AT&T Continues the Momentum With an Answer to ISPs' Demands

Also, Seymour believes AT&T's new tracking issue will soar, right along with its roaring wireless business.
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Quick assessment: It's a win for everyone involved. Except for

Excite@Home

(ATHM) - Get Report

-- and they're doing fine, anyway.

Tech Savvy: Join the discussion on

TSC

message boards.

The announcements by

AT&T

(T) - Get Report

, which I am long, at its analysts' meeting early Monday morning were about as expected ... which makes them no less interesting and important.

  • Yes, it's going to issue a tracking stock for its reorganized wireless business, under the moniker AT&T Wireless Group. AT&T President John Zeglis will leave his seat at the mother ship to run the wireless operation. Good move. Normally, I don't think much of tracking stocks, but with a company this big, it's hard to see how else AT&T could maximize its return on its hottest assets. I wouldn't be surprised to see more trackers from AT&T after the first of the year. (By the way, if the tracker's IPO hits the $8 billion to $10 billion level as predicted, it'll be the biggest IPO ever. I think that tracking issue is going to soar, right along with AT&T's roaring wireless business. So, I expect to see the IPO come in even bigger than that.)
  • Yes, it's going to open its cable systems to ISPs other than its in-house flavor, Excite@Home. The first deal has been struck with MindSpring (MSPG) , which will include long before the deal is supposed to kick-in in two and a half years, EarthLink (ELNK) , MindSpring's new merger partner. That two-year-plus delay is messy in terms of calculating shareholder values, but this is a clear win for all three companies' holders. It also takes some of the legal and regulatory heat off AT&T, avoiding, or at least delaying, proceedings intended to force exactly the action the company has now taken.
  • Yes, this will accelerate AT&T's splitting off of content and carriage services for Net-access customers, which I have long been screaming for as an absolute necessity for AT&T, going forward.
  • Yes, AT&T will inevitably have to strike similar deals with ISPs, such as those in Portland, Ore., who want similar access, and maybe sooner, to its cable connections. And what about a follow-up deal with America Online (AOL) ?
  • Yes, we can expect some posturing by combative Excite@Home CEO Tom "TJ" Jermoluk -- after all, with AT&T as a major shareholder, Excite@Home is likely to see any reduction in its exclusive ISP status with AT&T as a threat and a disservice to its other holders.

I count all but the last item as positives for AT&T and for its customers and shareholders.

The latter problem for AT&T -- the lingering two and a half years of exclusivity for Excite@Home as the only ISP allowed on AT&T's cable systems -- can be solved, and I'm convinced it will be. Excite@Home doesn't

have

to give an inch, but I believe AT&T Chairman and CEO

Michael Armstrong

and Jermoluk will find something Excite@Home wants that AT&T can give in on, so it can get out of that commitment.

Then bar the doors, because AT&T's going to be signing deals with many other ISPs -- almost certainly including AOL -- for Net access.

In the MindSpring deal, customers who elect to access MindSpring over AT&T cable lines will continue to be billed by MindSpring for its services; AT&T will also bill those customers, separately, for its connection services. That underscores the separation of content and carriage that's essential for AT&T.

Remember, too, that Excite@Home has announced its intention to spin off its own tracking stock, for Excite's portal and content services, sometime next year. (The delay is for tax reasons.) The performance of that tracking stock, vs. Excite@Home, will underscore the market's wish to see the two valued separately.

At least that's the way it all looks for now. Remember that despite these agreements, that two-and-a-half-year holding period could lead to lots of changes.

I said when I began that though this isn't a win for Excite@Home, it doesn't matter nearly as much as it might appear, because Excite@Home's doing fine.

Jermoluk has delivered the million Excite@Home subscribers he said he would before the end of 1999. That's about half of all cable-modem connections in the U.S. And that commanding lead seems likely to continue, given the continuing delays and timidity in

Time Warner's

(TWX)

rollout of its co-owned

RoadRunner

service.

Excite@Home is up nicely over the past month (though still down by half on its 1999 high), and these latest million-subscriber numbers are likely to keep it growing.

Combine today's news with AT&T's management changes, plus

Salomon Smith Barney

analyst Jack Grubman's favorable report on AT&T last week, and AT&T owners should be feeling pretty good today.

As an aside, watch for the new AT&T Wireless Group to be an aggressive acquirer of local wireless operations around the country to complete its footprint -- that is, increase its contiguous service area. That already-large service area is what allowed the company to create its fabulously successful, industry-reinventing

Digital One Rate

pricing plan; now, AT&T Wireless can mop up the last gaps.

And watch for AT&T Wireless to be even more aggressive in pushing wireless data services. Zeglis knows data is where both the money and the future lay, and can be expected to push wireless data service with the same fervor we've seen in AT&T's pursuit of its present wireless voice-transmission customers.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long AT&T, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.