Thy Deal Be Done

Shareholders this week approved the AT&T
and [email protected] deal that
grants the telecom giant a 74 percent voting stake in the cable network.

In addition to the realignment of executive leadership, the current board
quickly extended the cable access contracts between AT&T , Cox Communications, Inc., and Comcast Corp. through 2006.

Based on the original agreements reached in March, [email protected] and AT&T extended their working relationship through 2008.

[email protected]’s exclusive relationships with AT&T, Cox , and
Comcast will continue through the currently scheduled
expiration date of June 2002, unless the Federal Communication Commission steps in
with a national broadband policy that states otherwise.

The chance that federal regulator’s would move to establish such a policy
regulating access to cable headends remains slim. AT&T moved to appease the
FCC with its December
6, 1999 agreement
to allow MindSpring to become a third party cable
access provider by June 2002. Preliminary tests of its shared access system
start in November.

After the summer of 2002, [email protected] will simply be the cable platform
provider of choice for its principal partners. The deal also requires that
the [email protected] portal
search be featured on the cable partners’ high-speed Internet service start

Additionally, [email protected] will work with AT&T to deliver services to
consumers via advanced TV, narrowband initiatives and wireless services,
subject to negotiation with AT&T Wireless

Overall, the new arrangements expand upon [email protected]’s current business
model and represent a significant opportunity for the company to provide
cable connectivity and content distribution services to its partners.

George Bell, [email protected] chairman and chief executive officer said the
approval paves the way for continued broadband expansion.

“We are more committed than ever to using our broadband network for the
consumer and commercial deployment of broadband services,” Bell said. “With
these deals firmly in place, we are primed to take advantage of each and
every broadband opportunity that is presented.”

C. Michael Armstrong, AT&T chairman, chief executive officer, and
[email protected] board member, said the deal is all about extending the reach
and accelerating the availability of the Internet.

“Working together, [email protected] and AT&T will bring high-speed Internet
services to millions of homes and businesses and seize a great growth
opportunity,” Armstrong said.

[email protected] must convert about 50 million of AT&T’s Series A shares into
Series B shares, each of which has 10 votes. As a result, AT&T will own
approximately 25 percent of the economic interest in [email protected] and 74
percent of the voting interest. Before the deal was done, AT&T held a 24
percent economic interest and 56 percent voting interest in [email protected]

The new governance and economic structure take effect in September, while
the resolution of pending litigation between [email protected] and Cablevision Systems Corp. , which lost operating control in [email protected], is settled out of

AT&T is free to begin consolidating [email protected] into its financial results
in September, rather than October as previously anticipated.

The Company’s new board will consist of six members designated by AT&T,
four independent members and o

ne management representative. The [email protected]
board gave the boot to Cox
Communication’s David Woodrow, executive vice president of business
development, Comcast’s President Brian Roberts, and John Malone Liberty
Media Group chairman.

Comcast and Cox reserve the right to opt out of the deal. But the stock
penalties and financing required to produce competitive broadband Web
destinations make the option unappealingComcast and Cox are relegated to
client status for [email protected] with a flexible stock option as a golden
parachute for forfeiting its seats on the board of directors.

In addition to Bell and Armstrong the new [email protected] board includes Mohan
Gyani, AT&T Wireless Services President and chief
executive officer; Will Hearst, general partner of Kleiner,
Perkins, Caufield & Byers
; Frank Ianna, AT&T Network
Services president; Tom Jermoluk, Kleiner, Perkins partner; John Petrillo, AT&T executive vice president of corporate strategy & business development; Ted Rogers, Rogers
Communications Inc.
chief executive officer; Rick Roscitt, AT&T
Business Services president; Dan Somers, AT&T Broadband president and chief
executive officer, along with an eleventh member to be named soon.

What AT&T and [email protected] executives are calling a “renewed commitment to
its broadband cable business” is much more than an average operating
agreement. [email protected] is free to pursue additional content alliances to
attract broadband eyeballs and enhance advertising revenues in ways that
only America Online, Inc. and Time Warner, Inc. may rival.

The completion of the extensions, in conjunction with the newly assigned
board, reflect a common belief among [email protected] and its cable partners
that growing subscribers on high-speed cable Internet services is a key
objective over the coming years.

ISPs are free to negotiate last-mile delivery solutions with cable access
providers and local or regional content providers in order to launch cable
access. But independent service providers seeking to jump on the cable
access bandwagon will have to wait two years for the exclusive aspects of
the cable companies deals to expire.

In essence, the deal is designed to beat the combined forces of America
Online and Time Warner to the cable
access market. In the Internet industry, it is not a matter of survival of
the fittest, but more a case of first-to-market, wins.

The real winner just may be consumer’s seeking to take advantage of
broadband access to the Internet over cable. They are eventually going to
have their choice of providers, and choice tends to drive prices down while
raising the quality of service.

Customer service and technical support remains a point of contention for
hundreds of current [email protected] users in the U.S. that have not received
the quality of service they expected from the cable provider.

Texas-based customer and software developer Randy Dryburgh is experiencing
the typical type of technical runaround from the wholesale cable service
provider. As an AT&[email protected] customer, when his Internet access goes down, so
does his business.

“They have been out to fix my service 6 times in the last 3 months, and it
still isn’t fixed, I’ve been down now for 2 weeks and 2 days with no end in
sight,” Dryburgh said. “I get so tired to see these upbeat stories of
corporate growth when it’s clear the company has no intention of servicing
their customers.”

For the most part, Dryburgh has experienced service disruption since
September. After a year’s worth of complaints, he anxiously awaits digital
subscriber line services to reach his home.

Meanwhile, a spokesperson for

AT&T said the Dryburgh’s claims are
completely unfounded.

If [email protected] and AT&T really wants to beat AOL-Time Warner, they will
have to focus on providing an acceptable level of customer service to
users, rather than lip service to technical support.

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