How AT&T Plans to Conquer the U-Verse

Sharon Bywater, a real estate agent in Carlsbad, Calif., marveled at AT&T’s recent installation of U-verse TV video service.

Two AT&T employees (not contractors), wearing paper “booties” to protect her floor and carpet, spent five hours setting up the system. Then, later that day, another AT&T employee came by to show her and her husband how to use the service.

The 30-minute lesson included tips about the digital video recorder and other features, including how to program the DVR directly from My Yahoo Online, the portal bundled into their video-and-Internet package.

Within the next two weeks, AT&T U-verse service representatives were readily available by phone for follow-up questions about integrating the DVR service and the online programming features.

Bywater, who was among U-verse’s first customers in north San Diego County, Calif., signed up for AT&T’s video service to accompany her family’s new HDTV monitor. Not everything was perfect, but her enthusiasm about the installation process and her comments about U-verse’s impressive video quality mirror comments from many of the 40,000 customers who have signed up for AT&T’s multichannel-video service.

Quality service is key, because word of mouth matters to a company like AT&T, which is coming late into a service category dominated by cable, with 66 million plus video customers, and direct-broadcast satellite, with about 30 million.

AT&T’s U-verse assault in the Time Warner Cable service territory surrounding San Diego, like its efforts in about two dozen other widely scattered communities so far (from Fairfield, Conn., to the San Francisco Bay area), have put the emphasis on customer service and bundled pricing.

In some markets, a variety of quirky guerrilla campaigns — notably the promotion in southwestern Connecticut featuring an energetic pitchman with a receding hairline known as “Bobby Choice” — have swung hard at incumbent cable TV subscribers.

Meanwhile, a fleet of “ice cream” trucks, laden with HDTV monitors and U-verse promotional offers, is jingling through neighborhoods, seeking to attract customers to AT&T’s video alternatives. And the company is offering up to a $50 bounty for every neighbor its U-verse customers recruit.

“Sixty percent of U-verse eligible customers who tried the service actually bought it,” an AT&T spokesperson claimed of initial promotional efforts.

Although AT&T stumbled in launching U-verse last year, with delays blamed on a Microsoft software glitch, the company expects a quick rollout of its video service during the next 18 months.

Now, U-verse plans are to pass 8 million homes by the end of this year, and pass 18 million households in the AT&T landline footprint by the end of 2008, company CEO Randall Stephenson said at a telephone-industry conference last month.

“We’re moving as fast as … legislators can remove those out-of-date franchise” requirements, Stephenson said.

The homes-passed target is expected to climb as the former BellSouth territories are integrated into the AT&T plan. New forecasts for the U-verse footprint could emerge this week in AT&T’s second-quarter earnings report (due on July 24).

U-verse marketing campaigns are popping up in selected areas just as AT&T accelerates its massive rebranding campaign. The “New AT&T” campaign is seeking to establish its migration from the “old” SBC Communications, Cingular Wireless and BellSouth. Significantly, none of the current U-verse promotions in target communities is tied to the simultaneous hoopla about Apple Inc.’s iPhone, for which AT&T wireless is the exclusive carrier.

“IPhone fits in with our three-screen strategy,” said Destiny Belknap, an AT&T spokesperson, although she emphasized that “nothing special” is now planned for cross-promotions of iPhone with U-verse.

In fact, U-verse’s tie-in with existing voice services or future Voice over IP products is invisible at this stage, although AT&T’s primary targets are its existing telephony customers.

Although Belknap declined to reveal AT&T’s budget for the U-verse campaigns, which are being done strictly on a local basis, she acknowledged that the focus will be on AT&T’s “evolving from a phone company to an entertainment brand.”

“We’re trying to help customers make that connection,” Belknap said. “Since [U-verse] is a new service, it’s really different from any campaign we’ve done. We want customers to know that this is something different for AT&T.”

As it seeks to lure cable and satellite subscribers to its video package, AT&T is emphasizing the program bundles it offers, including up to 320 channels. Four video tiers are available, ranging from $59 to $119 per month. About 80% of customers have bought the U300 (240 channels plus AT&T Yahoo High Speed Internet Express) or U400 (more than 300 channels plus Internet access) tiers at $94 and $119 per month respectively, according to people at AT&T familiar with the information.

All but the lowest-priced package come with three high definition-ready receivers, which are fed via one DVR. Currently, AT&T is using the Motorola VIP 1216 as the set-top box for all installations. The built-in DVRs can hold up to 120 hours of standard definition video or 24 hours of high-definition video. The tuner-less software also enables picture-in-picture displays, even if the customers’ TV sets do not have that feature.

Marketing tactics vary, although — in keeping with the entertainment branding goal — many of the retail promotions, especially those using the revamped ice cream trucks, involve handing out U-verse branded ice cream, popcorn and other treats.

“The trucks let people know that U-verse is here, and it directs them to local demonstrations,” Belknap explained.

In some locations, AT&T has installed “living room” set-ups in AT&T retail stores and high-traffic areas, such as supermarkets. AT&T has also deployed U-verse mobile trailers to local events, and is using direct mail and a door-to-door sales force in target communities where U-verse is available.

“We’ve focused on getting the remote in customers’ hands and letting them try the service,” Belknap said.

AT&T also emphasizes that it offers more HDTV than cable, she noted, adding that it is a “strong selling point.”

Most U-verse systems offer up to 26 HD channels, depending on the number of local broadcast HD stations carried.

Web and mobile access to DVR controls have also been popular with customers, along with the ability to record up to four channels simultaneously.

Among AT&T’s most dramatic efforts is the “Bobby Choice” campaign in Norwalk, Conn. AT&T characterized that effort as “another example of the highly-localized, nontraditional tactics we’re using.”

The company claims that it does not plan to bring Bobby Choice elsewhere. The hyperkinetic character “bought” local advertisements and set up a Web site, handed out T-shirts and posted billboards to encourage “neighbors” to seek more cable choice.

The Bobby Choice campaign, in the backyard of Cablevision Systems’ Connecticut operations, is similar to a guerrilla tactic that Verizon used for its video rollout across Long Island Sound. At the NxtComm telephone-industry trade show in June, Verizon CEO Ivan Seidenberg showed a video of his company’s 500,000th FiOS video customer, the Bayer family, of Massapequa, N.Y., about five miles from Cablevision’s headquarters.

AT&T insists, though, that it is not planning to monitor or copy the tactics of the larger FiOS service as it introduces its telco TV operations.

While U-verse is AT&T’s most technically advanced service, the company continues to offer a variety of video bundles — potentially a confusing array for would-be customers, depending on where they live.

Although AT&T deems its lineup as a “robust video portfolio,” the packages involve co-branded satellite and online components. By far, most of AT&T’s current 1.7 million video customers receive service from EchoStar Communications’ Dish Network.

AT&T’s oft-repeated mantra points out that 187,000 video customers signed up for AT&T video services during the first quarter of this year, far exceeding the new subscribers of the four largest reporting multiple-systems operators for the full year of 2006.

Overwhelmingly, that bevy of new customers bought the Dish Network satellite service, which AT&T resells. As part of the legacy relationship with SBC (currently under review), AT&T also offers Yahoo Internet as its broadband content portal –— potentially another confusing component as Yahoo adds on-demand video to its online line-up.

And although Apple TV — and Internet Protocol TV service — has no connection to AT&T at this time, the Apple iPhone relationship with AT&T could open the doors for future consumer confusion, or at least misguided expectations.

“We haven’t yet seen all the partnerships that telcos can do,” said Steve Hawley, principal at Advanced Media Strategies, an Issaquah, Wash., telecommunications-analysis firm.

“The cynic in me says AT&T is doing all of this to hedge its bets in case U-verse fails,” Hawley added. “In reality, it’s because AT&T wants to do what telecom operators have always done: provide a like range of services to all subscribers; and if one access network can’t do it, they use another.”

For now, AT&T is pushing ahead with its U-verse efforts, trying to leverage AT&T’s historic service legacy.

In his recent remarks, CEO Stephenson acknowledged that a typical installation now takes about five hours. He said that AT&T currently installs about 600 U-verse homes per week, and that number will grow to 10,000 installations weekly by year-end.

U-verse installation appointments are “shorter than the industry standard,” said Belknap, declining to specify time frames. She said this precision timing process can scale up as AT&T moves toward hundreds of thousands of installations.

Customers have expressed confusion about some of the U-verse features. Some customers think that the three buttons (each a different color) in the middle of the U-verse remote control are for electronic shopping services. Actually, they are soft keys for future interactive options, “allowing the remote to adapt as we continue evolving the service and adding new features,” according to AT&T.

Not surprisingly, a “user group” has already taken shape to comment on U-verse progress.

UverseUsers.com, the threaded blog where U-verse customers can share experiences and offer praise and criticism about the service (www.uverseusers.com), is run by a former AT&T employee in San Antonio. Its recent postings have ranged from reports about a new generation of small neighborhood node boxes to warnings about “packet inspection and monitoring.”

AT&T monitors that site closely, said Belknap, who added that the company is looking for other forums and sources of feedback.

Meanwhile, AT&T is implementing marketing tactics to lure customers away from cable and satellite video.

For example, its “Rewards for Referrals” program is intended to exploit the word-of-mouth campaigns. AT&T pays customers $25 per service (U-verse video and “U-verse enabled” Yahoo High-Speed Internet) for each customer they encourage to sign up — a potential of $50 per referral.

“AT&T is facing an extremely competitive market, and our localized approach allows us to remain nimble and respond to each market’s unique landscape,” the AT&T spokesperson explained.

Even enthusiastic early adopters, such as the California real estate agent, have faced small stumbling blocks as AT&T’s customer service personnel learn how to cope with video services.

Bywater could not find HBO and Cinemax listings in the on-screen menu, and as the U-verse customer support staff directed them to the HD tier, somehow a week’s worth of DVR programs — 23 shows — were expunged.

For Bywater, it was frustrating, but not debilitating. She still likes U-verse’s ability to record four shows simultaneously, which will quickly rebuild her video inventory.

Now AT&T faces the challenge of convincing more people like her that this new “entertainment brand” is the right choice to make for their video programming.