AT&T Inc. (NYSE: T) will launch its fiber-based Project Lightspeed services in San Antonio, Texas next month, the company told Light Reading Monday.

AT&T has been trialing the services with a limited number of subscribers –- many of whom are AT&T employees –- in the city, but now will take the next step. "We plan to expand our offering in June, and then we plan to be in 15-20 markets by the end of the year," says AT&T spokeswoman Denise Koenig. "It will be a commercial offering."

Koenig wouldn't say which areas of San Antonio would or could be offered the service in June. AT&T's critics have charged that the new services will be made available only in wealthy neighborhoods, calling it "fiber-to-the-rich (FTTR)." (See SBC Eyes Alamo City for Video and AT&T Readies Lightspeed in North Texas.)

According to city records, AT&T has already begun paying franchise fees to the city. The city council agreed to accept a $415,000 "pre-payment" from AT&T in April, which the city will use to subsidize educational and public access TV programming. AT&T will begin making quarterly payments to the city in the near future. (See SBC on TV Franchise Regs: We're Immune.)

Koenig also declined to say if any of the other markets would also launch in June. But the carrier has been quietly at work in California convincing city councils to grant it permission to offer video service. (See SBC Makes $800M Texas Pledge .)

AT&T is making the argument to cities that no new franchise agreement is necessary because it is simply upgrading its networks for video, city sources say. Using this reasoning, the carrier has reached agreements with the cities of Anaheim and San Ramon, California to move forward with the Lightspeed buildout. (See AT&T Shines a Light on Lightspeed.)

"We are moving forward with San Ramon, and we also have an agreement in Anaheim; in fact the mayor down there didn’t require us to pay any sort of a franchise fee, he just said go in and start building," says AT&T's California spokesman Gordon Diamond.

AT&T won't say when the two cities could launch Project Lightspeed services. San Ramon Parks and Community Services Director Jeff Eorio tells Light Reading that AT&T is now in the process of obtaining permits to install new node equipment in the city. Eorio believes Project Lightspeed services will be available "somewhere between six months and a year" in San Ramon.

Vendor sources close to the carrier say the video service part of Project Lightspeed, called U-Verse, still has some kinks. AT&T is relying on its vendor partners to work out some quality of service problems caused by packet loss within the IPTV distribution chain, the sources say. (See Scaling IPTV: Progress at SBC .)

As video packets travel across the network, making several hops along the way, packets can drop from the video stream when met with bandwidth constraints, software flaws, and other problems. It's not clear what the alleged issue is at AT&T. But anything other than a smooth delivery of data can be a problem in an IPTV network.

As the packets move through the switches and routers at each hop they can arrive out of order, which overload the buffers within the devices. The farther up the distribution chain the packet loss occurs, the more prominent the TV picture problems will be to consumers on the other end.

Vendors close to Project Lightspeed say AT&T may choose to use "forward error correction" technology to fix the problem. It may also attempt to "mask" the problem by adding a slight delay into the video distribution scheme. This would buy the network some time to fix errors before they reach the living room.

Neither Microsoft spokesperson Jim Brady nor AT&T's Koenig would comment on the alleged "packet drop" issue.

— Mark Sullivan, Reporter, Light Reading