Deal May End Push for ‘Open Access’

The proposed America Online-Time Warner deal may help AT&T; Corp. by ending AOL’s aggressive push for “open access” on AT&T;’s cable lines to allow other Internet companies to offer service.

But even if that happens, it could be a small consolation for the nation’s largest long-distance carrier. That’s because an AOL-Time Warner marriage could significantly strengthen Time Warner’s position in its ongoing talks with AT&T; for AT&T; to offer phone service over Time Warner’s massive cable system.

Both Time Warner and AT&T; said Monday that their talks are continuing and that the AOL merger proposal does not lessen the odds of Time Warner and AT&T; reaching a final agreement.

Analysts believe, however, that an AOL-Time Warner merger would make Time Warner less eager to complete the joint venture with AT&T.;

Time Warner already offers phone service to business customers through its growing Time Warner Telecom unit.

“Time Warner can always offer voice services itself, over its own network, and now this new deal indicates that they may not need AT&T; at all,” said James Vander Weide, a professor at Duke University’s Fuqua School of Business. “After all, long-distance service is very much in excess supply right now.”

By linking up with Time Warner, AT&T; would gain access to the nation’s second-largest cable system network and gain the ability to sell phone service directly to more than 21 million homes in Time Warner service areas.

Under AT&T;’s ambitious broadband strategy, the company is bypassing copper lines owned by local phone companies and forging direct links to residential customers through advanced cable networks.

Such cable networks, once upgraded, can carry two-way services such as phone calls and high-speed Internet access, as well as digital television and traditional cable television fare.

AT&T;’s purchase of cable company Tele-Communications Inc. and its pending merger with cable operator MediaOne will make it the largest cable operator in the country. But AT&T;’s combined reach will still leave the phone company with connections to fewer than half of the 100 million U.S. households--making it imperative that AT&T; conclude ventures with Time Warner, Cox Communications and other cable companies.

Last February, AT&T; and Time Warner announced a tentative agreement that would join the two firms in a phone venture.

At the time, AT&T; Chairman Michael Armstrong said the companies would begin testing phone service over Time Warner lines in two markets by the end of 1999, with commercial service to be launched this year.

But the two companies have yet to strike a final agreement, and the delay has forced AT&T; to rethink its phone service plans to include the use of fixed wireless systems in places where it lacks cable access.

Complicating all this is MediaOne’s current partnership with Time Warner. So when AT&T; completes its purchase of MediaOne, AT&T; will own a stake in Time Warner.

“AT&T; and Time Warner have been unable to finish their deal for almost a year, and since AOL is AT&T;’s regulatory nemesis, now an AT&T-Time; Warner deal looks harder, not easier,” said Scott Cleland, telecommunications analyst at Legg Mason Inc.’s Precursor Group.

Indeed, AOL and AT&T; have been embroiled in a nasty nationwide dispute over whether cable operators should be forced to give unaffiliated Internet service providers--such as AOL--access to cable operators’ high-speed networks.

The policy fight over “open access” has steadily escalated, drawing in government officials in Los Angeles and other cities under pressure by consumer groups to force AT&T; to open its cable lines to Internet competitors.

Amid growing public pressure, AT&T; recently pledged to open its cable system to rival Internet companies in 2002.

AT&T; cable systems currently sell its high-speed Web access in a package with service provided exclusively by Excite@Home, a Internet content company partly owned by AT&T.;

AOL, which would become a major cable company with its Time Warner purchase, vowed Monday that it will provide open access on its lines. Analysts said the move will pressure the rest of the cable industry to follow suit--but it’s unclear whether it will.

“This issue is not going away . . . half the cable industry has yet to capitulate to open access,” Cleland said.

Times staff writer Joseph Menn contributed to this report.