New Markets for AT&T
But $86B BellSouth Takeover Unlikely to Hasten TV Rollouts
By Todd Spangler -- Multichannel News, 1/7/2007 5:00:00 PM MT
In this story:
CAN IT SCALE?
SATELLITE CHATTER
AT&T’s acquisition of BellSouth won’t give the combined entity any greater advantage in deploying TV services that compete with cable, industry analysts said.
That still remains a technical challenge, with the question being whether AT&T can really make standard and high-definition TV services travel successfully over fiber highways and copper streets, using Internet Protocol communications, Alcatel gear and Microsoft software for governing traffic.
“The pace of the video rollout will depend almost exclusively on their ability to get IPTV to work at scale on the Alcatel/Microsoft platform,” said John Hodulik, an analyst with UBS Securities.
| Snapshot: AT&T |
|---|
| With the acquisition of BellSouth, AT&T again is the biggest telecom company in the world. |
| Source: AT&T |
| Revenue: $29.3 billion for third quarter of 2006 (combines AT&T, BellSouth and Cingular Wireless) |
| Voice subscribers: 67.5 million access lines |
| Wireless subscribers: 58.7 million |
| Broadband Internet subscribers: 11.5 million |
| TV subscribers: 3,000 for U-verse TV; 583,000 for satellite services via Dish Network (as of Sept. 30, 2006) |
The deal makes AT&T the biggest telecommunications company in the world, with 67.5 million phone customers in 22 states. The Federal Communications Commission approved the acquisition in late December, after AT&T made concessions on Internet neutrality, for a period of two years (see related story, p. 31).
On one hand, the new AT&T gets its hands on BellSouth’s 12 million retail consumer phone customers, which in theory could become video subscribers. BellSouth had not initiated any commercial TV service deployments, whereas AT&T — and predecessor SBC Communications — has been working on the U-verse TV project for more than three years.
In a Dec. 28 letter to the FCC, AT&T said it intended to reach at least 1.5 million homes in BellSouth’s regions by the end of 2007 with either U-verse or Homezone, a service that includes direct-broadcast satellite TV service from EchoStar Communications’ Dish Network. In its non-BellSouth areas, AT&T has said it plans to be able to offer U-verse TV to 19 million homes by the end of 2008.
“AT&T is committed to providing, and has expended, substantial resources to provide a broad array of advanced video programming services” in its own territory and will bring such services to BellSouth, the company’s letter said.
CAN IT SCALE?
But if anything, the $86 billion acquisition puts a bigger question mark on whether AT&T’s strategy of offering video services over copper wire, via digital subscriber line broadband connections, can effectively ramp up to millions of subscribers.
Wall Street remains concerned about the challenges the telco has in deploying U-verse IPTV service.
In 2006, AT&T missed its internal target of deploying U-verse TV in 15 markets, hitting 11 metro areas. The company attributed part of the slower-than-expected rollout to the need to “make enhancements” in the Microsoft IPTV software that provides U-verse’s interactive program guide, digital video recorder, high-definition video support and other features.
BellSouth’s copper-network infrastructure is comparatively younger than the copper in AT&T’s existing footprint, which means the BellSouth network is more likely to be able to support the high-speed digital subscriber lines needed for U-verse TV, according to Albert Lin, communications analyst at American Technology Research.
But trying to stuff IPTV down “old-fashioned” copper lines — as opposed to fiber-to-the-home connections, as with Verizon Communications’ FiOS TV — will ultimately leave AT&T with an inconsistent marketing message, he said. That’s because DSL performance degrades for homes that are too far away from the switching equipment in a telco’s central office.
“A certain percent of people [in a market] won’t be able to get U-verse TV,” Lin said. “Either AT&T’s level of service will be lower for some customers, or they will have to make inefficient marketing efforts” to target only those households best-positioned for service.
And as high-definition TV sets become more prevalent, AT&T’s limited DSL bandwidth will become a more acute shortcoming, he said. “If the world continues to go down the HD path, the technology choices for AT&T will put them as a second-tier supplier of video,” Lin said.
In any case, AT&T’s plans will be an improvement over BellSouth’s wait-and-see stance vis-à-vis video services, which Lin said was conservative even for the telecom industry. “Having more aggressive management like AT&T take charge of tactics when it comes to video is certainly better than BellSouth going their own way,” he said.
SATELLITE CHATTER
Meanwhile, AT&T could acquire one of the direct-broadcast satellite companies in order to remain competitive with cable. AT&T’s Project Lightspeed network, geared largely around fiber to the node and DSL to the home, provides about 25 Megabits per second under optimal conditions — bandwidth insufficient to keep pace with cable MSOs, in the view of some.
“We believe a DBS acquisition could help [AT&T] improve its competitive positioning by supporting the rollout of a triple- or quad-play as cable operators more aggressively deploy bundled offers,” UBS analysts Hodulik and Aryeh B. Bourkoff wrote to investors last month.
UBS’s research estimates that cable triple-play offers will reach 81% of homes by the end of 2007, compared to 15% for the telco industry.
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