At&T's Wireless Path To Local Service

"Project Angel" will back up Ma Bell's cable forays

One of the first moves C. Michael Armstrong made on arrival at AT&T in late 1997 was to shelve an ambitious plan to use a wireless technology, code-named Project Angel, for local service. CEO Armstrong, a hard-charging former IBM and Hughes Electronics Corp. exec, thought the system, which would have cost AT&T $1,100 per household to install, was a money-loser. Instead, he turned his attention to cable TV as a way for AT&T to enter the local phone market. In June, he struck a deal to buy Tele-Communications Inc. for $48 billion.

But Project Angel has risen again. Since TCI and its affiliates only cover one-third of the country, Armstrong is looking for ways to compete against Bell Atlantic Corp. and the other Baby Bells for the remaining 70 million U.S. households. Not that he is abandoning cable deals: It remains AT&T's primary path to the local markets. In fact, AT&T has been negotiating--unsuccessfully so far--with Time Warner Inc. to offer phone service over Time Warner's cable network, which dominates New York. The economics, at $400 to $500 per home, are more attractive than wireless.

But Angel's costs have plummeted--to about $700 per household for two phone lines and high-speed Internet access. So, given the difficulty of landing cable deals, Angel has become a viable option--and is scheduled to roll out commercially in at least one city by the first quarter of 1999. "It's working and passing technical tests," says Daniel Hesse, CEO of AT&T Wireless. "When we [deploy it] has more to do with marketing issues than with technical issues."

Where will Angel land? Think Big Apple. Although Hesse won't discuss it, AT&T executives are seriously considering launching the commercial trial in New York, according to one insider and two sources close to the company. The reason is strategic: Bell Atlantic is likely to get approval in 1999 to provide long-distance service to New York residents. What's more, New York-based Bell is rolling out a technology for high-speed Net access called digital subscriber line (DSL). AT&T wants to be able to offer its customers the same bundle of services as Bell Atlantic.

Bell Atlantic says it isn't worried. "[Angel] is not what customers are looking for," says Lawrence Babbio, Bell Atlantic's president. "I can get to a home for half the cost with DSL."

PIZZA-BOX SHAPE. AT&T may still launch Angel elsewhere. Other cities under consideration are Boston, Dallas, and Seattle. Dallas is considered the most likely: A Texas foray could serve as a savvy political move to demonstrate the benefits of local competition on the home turf of rival SBC Communications Inc., considered the most aggressive Bell.

Here's how the Angel technology works: A pizza-box-shaped receiver is placed on the side of a customer's house, and it sends radio waves carrying voice or data traffic to an antenna that can be located on a building or utility pole. From the antenna, the signals are sent to an AT&T switching center that routes calls into the local network or AT&T's national system. The technology can also deliver data transmission speeds of up to 1 megabit per second--almost 20 times as fast as today's 56-kilobit-per-second modems. "There really isn't another technology that lets you compete as quickly and easily," says Matthew Desch, wireless chief at Northern Telecom.

While AT&T owns the Angel technology and is manufacturing the equipment in Redmond, Wash., it probably won't hold on to it. AT&T got out of the business of making telecom gear when it spun off Lucent Technologies Inc. in 1996--and sources close to the company say it is likely to sell or license the technology to a telecom maker, such as Ericsson, Lucent, or even Germany's Robert Bosch.

Without doubt, AT&T will try to form further partnerships with cable companies such as Time Warner. Eventually, Armstrong says he wants to own or use cable networks to cover 60% of U.S. households. For other parts of the country, wireless technology will be Armstrong's guardian angel.