Will AT&T Seek Satellite Help?

UBS analyst Jon Hodulik draws the bold conclusion that AT&T will be forced to offer satellite in U-verse

December 19, 2006

3 Min Read
Will AT&T Seek Satellite Help?

While AT&T Inc. (NYSE: T) has only 12 days left to launch its U-verse service in 13 new markets, Wall Street is hinting that the carrier may need some satellite TV partners to really bring video to the masses. (See AT&T U-verse Debuts and AT&T Set to Expand Its U-verse.)

"We believe the company's current Lightspeed network of 25 Mbit/s of bandwidth to provide voice, data, and video services will prove to be insufficient," writes UBS AG analyst Jon Hodulik in a note released Monday. "We continue to believe the current Lightspeed network is enough only for data, making a satellite deal more likely."

"AT&T's IPTV rollout has been slower than expected while it has been more vocal about its Homezone product," Hodulik adds. AT&T currently partners with EchoStar Satellite LLC (DISH Network) for the satellite video in its Homezone service, which also features DSL, voice, and home networking features. (See AT&T Hits Homezone.)

AT&T says it's not pushing Homezone as a substitute for U-verse. "We're touting Homezone right now because it's available across our entire broadband footprint, except for Connecticut, while we're just beginning to scale U-verse," responds AT&T spokesman Wes Warnock.

Hodulik suggests the slow rollout out of IPTV has allowed the cable guys to grab an important early lead in the battle for the living room. Cable triple-play services will be available to 81 percent of U.S. homes by the end of 2007, UBS predicts, while a similar telco offering will be available only to about 15 percent of households. (See AT&T Waits on Lightspeed VOIP.)

If AT&T were to offer consumers satellite instead of IPTV as part of U-verse, that would be a dramatic strategy reversal. The carrier and its technology partners have been talking up the unique benefits of a bi-directional IPTV for years. (See AT&T Launches HDTV and IPTV's High-Def Holdup.)

On the other hand, one fear associated with AT&T's fiber-to-the-curb deployments is that the carrier won't be able to get enough bandwidth out of the copper that connects consumer homes to its IP equipment. Today, U-verse's bandwidth allows the service to carry only one channel of HD content at a time to a household. So if two people in different rooms want to watch different HD programs -- forget it. (See AT&T: We're Sticking With FTTN.)

AT&T says there's no bandwidth problem with U-verse. "I'm not going to comment on speculation, but I will say the assumption that we're not pleased with the bandwidth we're seeing with FTTN is flat out wrong," AT&T's Warnock says.

Hodulik, further, says AT&T might even acquire a satellite company in 2007: "We believe that the acquisition of a DBS company would help AT&T improve its competitive positioning by supporting the rollout of a triple- or quad-play (voice, data, wireless, and video), improving retention of its core base while allowing a larger bandwidth for data services."

UBS analyst Aryeh Bourkoff says DirecTV Group Inc. (NYSE: DTV) might be a better acquisition target for AT&T, despite AT&T's existing relationship with EchoStar/DISH Network. "DirecTV offers a premium brand, stronger footprint, and features a greater subscriber overlap for DirecTV/BellSouth vs. DISH/AT&T," Bourkoff writes in a note to clients.

"We believe that DTV shareholders could be more willing sellers versus DISH CEO [Charles] Ergen, who controls 73 percent of the vote," he adds.

— Mark Sullivan, Reporter, Light Reading

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