News | January 11, 1999

Ma Bell Bites Back: AT&T Wins @Home Optical Backbone Deal

By: Erik Kreifeldt

In a market full of carriers building "next generation" fiber optic networks and doling out wholesale capacity deals, @Home Network has procured an optical backbone for its Internet protocol (IP) network from AT&T. Along a 15,000-mile route of AT&T's fiber network, @Home has secured a 20-year indefeasible right of use for two 2.5 Gbps DWDM channels, with the option to add channels and routes.

The deal indicates that the old "Ma Bell" AT&T is no longer a stodgy provider of long distance voice services, but a major player in the new world of IP-based networking, analysts say.

"This is a huge win for AT&T from a marketing perspective," notes Forrester Research analyst David Cooperstien. "Getting @Home as a marquee customer makes a huge difference for AT&T in its Internet business presence."

Big fiber capacity contracts have been going primarily to new carriers, Cooperstien explains, adding that @Home's business of providing Internet services over cable TV networks makes it a bigger trophy for AT&T than a traditional dial-up Internet service provider.

The @Home capacity deal rounds out a bigger picture of a new AT&T led by Chairman and CEO C. Michael Armstrong, according to Ryan Hankin Kent analyst Mat Steinberg. He says a robust wholesale operation would fit right in with AT&T's list of aggressive moves, citing the acquisitions of TCG, TCI, and IBM's Global Network business. "It all makes perfect sense," he concludes.

Beats the Usual Suspects
AT&T was a dark horse candidate to win the contract, according to @Home spokesman Matt Wolfrom. "The fact that AT&T came out of nowhere to blow everyone else away was a real surprise for us," he says. "We had bids from all of the usual suspects."

The usual suspects include Frontier, IXC, Qwest, Level 3, and Williams, although Wolfrom will not name names. The new carriers have logged in several capacity deals as they build out new networks that they differentiate from traditional networks like AT&T's.

AT&T has the most pervasive wholesale fiber network offering available today, Wolfrom says, adding that availability is one of several reasons @Home chose AT&T. Following the announcement of the capacity deal, both Qwest and Williams issued statements on the progress of their network construction (see Qwest and Williams Tout Construction Progress).

@Home plans to begin deploying its backbone in Apr. and finish it in Aug. 1999. The mid-year time frame is about the same time Qwest plans to complete construction of an 18,500-mile network. But Qwest's network, like that of Williams and IXC, consists of Nortel's integrated DWDM/SONET system with 10 Gbps channels—an architecture spurned by @Home.

IP-over-DWDM
"We're an IP-based shop," Wolfrom says. "We don't have any voice on our network." The pure IP play makes a more compelling case for a IP-over-DWDM backbone than including a layer of SONET, and @Home intends to interface routers directly to its new DWDM channels (see Core Router Vendors Vie for Space on AT&T Network). Down the line, @Home believes IP will comprise the convergence layer for both voice and data traffic, Wolfrom says, enabling @Home to integrate voice-over-IP when the technology matures.

In addition speedy access to an IP-over-DWDM backbone, Wolfrom says @Home found the AT&T offering attractive because of price and attention. AT&T commands a high volume of traffic that produces economies of scale that enable low prices, Wolfrom reasons. He also cites a new emphasis by AT&T on its wholesale business that produced a dealmaking team that impressed @Home.

While @Home downplays the relationship, analysts suspect that TCI's major stake in @Home played a role in @Home's backbone provider choice, given that TCI has agreed to be acquired by AT&T.

Bandwidth for @Home
The two 2.5 Gbps channels comprise a 100-fold increase over the network backbone capacity it has been leasing from Sprint and enough to last 10 years, according to @Home. "[The increase] opens up a whole new market for our commercial business," Wolfrom says, explaining that @Home can now support OC-3 services and higher in addition to the residential Internet services it provides to 18 cable operators.

The agreement gives @Home the option to expand capacity and add routes, and includes co-location space in AT&T points-of-presence and major carrier hotel facilities that will be used to interconnect @Home's backbone network to other major backbones.