AT&T CTO Banks On Better HD Compression

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New York—AT&T chief technology officer John Donovan stayed the course on the telco’s video-over-copper strategy, telling attendees at an investment conference here that more efficient MPEG-4 compression will allow it to boost the number of high-definition channels it can pipe into customers’ homes.

Donovan, speaking at the Goldman Sachs Communacopia Conference Thursday, said improvements in video-encoding equipment will allow AT&T to deliver three live HD streams in 2009.

The telco’s U-verse TV service currently delivers MPEG-4 video in the range of 6 to 8 Megabits per second. In the first quarter of next year, Donovan said, AT&T expects to squeeze that down to 5 Mbps and added: “In the labs we’re looking at technologies that take the compression further.”

Last week AT&T launched Total Home DVR, initially in San Francisco, which lets U-verse TV deliver five simultaneous HD streams: two live and three from the DVR.

Next year, with the compression enhancements, Donovan expects that to move to seven total: three live and four recorded. Cable operators use the less-efficient MPEG-2 standard to deliver video.

AT&T’s decision to launch Internet protocol TV—which predated Donovan’s arrival in April—was “aggressive, he said, and it was based on a series of underlying technology bets. For example, when the IPTV strategy was announced in 2004, there weren’t MPEG-4 hardware encoders on the market and the VDSL (very high bitrate DSL) standard wasn’t complete yet.

Donovan defended the video-over-DSL strategy, which AT&T executives have contrasted with the more expensive path picked by Verizon Communications’ fiber-to-the-premises FiOS buildout. AT&T delivers U-verse TV over 25-Mbps VDSL connections.

“If you’re late [to market] and wrong, customers punish you,” he said. “If you’re early, you’re punished in a different way” by not attaining a return on investment.

Later, commenting about expanding the number of viewable HD streams, Donovan said, “To try to win an arms race about something customers don’t care about—I’m sure it’s not economical to do that… We feel pretty good about the flexibility we have with the IP network.”

He added that AT&T “feels comfortable” with its guidance on capital spending and said it’s focused in three areas: wireless, video and IP. “The explosive growth in mobility and video really drives us toward more IP techniques, not only for efficiencies but for integration,” he said.

Speaking about the dramatic growth of Internet traffic, Donovan noted that video now exceeds 40% of AT&T’s total IP backbone traffic whereas three years ago it was negligible.

“If you download one HD video movie, it’s the equivalent of 35,000 rich-content web pages, or 2,000 songs,” Donovan said. “So it’s very, very dramatic.”

AT&T operates a 30-Gigabit-per-second IP backbone today, which handles 15 petabytes of traffic daily, Donovan said. He added that AT&T has tested out 100-Gbps networking equipment in trials in 2006.

The growth in broadband data is driving the telco’s content-distribution network services, which replicate Internet content. AT&T will invest $70 million this year tripling CDN storage and server capacity, according to Donovan.

The CDN is “the foundation of trying to keep busy-hour video off our network,” he said. “Now we’ve got to get out there and get the customer-facing side done.”

Donovan oversees the telco’s global technology strategy and development road maps, including network and engineering operations, AT&T Labs and the security and intellectual property organizations. Previously he was executive vice president of product, sales, marketing and operations at VeriSign, a provider of Internet infrastructure services.

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