Washington -- People have been predicting for one year thatAT&T Corp. would go its own way. Last week, those predictions apparently startedcoming true, generating an enormous amount of bad blood among senior cable-industryexecutives.
The rift is over a recent effort by AT&T to jettisonthe cable industry's Internet-access strategy without telling anybody else in thebusiness. And there's additional bad feeling over AT&T's apparent motive: wrestingfavorable cable-ownership rules from the Federal Communications Commission.
"It's a combination of the two," a cable-industrysource said.
Cable-industry sources said AT&T presented top FCCofficials with a plan that would serve as an open-access paradigm for Internet-serviceproviders seeking cable-modem customers.
While the plan clearly served AT&T's interests, it didnothing to advance cable's business model, underpinning the billions of dollars investedin plant upgrades for two-way data transmission.
One source said AT&T's plan was presented to just twoFCC officials and no one else. "It was my understanding that it was only [FCC chiefof staff] Kathryn Brown and [chairman] William Kennard" who saw the plan, the sourcesaid.
And, the source added, AT&T unveiled the plan withoutinforming new National Cable Television Association president Robert Sachs or itscable-industry partners in Excite@Home Corp.
Sachs declined to comment, an NCTA spokesman said.
"This was kept very close to the vest by AT&Tuntil last weekend," the source said.
One FCC insider told a different story. "I can tellyou categorically that not a single person in any of the discussions [about cableownership] brought up the access issue," the FCC source said.
The commission source said it was highly unlikely thatAT&T presented Kennard and Brown with an access proposal. "People spin all kindsof goofball theories. I've actually asked and, as far as I know, nobody has shown anybodyanything."
Several sources insisted that such a proposal was made tothe FCC, however.
For more than one year, the cable industry has put up aunited front in keeping government at any level out of the access debate.
But AT&T's plan, sources said, not only ditched theagreed-upon business model, but also represented a capitulation to America Online Inc.,other ISPs and various cities that have been hectoring cable on the access question sinceJune 1998, when AT&T announced its acquisition of Tele-Communications Inc.
That AT&T made an about-face on access was bad enough.Making it worse, according to several cable-industry sources, was the fact that AT&Tcame forward just as the FCC was putting final touches to new cable-ownership rules.
AT&T needed the rules to be liberalized in order tomerge with MediaOne Group Inc. without having to divest stakes in Cablevision SystemsCorp. and Time Warner Entertainment.
"I know there has been a very strong reaction thatthis is totally out of line, that this is totally against the position of the cableindustry and that this is totally unnecessary," a cable source said.
One senior MSO executive confirmed AT&T's overture tothe FCC and the highly negative reaction it generated among other cable operators.
In the past, whenever a cable operator had to break fromthe pack, that company typically observed the unspoken rule of informing the other cableoperators. AT&T's move was a break in that collegial tradition, the MSO executivesaid.
Cable's newcomers, such as AT&T, needed to learn thateveryone can build value by sticking together, the executive added.
It could not be learned last week which AT&T executivesapproved the decision to approach the FCC with the access plan, or who later told cableexecutives about it.
But one source said Amos Hostetter, AT&T Broadband& Internet Services' nonexecutive chairman, and Daniel Somers, the AT&T executivevice president named to assume operational duties at AT&T Broadband after CEO Leo J.Hindery Jr.'s departure last week, apologized after angry cable executives confronted themabout it.
AT&T's outreach on access also included localofficials.
"I can't comment on any of it. I have some knowledgeabout it, and my understanding is that people are not commenting until the process isdone," said Ken Fellman, an Arvada, Colo., city councilman who serves on the FCC'sLocal and State Government Advisory Committee.
Cable sources said James Cicconi, AT&T's generalcounsel and top Washington lobbyist, pitched the open-access plan at the FCC. But Cicconideclined to return a reporter's call for comment.
AT&T spokesman Jim McGann declined to comment onwhether the company presented the FCC with an open-access plan or on whether it timed theunveiling of the proposal to coincide with the vote on the ownership rules. "I won'tbe able to comment on any of it," he said.
McGann did say that AT&T continues to believe thatgovernment should stay out of the cable-access fight.
A Washington cable lobbyist said AT&T's move shouldhave been on everyone's radar screen. "[AT&T has] never pretended to be anythingbut into distribution. This should not come as a surprise," the lobbyist said.
The Wall Street Journal reported last week thatAT&T and MindSpring Enterprises Inc. were negotiating terms for that independent ISPto demonstrate an open-access accord, possibly using an AT&T system in Atlanta(presumably after the deal to buy MediaOne's Atlanta operation closes). Officials atMindSpring and AT&T declined to comment.
