lippman, associate director of the MIT Media Laboratory. "There are some things that we got right the first time and they don't have to change or evolve. Two of them are telephones and televisions. Telephones are wonderful, and there is no obvious next-generation telephone, like a videophone. Television has been remarkably resistant to any technical change in the medium itself," Lippman said.

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