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Video services

It's a Small U-Verse for AT&T

In an effort to rattle cable investors, AT&T Inc. (NYSE: T) touted the uptake of its U-verse IPTV service when reporting its third-quarter results last week. In its earnings release, Ma Bell proclaimed of U-verse: "The initial response has been strong, with customer totals at approximately 3,000, or 10 percent penetration of homes marketed."

Achieving 10 percent penetration for a new video service against entrenched cable and satellite competitors is a major accomplishment, but not in a 30,000-home high-profile market trial near its headquarters in San Antonio. Despite the bluster from America's largest phone company, the footprint for U-verse isn't much bigger than that for Microsoft's IPTV software in a set-top box. We're talking about a rollout now large enough to cover a megalopolis like Lufkin, Texas.

In spite of its diminutive deployment to date, AT&T says its U-verse will be expanding soon. AT&T plans to launch its IPTV offering in Houston in late November and, by the end of 2006, intends to deploy U-verse in 15 markets. Of course, AT&T notes in its third-quarter release: "Market launches are expected to generally follow the deployment plan used in San Antonio." In other words, a tiny initial footprint. Assuming 30,000 homes a market, does that mean AT&T will finish the year with fewer than a half-million marketable homes for U-verse?

While U-verse continues to crawl along, AT&T has managed to amass a meaningful video subscriber base through its Dish Network satellite TV partnership. The company finished the third quarter with 583,000 Dish video customers, an increase of 50,000 during the quarter.

AT&T's video gains didn't help to stop the hemorrhaging in its core local phone business, though. It lost 242,000 primary consumer telephone lines in the quarter, compared to 114,000 in the third quarter of 2005. The company also lost 109,000 secondary phone lines, pushing its total line losses past 350,000 for the quarter.

High-speed Internet isn't moving as quickly either. AT&T added only 374,000 DSL lines in the third quarter, down 29 percent from the 538,000 that it added during the same period a year ago. The company counted 6.9 million consumer DSL lines in service as of September 30.

— Michael Harris, Chief Analyst, Cable Digital News

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