Light Reading

U-verse Growth Slips But Still Strong

Alan Breznick
7/24/2014
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Leaving Verizon FiOS in its dust, AT&T U-verse continued to maintain a breakneck growth pace in the second quarter, albeit at a somewhat slower rate than in previous quarters.

AT&T Inc. (NYSE: T) reported late Wednesday that it signed up another 190,000 subscribers for U-verse TV in the second quarter. That's down from its gains of 201,000 TV subs in the first quarter and 233,000 in the same period a year ago. But it's still far more than the 100,000 new FiOS video subs that Verizon Communications Inc. (NYSE: VZ) reported a day earlier and stands in stark contrast to the video subscriber losses that most US MSOs are still experiencing.

Thanks to this latest increase, AT&T now has 5.9 million U-verse TV customers, widening its lead over Verizon's similar fiber-fed FiOS platform, which closed out the spring quarter with 5.4 million video customers. The large telco also has significantly more video subs than every US cable operator except the two industry leaders, Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC).

Likewise, AT&T enjoyed another healthy quarter on the broadband side, signing up an impressive 488,000 high-speed data subscribers for its U-verse Internet service. Once again, that total is down from the whopping 634,000 U-verse Internet customers it added in the first quarter and the 641,000 it added a year ago, but it still dwarfs the 139,000 that FiOS Internet added in the winter quarter.

With this increase, AT&T now has 11.5 million U-verse Internet customers, easily more than FiOS Internet's 9.1 million total. AT&T also has more broadband subscribers than every cable operator besides Comcast, even though the telco's total wireline broadband sub count actually fell by 55,000 because of its continued huge losses on the DSL end.

On their earnings call, AT&T executives bragged that U-verse now accounts for 70% of their broadband sub base, up from 55% a year ago and 40% two years ago. They also highlighted the fact that U-verse now generates 62% of the company's consumer wireline revenues, up from 51% a year ago.

With U-verse's video and broadband penetration rates now at about 20%, much lower than FiOS's penetration rates of a smaller base, AT&T officials expressed confidence that they can still push their subscriber totals significantly higher. "We have plenty of room to grow," said AT&T CFO John Stephens. "We believe we can achieve much more."

Stephens offered no new updates on their plans to deliver gigabit speeds throughout the US with their new "U-verse with GigaPower" initiative service. AT&T, which is now rolling out a slower, 300Mbit/s version of GigaPower in Austin, Texas, intends to expand next to Dallas and several North Carolina cities. (See AT&T's Austin GigaPower Debuts at 300 Mbit/s .)


If you want to keep up with all the latest U-verse and FiOS developments, keep your eyes glued to our broadband FTTX channel on the site.

On a separate note, Stephens did provide an update on AT&T's plans to buy DirecTV Group Inc. (NYSE: DTV). He said the regulatory approvals for the buyout are proceeding smoothly so far, with Brazil's antitrust regulator and three states reviewing the merger -- Arizona, Louisiana, and Hawaii -- all signing off on the deal without imposing any conditions. Stephens said AT&T officials are working closely with various regulatory agencies to consummate the deal and "are more excited and confident about it than ever."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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MarkC73
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MarkC73,
User Rank: Light Sabre
7/29/2014 | 7:50:00 PM
Re: something missing?
Though I agree that the content fees are getting higher, I'm in the camp that doesn't think the carriers will be able to get around any content fees for long or without consequence.  Sure negotiation is on the table but I feel eventually carriers will be limited in options to do either all or a combination of own content, lower the cost of delivery method, and value add.

Instead they pony up to the content fees and get as many customers as they as efficiently as they can.  Meaning that OTT and mobility will be tools to extend reach to retain and add customers, not to avoid content fees.  That way, customers have more choices, carriers get more customers, and content providers still get paid.  The unfortunate thing is all of this is that unless there's an increase on how much consumers spend per month on video entertainment and like services, the only growth will be take them from someone else.  Thus, there must be value add so that people are willing to redirect more of their resources to the services.  Remember what your cell bill was in year 2004?
mendyk
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mendyk,
User Rank: Light Sabre
7/28/2014 | 11:38:56 AM
Re: something missing?
What's changed with video services is the cost of content to the network operators. In the past five years, rights fees reached a tipping point, making what was a marginal but acceptable margin level now too low. Cable operators now focus on broadband services because those margins are much healthier. Telcos are a bit stuck because they still see the need to gain more market share in video services, but they now realize that conventional video is on its way to being a loss leader. This is a big reason that OTT service delivery is so critical to figure out. Operators need a way to get around onerous content rights costs.
brookseven
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brookseven,
User Rank: Light Sabre
7/28/2014 | 11:16:33 AM
Re: something missing?
Dennis,

I think unprofitable is a strong statement.  Residential service has always been:

- High Volume,

- Low Margin,

- Long Term.

The ROI on these services has been LONG.  But if you have the service for 10+ years then it doesn't matter.  It is why even minor upsells in the old days (CLASS Services) were such big winners.  I think the bigger issue is that nobody has located these type of low cost margin upgrades.  The thought is always around upping the price per bit per second.  That is (to me) like trying to sell phone service for more money.  I always think telcos should be looking for small incremental service offerings that have broad applicability and don't take lots of new infrastructure.  I see that as MUCH more viable.

seven

 
pcharles09
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pcharles09,
User Rank: Light Beer
7/28/2014 | 10:07:07 AM
Re: something missing?
@mendyk,

Too much unprofitable revenue will eventually lead to the lights being OFF. Seems like something that needs to be acted upon sooner rather than later.
mendyk
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mendyk,
User Rank: Light Sabre
7/27/2014 | 12:47:41 PM
Re: something missing?
You wonder how many years it will take for the conventional video service model to fade into oblivion. At this point, live programming (almost all of it sports) is what's keeping this going. Probelm is, it's very difficult for companies to simply walk away from revenue, even if it's mainly unprofitable revenue.
MarkC73
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MarkC73,
User Rank: Light Sabre
7/27/2014 | 1:47:19 AM
Re: something missing?
I still stand by a couple of statements, first content is and will be king.  Second, OTT, ala carte, etc. is inevitable. However, a lot of how things are delivered is controlled by the content providers.  This includes how things are bundled and paid for.  The good news they understand all this and know it's inevitable, you see many of them already doing OTT and ala carte programs.  Once the content providers allow different bundling then you'll see more options from the carriers.
danielcawrey
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danielcawrey,
User Rank: Light Sabre
7/26/2014 | 1:26:34 PM
Re: something missing?
Yeah, I would also have to question how much these video numbers really mean anymore. 

I think that many people are tired of paying for exorbitant video subscriptions. These providers really need to start thinking more about how to sell data because of the rise in streaming's popularity. 
mendyk
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mendyk,
User Rank: Light Sabre
7/25/2014 | 5:19:26 PM
Re: something missing?
Meanwhile, operators have started to figure out that margins are likely to continue to shrink for conventional video services, at least under the current model. So maybe "winning" the race to add more video subs isn't really winning at all. And to the original point, AT&T and VZ aren't really in a race here because they don't compete head to head.
brookseven
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brookseven,
User Rank: Light Sabre
7/25/2014 | 5:03:26 PM
Re: something missing?
Beyond converting lower end subs of DSL to either FiOS or U-Verse, there is simply a limit on market share that people are going to win.  There are 2 other video competitors.  I think that essentially that video market shares are going to be limited to 35% or so.

Broadband is also going to be limited by competition with Cable.  For some, Cable wiill be better.  For others, high speed telco interfaces.  Reality will drive them to about a 50% market share.

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
7/25/2014 | 8:55:08 AM
Re: something missing?
So the process of adding context to raw numbers starts to indicate that AT&T and Verizon are about on the same track.
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