AT&T Lowers U-verse Goals Again

Another quarter comes to a close with another decline in U-verse projections by AT&T Inc. (NYSE: T). The carrier now says it will pass 18 million homes by the end of 2008 as opposed to its previous estimate of 19 million.

In addition to the service becoming less widespread, U-verse is becoming more expensive, with cost projections now sitting at $6.0 to $6.5 billion, up from $5.1 billion

A reduction in homes-passed projections has become somewhat of a quarterly tradition for AT&T. When the old SBC began Project Lightspeed in late 2004, the goal was to pass 18 million homes by the start of 2007. Almost halfway through 2007, it passes less than 3 million.

For the past year, the goal has been to reach 19 million by the end of 2008, but that number got adjusted to 18 million yesterday. (See AT&T Stands By U-verse Projections.)

Table 1: AT&T U-Verse Projection History

The company's latest 10-Q, filed on May 4, refers to delays in receiving equipment and software from vendors and potential difficulties in obtaining video franchises in certain municipalities as factors that could delay deployment of U-verse.

Despite this latest setback, expect AT&T to bring its projections back up soon. In a previous earnings call, AT&T said it would launch the service in the southeast -- BellSouth's old haunts -- by the end of the year, and an AT&T spokesman confirmed today that the beginning of this deployment will be announced in the next few weeks. (See AT&T Rings Up Big Revenues in Q1.) That should bring the homes-passed projection to more than 19 million for the end of 2008.

Still, U-verse's costs are fattening -- and the increased estimates don't include the BellSouth rollout. That pattern has at least one analyst alarmed.

"If you were spending $1 billion more to reach one million more homes, that'd be different. But they are spending more to achieve less," says Andrew Schmitt of Nyquist Capital .

AT&T says the extra money is going toward bulking up the service, mainly through the addition of more HD channels and mobile access features. These features require additional video servers and other network upgrades.

But as the cost of U-verse gets higher and higher, the rationale for it makes less sense. AT&T went with fiber-to-the-node partially because it didn’t see the need to spend upwards of $20 billion running fiber directly into customers' homes like Verizon Communications Inc. (NYSE: VZ) is doing.

If the cost continues to rise, AT&T could have a tough time explaining why it is spending so much money on a slower network than its peers. Schmitt points out that with the latest capex adjustments, AT&T is now spending nearly half as much per home as Verizon is, but for a much slower network.

Shares of AT&T traded down $0.40 (1%) at $39.20 late today.

— Raymond McConville, Reporter, Light Reading