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Palo Alto Cable Co-op Sells Out to AT&T

AT&T Broadband & Internet Services moved to
increase its dominance in the San Francisco Bay area with an agreement to buy out the
former cable cooperative in Palo Alto, Calif.

Buying the franchise -- which serves 28,000 customers in
Palo Alto, East Palo Alto, Menlo Park, Atherton and other local areas -- would extend the
AT&T Broadband (formerly Tele-Communications Inc.) operations to 90 percent of the

Terms of the sale were not disclosed. The agreement is in
the letter-of-intent stage, the MSO said.

The system was built in 1986, after members of the
community formed a cooperative board and convinced the City Council that cable service
would best be provided by a company that was owned and operated by its subscribers. It won
the franchise, beating out large bidders such as United Cable.

Backers indicated that customers would also hold shares in
the company, and that subscriber revenues would pay the bills, but it never worked out
that way. The operation was restructured by the 1990s, and the system was chronically
underfunded. According to reports, the system is currently $34 million in debt.

Today, the system is fully programmed at 78 channels on its
two-way plant. But there is room for growth: The system reports penetration of slightly
more than 50 percent, and the Silicon Valley-adjacent area -- home to Stanford University
-- appears to be a ripe market for data services.

In fact, the city of Palo Alto has considered launching a
limited fiber-to-home trial with thoughts of expanding use of its underused fiber ring. If
the city decides to proceed with that venture, AT&T Broadband could bid to participate
in the project, or it could face competition from the successful bidder.

Other data providers also hover in the wings, including SBC
Communications Inc.'s Pacific Bell and private companies.

The original franchise for the community expires next year,
so AT&T Broadband might immediately move into refranchising talks.

Local officials have not tipped their hand regarding their
demands of the new, well-funded operator, other that to indicate that they expect AT&T
Broadband to open a local office and to continue supporting local production activities.