U-verse Expands But Can't Outgrow Its Critics
Apparently growing much faster than cable doesn't cut it, because even as AT&T is blowing its horn as the fastest-growing TV service in the U.S. for 2010, industry analysts are still seeing speed bumps ahead for U-verse. Their criticism is familiar: It's all based on AT&T's fiber-to-the-node technology that ultimately depends on twisted pair phones lines to deliver video.
According to AT&T, U-verse added 1 million customers last year, even as major cable companies were losing about the same number of customers. AT&T now has 3 million total U-verse households, and claims its market penetration rates continue to rise.
"We are seeing penetration rates in existing markets rise," says G.W. Shaw, executive director of U-verse product management for AT&T. "Obviously that happens the longer we are in a market and awareness grows, but we also see the penetration happen faster and earlier in the life of new markets."
To date, those customers are largely disgruntled cable users, says Adi Kishore, Heavy Reading analyst, "and they are running out of that pool of unhappy customers."
Generally speaking, the North American market for pay TV is saturated, Kishore adds, which means cable, telco and satellite companies are largely swapping customers back and forth.
AT&T has some advantage over cable and satellite today because of features it offers, namely a multi-room DVR, but that advantage will disappear later this year, says Stephen Froelich, senior analyst in IMS Research 's Consumer Electronics Group.
"They can't continue at the current pace," Froelich says. "They have a fundamentally limited platform compared to anything that is cable based -- whether it is fiber-to-the-home like Verizon Communications Inc. (NYSE: VZ) or HFC. More fundamentally, the cable guys are ready to respond -- the boxes are ready, the software is in final approval. Most cable guys they are up against are going to have real responses."
That cable response will include multi-room DVR capability that will outstrip the limits of what AT&T can offer over U-verse, because of the limits of copper, particularly to houses with multiple HDTVs.
"U-verse can only do three simultaneous streams for the DVR, one being DVR itself, and it maxes out at seven programs -- four live and three recorded," Froelich says. "Compared to Verizon and where Comcast Corp. (Nasdaq: CMCSA, CMCSK) will be later this year and compared to where DirecTV Group Inc. (NYSE: DTV) should be able to be, it is limited."
AT&T has more HD programming that its rivals, at least according to Shaw, with 155 HD channels. It can deliver up to three HD streams at one time, depending on the customer's distance from the fiber node or VRAD, with some customers only getting two HD channels at once.
That might not cut it in multi-TV homes, Froelich says. Verizon has reported serving some homes with as many as 12 TV sets over FiOS. That's not something AT&T could do.
AT&T has faced this kind of criticism since U-verse's inception, Kishore concedes.
"There's always been a little cloud that is following them, wondering when they are going to run out of capacity," he says. "In their defense, at every step, they've done it, even when it's been a bit of a balancing act. They have been able to find ways to expand access bandwidth without going to FTTH."
Kishore credits both AT&T and Verizon with developing advanced features for their video services, but, like Froelich, he sees cable responding. (See AT&T U-verse Mobile Wins at TelcoTV and AT&T U-verse Launches 'My Multiview' App)
AT&T won't release the current throughput on its FTTN system, Shaw says, nor will it talk about churn of new customers once its aggressive introductory pricing plans expire, other than to say there is no large spike of disconnects. That's often because customers who buy IPTV also buy phone service, wireless service or broadband service and are less likely to churn easily.
And that is the true future for all paid TV operators, Froelich says.
"Paid TV becomes the loss leader," he says. "Your operator will sell you TV at a reasonable loss as a customer retention plan for Internet and telephony."
So if U-verse can't continue growing, the losses to AT&T will be felt in its broadband, wireless and home phone service sales, according to Froelich.
— Carol Wilson, Chief Editor, Events, Light Reading