Video services

AT&T Set to Expand Its U-verse

AT&T Inc. (NYSE: T) has said it will roll out its U-verse broadband video service, which includes high-definition television, in 15 to 20 markets before the end of 2006. Light Reading now has the skinny on where that's likely to happen.

The project is a huge move for AT&T, which up until now has offered service to 30,000 people in San Antonio and held one, limited HDTV trial in Houston.

Our sources have been able to identify locations where the carrier has added IPTV capabilities to at least one local point of presence (POP), creating a video hub office. The locations of these IP-enabled video hub offices (VHOs) are key, as they more or less spell out exactly where U-verse is heading.

These VHOs act as regional video headends throughout AT&T's local network, which spans 13 states. The VHOs sit in between the company's national content aggregation centers (master headends) and its more than 140 IP video serving offices (local distribution points).

"What's shaping up here is a war of the worlds between cable companies and the telcos," says Kermit Ross, principal at Millennium Marketing. "And what the VHOs indicate is where the battlegrounds are for this war."

While the list of AT&T's VHOs is much longer than 15 to 20 markets, our sources have further weighed in on the cities where they have reason to believe the carrier is most likely to turn on its fiber-fed broadband, phone, and TV services next. The cities believed to be first on AT&T's rollout list, in alphabetical order by state, are listed below:
  • Little Rock, Ark.
  • Los Angeles, Oakland, San Diego, San Francisco, and San Jose, Calif.
  • Hartford and New Haven, Conn.
  • Chicago, Ill.
  • Indianapolis, Ind.
  • Detroit, Mich.
  • Kansas City and St. Louis, Mo.
  • Oklahoma City and Tulsa, Okla.
  • Cleveland and Columbus, Ohio
  • Austin, Dallas, Fort Worth, and Lubbock, Texas
  • Milwaukee, Wis.
Here's a map showing our sources' projections for AT&T's U-verse coverage, stemming from its VHO locations, by the end of this year:

That list is includes several of the largest metropolitan statistical areas in the country. But those aren't the only areas where AT&T will turn up video services over the next couple of years. Our sources say that the carrier is also planning for IP video capabilities in the following areas:
  • Fayetteville and Fort Smith, Ark.
  • Bakersfield, Fresno, Modesto, Monterey, Sacramento, and Stockton, Calif.
  • South Bend, Ind.
  • Champagne, Decatur, and Springfield, Ill.
  • Hutchinson and Wichita, Kan.
  • Battle Creek, Grand Rapids, Kalamazoo, Lansing, and Saginaw, Mich.
  • Springfield, Mo.
  • Reno, Nevada
  • Dayton, Toledo, and Worthington, Ohio
  • El Paso, Midland, and Odessa, Texas
  • Appleton and Green Bay, Wis.

"Houston is going to be our next market, as we've said," says AT&T spokesman Wes Warnock. "Beyond that, I can't comment."

AT&T first announced its massive access network upgrade, dubbed Project Lightspeed, back in 2004. That encompassed a roughly $4 billion plan to deploy fiber-based services to some 18 million households across 13 states by the end of 2008. In 2005, AT&T launched U-verse, its IPTV service, in San Antonio, and the company has been working out the kinks and putting the service through its paces since that time. (See AT&T: We're Sticking With FTTN.)

Meanwhile, in Dallas and nearby areas, installations of equipment have been going on for months -- and we've got the photos to prove it. (See Lightspeed Unauthorized and AT&T Readies Lightspeed in North Texas.) Houston became the next hotbed of U-verse activity as the company chose some employee homes in the area to roll out its HDTV service. That rollout represented the debut of an upgrade in Microsoft Corp. (Nasdaq: MSFT)'s IPTV middleware and set-top software and, say sources close to the carrier, that's partly why AT&T couldn't roll out HDTV any sooner. (See AT&T Still Has IPTV 'Jitters'.)

In its earnings call last week, AT&T executives said that the company "purposefully" took it slow in San Antonio, only marketing the U-verse service to 30,000 people. "We wanted to trial the service and the platform," said Rick Linder, the company's CFO. "And, frankly, we didn't want to put too many customers on the platform before we had the HD capability."

Going from 30,000 people in San Antonio to millions of people is a huge step for any service. And, assuming AT&T's technology holds up, the battle for consumer communication services will take a new turn as cable companies are expected to drop prices in response to the new AT&T's arrival. (See Hunting Project Lightspeed.)

Analysts say there is definitely a difference between IPTV and regular TV -- and IPTV is compelling technology. Subscribers to U-verse TV can, for example, record up to four shows simultaneously on their DVRs, and they can enjoy picture-in-picture channel browsing on any TV.

But the advertised bandwidth speed of 6 Mbit/s in AT&T's most expensive U-verse package is still quite a bit off the 10 Mbit/s several cable companies are offering today on a best-effort basis.

So, at first, price and bundling will be the biggest weapon in AT&T's new battle for subscribers. "This is a fight for a finite market," says Heavy Reading analyst Graham Finnie. "Whether they'll make any money out of it is a totally different matter."

Cable, where it can, is disparaging the technology that AT&T is so proud of. "There is nothing that AT&T’s planned network can do that Cox isn’t already doing better," writes Cox Communications Inc. spokeswoman Stephanie Davis, in a note to Light Reading.

AT&T's success, then, "really depends on how well they can explain the difference between IPTV and cable TV -- and how robust a feature set they'll have from day one," says Rick Thompson, Heavy Reading's IPTV analyst .

In a small rollout among friends and family, AT&T's U-verse service went over well. "Within a three-month period, we have achieved about 10 percent penetration across that base," said AT&T CFO Linder in the company's conference call last week. "In some areas, for example, we've gone into some multiple dwelling units where we have gotten penetration as high as 25 percent within a three-month period. So the results there are encouraging to us."

Outside the shadow of AT&T's corporate headquarters, the company may find that competing with cable companies is quite tough. Thompson says that when carriers launch new services like U-verse, they strive for 20 to 30 percent subscriber penetration over a period of five to six years.

Comcast Corp. (Nasdaq: CMCSA, CMCSK), by contrast, recently said that its three-service bundles are available to about two-thirds of its homes passed, and up to half of all new customers are taking them up on the offer.

— Phil Harvey, News Editor, Light Reading

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c_headed 12/5/2012 | 3:36:19 AM
re: AT&T Set to Expand Its U-verse I think cost is going to be a major factor. Most people I know, including myself, think its an outrage to pay $130+ a month for video services and broadband. For some reason, people do a lot of comparison shopping trying to save $10 bucks a month for the services.

The real question is, if this is going to be a war of the worlds between telco and cable, WHO is going to be making the bullets?
desiEngineer 12/5/2012 | 3:36:19 AM
re: AT&T Set to Expand Its U-verse Rick: AT&T's success, then, "really depends on how well they can explain the difference between IPTV and cable TV."

Why get into that battle? Why not just say we offer the same, and rely on their customer base being bigger?

If they are priced the same - $100 for triple play service, then doesn't ATT have the edge, since they have more voice/LD and DSL subscribers?

Let's say you are an average user in ATT's turf:

- you probably have ATT for local/LD
- you probably have DSL
- you probably have Cingular
- you probably have cable

(don't know how big the satellite market is, but if they have a sizeable share of the TV segment, then cable has even less of an advantage)

[I'm going by gut, no numbers to back this, but perhaps someone can come up with the numbers - i.e., given n households with internet access, what is the probability that they have DSL vs. cable, they have ATT phone vs someone else, etc.]

If cable's triple play and ATT's triple play cost the same, would you:
a) switch to ATT
b) switch to your local cable
c) keep the services separate

How important is TV in your life that you would disrupt it by changing providers?

How important is your phone/internet that you would disrupt it?

And how tempting is IPTV, how bleeding edge are you?

DCITDave 12/5/2012 | 3:36:18 AM
re: AT&T Set to Expand Its U-verse re: "For some reason, people do a lot of comparison shopping trying to save $10 bucks a month for the services."

That's a great observation. I've never understood why folks go for a "bargain" that gets erased by the time you factor in the downtime, equipment, and hassle of switching services.

desiEngineer 12/5/2012 | 3:36:18 AM
re: AT&T Set to Expand Its U-verse I'm sorry, I can't even begin to make sense of your metaphor. What kind of bullets are you talking about - technical merits, marketing, discounts, advertising dollars?

rjmcmahon 12/5/2012 | 3:36:17 AM
re: AT&T Set to Expand Its U-verse re: Most people I know, including myself, think its an outrage to pay $130+ a month for video services and broadband.

That's why bundling doesn't make any sense to me. Better to charge $50/mo for three things (or even better, $15/mo for ten things) then combine it all together and charge $150/mo.

The majority of restaurant's charge by the line item. Better to charge $4 for salad, $8 for burger, $2 for drink, $4 dessert than to charge $20 for a complete meal.

It's just a perception thing. But talk to a car salesman and they'll tell you driving a perceived "low" monthly costs wins over reducing overall price.
firstmiler 12/5/2012 | 3:36:16 AM
re: AT&T Set to Expand Its U-verse Desi wrote: "I'm sorry, I can't even begin to make sense of your metaphor. What kind of bullets are you talking about - technical merits, marketing, discounts, advertising dollars?"

I am pretty sure that c-head was expressing his/her wish to know which providers-of-arms to place his/her investment bets with.

Better to be Hallyburton than the 1st Battalion Division!

tmc1 12/5/2012 | 3:36:12 AM
re: AT&T Set to Expand Its U-verse Don't underestimate how poor the quality of cable signals have gotten due to old/poor cable plant and infrastructure. I have seen simply horrid signals with many dropouts/pixellation from Comcast in the bay area and Adelphia (now Comcast) on the east coast.

Don't underestimate how badly the monopoly MSOs treat their customers (as opposed to the monopoly RBOC/ILECs). Satellite has been better than cable for years in terms of quality and price but the installation issues and other such things have kept it from completely eating their lunch.
optodoofus 12/5/2012 | 3:36:11 AM
re: AT&T Set to Expand Its U-verse Also, don't underestimate how little the RBOCs care about their customers. Let me share my (admittedly anecdotal) experience with Verizon here on the East Coast. When it rains, my POTS line quality would go to hell. It was simply unusable in wet weather. So, we called Verizon. They sent someone out a week later, when it was NOT raining, who reported that there was no trouble found. We tried again. Same result. We tried again. Same result (Later. Rinse. Repeat.)

I escalated to a Verizon supervisor. I explained the exact nature of the problem (leaky cable, rain water, increased impedance, etc. etc.). Guess what. Same result. They were simply incapable or unwilling to get decades-old technology to work. So, why exactly would I trust them to get this new whiz-bangy fiber stuff working. No thanks. Instead, I signed up for phone service from Cablevision. It works all the time - even in the rain.

falsecut 12/5/2012 | 3:36:10 AM
re: AT&T Set to Expand Its U-verse Yes, I think the "bullets" metaphor was referring to who the equipment makers were going to be that picked up the business, Cisco, Lucent, whoever. With the large CapEx dollars being spent, if a smaller company gets a major contract, you could be making big dollars on your stock investment.
firstmiler 12/5/2012 | 3:36:09 AM
re: AT&T Set to Expand Its U-verse Don't hold you breath on the hope of small companies winning meaningful contracts...if you look at LR's own multitude of Taxonomies showing the myriad players you've never/barely heard of chasing this business, you will quickly conclude that any investments in long shots are 1000s/1 odds of succeeding with the ever thinning ranks of big service providers.

The trend of the last three years of only big players taking down big deals will continue. Alcatel, MS IPTV, Cisco, Juniper are the names you hear over and over in the press releases for significant wins. The little guys limp along winning insignificant deals with Munis, small IOCs, independent cable companies, etc.. The best hope for any of the small players is to prove out a disruptive enough solution as to get bought at a small premium by one of the big players. Certainly an IPO or huge-multiple-exit is not in the offing for 99+% of the start-ups tilting at the Triple-Play windmills.

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