U-Verse TV: More Than Half-Million Served

AT&T Continues To Make Video Strides As Broadband Slows

By Todd Spangler -- Multichannel News, 7/26/2008 5:16:00 AM

AT&T kept its U-verse TV train chugging along, reaching 549,000 customers for the cable-competitive IPTV service at the end of the second quarter, although the telco continued to post significant losses in its traditional access-line business and saw weak growth in broadband.

For the quarter ended June 30, AT&T had a net gain of 170,000 U-verse TV subscribers. The company said its U-verse network deployment is on schedule — with service currently available to 11 million households in 53 markets — and reiterated expectations of tallying more than 1 million IPTV subscribers by the end of 2008.

AT&T chief financial officer Rick Lindner, in a call last Wednesday with analysts, said U-verse TV has achieved more than 10% penetration in established markets.

“U-verse is also demonstrating it has pull-through in voice,” Lindner said, pointing to improvement in access-line retention in areas where U-verse has been available for 12 months.

Still, AT&T lost 5.2 million switched access lines in the past year, down 8.1% from the year-ago period, ending the second quarter with 58.9 million (including consumer, business and wholesale lines).

Meanwhile, AT&T added just 46,000 broadband subscribers in the second quarter, to sit at 14.7 million as of the end of June, after adding 491,000 in the first three months of 2008.

Sanford Bernstein senior analyst Craig Moffett called AT&T's wireline results “weak” in a research note, although he noted margins in the unit were better than expected. He continues to rate the telco's stock “outperform.”

AT&T's poor broadband growth potentially foreshadows slow broadband results for cable as well, Moffett said, but he added, “When the ink is dry on the quarter, it is very likely that the cable industry will have achieved its [highest] share of broadband net additions ever. As we have long argued, cable is surely and not-so-slowly winning the broadband wars.”

Lindner, asked on the call about competition from cable for business customers, said that while MSOs now have rolled out voice service in just about all of the telco's markets, “up to this point, to us [the effect] looks pretty small.”

In AT&T's markets, Lindner estimated, cable operators have 2% to 2.5% voice share and broadband share of around 20% of the business segment.

Over all, for the quarter ended June 30, AT&T's consolidated revenues were $30.9 billion, compared with $29.5 billion a year ago. Net income was $3.8 billion, up 34% from $2.9 billion in the year-earlier quarter.

Financial results were buoyed by 15.8% growth in wireless revenues, to $12.0 billion, adding 1.3 million subscribers in the period. Moffett noted AT&T experienced good growth even before the introduction earlier this month of Apple's new lower-priced iPhone 3G.

While U-verse TV continued to pick up momentum, AT&T's deal to resell Dish Network didn't bear much fruit during the quarter.

The telco had 2.235 million direct-broadcast satellite TV subscribers at the end of June — adding a net of just 3,000 DBS customers for the three-month period.

AT&T has said it will terminate the reseller deal with Dish at the end of this year, under the terms of that contract, and has indicated it will keep its options open about which DBS operator it will partner with in the future.

The mere 3,000 net additions on satellite video was “a truly awful result, and troubling news for Dish investors inasmuch as AT&T's support was likely to be a key element of keeping subscriber additions for Dish in positive territory,” Moffett wrote. “Moreover, their lack of success with Dish Network raises concerns about AT&T's appetite for renewing that contract for 2009.”