ATLANTA, GA (August 9, 1999) -- Ah, the dog days. Nothing to do but sweat out another down day in the markets where the few investors not smart enough to be on vacation sit and fret about what the G-man will do when the Federal Reserve Open Market Committee meets again in a couple of weeks.

Given last week's strong jobs report and weak productivity number, the obvious guess would be that Greenspan will boost the Fed funds rate another 0.25 basis point to 5.25%. Bond traders have begun to worry, though, that that won't be the end of the rate hikes. Some apparently think that all three of last fall's quarter point gimmes will be taken back before Y2K paranoia rears its ugly head. Always discounting the future, the 30-year bond lost 25/32's today to close at 86 25/32, which sent the yield soaring to 6.225% from Friday's close of 6.158%.

Rising interest rates are generally bad news for stocks, or at least that's the conventional wisdom, yielding pearls like, "Don't fight the Fed." So in case you run into someone carrying boxing gloves while speeding off to a meeting with Greenspan, be sure to share this sound advice. "Dude..."

Since high-multiple growth stocks are especially susceptible to higher interest rates (again, according to the conventional wisdom), it isn't a shock to see the Rule Breaker down 1.59% today while the Naz lost 1.14% and the S&P 500 declined by a more modest 0.19%.

The really interesting news of the day turned out to be an unsubstantiated, anonymous rumor in our nation's leading non-financial daily. Or so the folks at AT&T (NYSE: T) and Excite@Home (Nasdaq: ATHM) insist. The fact that so many supposedly untrue rumors are floating around about this important partnership suggests that either National Enquirer is missing an opportunity to enter the market for corporate gossip -- or, the relationship really isn't working out so well. Heck, maybe both.

Today's New York Times carried a story by reporter Seth Schiesel indicating that AT&T, the nation's largest cable provider, might be willing to grant America Online (NYSE: AOL) the "open access" to Ma Bell's cable systems that the nation's top Internet provider has been seeking. Aside from the lack of named sources, the article was first rate.

The open access issue has been discussed frequently in this space and on the AOL and @Home message boards. In a nutshell, AT&T and other cable operators have argued that since they are spending billions of dollars to upgrade the cable plant for high-speed, two-way data traffic, they should be able to reap the maximum rewards by assigning lucrative and exclusive Internet access rights to Excite@Home, a company jointly owned by cable system operators and now controlled by AT&T.

A coalition of Internet service providers (ISPs) led by AOL has argued that all ISPs should be allowed access to the cable operators' systems on basically the same terms granted to @Home. The U.S. courts and the Federal Communications Commission are discussing the issue. (For a lengthier summary, see this recent Dueling Fools or order a copy of the Internet Stock Report.)

Specifically, the Times' Schiesel said that despite the tough talk from AT&T, "a side deal may now be in the works -- one that could eventually undermine Excite@Home's business model." Citing "executives close to the companies," Schiesel wrote that "AT&T and America Online are considering an arrangement that would diminish the role of Excite@Home by giving America Online and perhaps other Internet providers enhanced access to AT&T's systems."

Schiesel added that "according to a person at the [recent Excite@Home board] meeting," AT&T chairman C. Michael Armstrong "voiced concern that At Home's business of using cable modems to link consumers to the Internet might not be a great strategic fit with Excite's Web portal service." Armstrong reportedly suggested that @Home should stick to its access business "while exploring a sale or spin-off of Excite's Web content business."

This Times piece follows last Monday's article in Business Week Online that Yahoo! (Nasdaq: YHOO) was in talks to acquire Excite@Home. Those companies denied the report. Still, last week's article included a quote from John Petrillo, AT&T's head of corporate strategy, indicating that AT&T is "not interested in being a content company." In turn, that remark plus Armstrong's alleged comment at the Excite@Home board meeting reinforce other statements made in recent months by top AT&T officials, such as the company's cable maestro, Leo J. Hindery. Bottom line, it certainly seems like AT&T has serious problems with @Home's merger with Excite.

That's interesting because the only reason for AT&T to avoid signing an attractive Internet access deal with AOL is if Ma Bell really wants to back a full-fledged alternative to America Online, which is what the merged Excite@Home would seem to be. In my view, this always looked like a high stakes gamble, one Armstrong had no business making.

After all, AT&T's cable acquisitions represent, in the first instance, an attempt to duplicate the local loop provided by the Bell operating companies. Ma Bell is still the major long-distance provider, but it wants to keep it that way. However, competition from the Bells is on the way. The cable infrastructure allows AT&T to offer the full package of local and long-distance calls, without having to shell out huge fees to the Bells for connecting calls locally. The question is whether AT&T's galloping new offense is designed largely as smart defense or as something much broader -- an attempt to create a rival to AOL.

What makes the latter strategy risky is that American Online has 17.6 million customers and thus dominates the customer base that most desires high-speed Internet access. And the Bells have begun a more aggressive rollout of their own DSL high-speed service (I got mine last week!). If spurned by AT&T, America Online has the brand, the customer relationships, and the partnerships to make it extremely difficult for AT&T to make its cable assets pay off as planned.

Indeed, rather than AT&T locking out the Bells from telephony by way of gaining broadband Internet customers who then become local and long-distance customers, AOL could help the Bells lock out AT&T by marketing DSL to those 17.6 million customers. In short, AT&T needs AOL, and Armstrong seems smart enough to realize that. Today's Times article laid out the same argument.

According to Bloomberg, Excite@Home CEO Tom Jermoluk today sent an e-mail to employees denying the rumor. "It isn't worth dignifying," Bloomberg reported Jermoluk as saying. "AT&T has publicly stated that they respect and will honor the current contract. They will be open to discussions with multiple players post the 2002 contract period," Jermoluk added. Bloomberg also reported that AOL officials denied comment while the folks at AT&T said "there is no specific proposal currently under discussion between AT&T and AOL."

Investors initially bid up shares of AOL to $90 a share, but the denials cooled the enthusiasm, leaving America Online up just $7/8 to $85 1/2 on the day. The reports, however, raise enough questions about Ma Bell's support for Excite@Home's current gameplan that investors bailed out, dropping the stock $4 9/16 to $38. Like many of its other deals with cable operators, Excite@Home's exclusive Internet access contract with AT&T's cable systems lasts until 2002. So it wouldn't walk away empty from any negotiated settlement with AOL arranged by AT&T. Still, investors have viewed it as a potential broadband competitor to AOL, meaning both a combined content and access play. So the latest reports create uncertainty.

In other Rule Breaker news, Iomega (NYSE: IOM) finally appointed a new CFO. Philip G. Husby had served as CFO for Ogden Corp. (NYSE: OG), a global provider of services to customers in the aviation, entertainment and energy industries. Before that, Husby spent 19 years at KPMG. My only response is "It's about time."

Related links on AOL and Excite@Home: