AT&T’s Alternative (to) U-Verse

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Listen closely to the drumbeat as AT&T Inc.’s Project Lightspeed and U-verse TV service march toward rollout and you will pick up another rhythm steadily building in the background.

That rhythm is coming from Homezone, AT&T’s alternate strategy to deliver interactive and on-demand TV services. A technological marriage of Internet video and content to linear satellite-TV programming, Homezone gives AT&T a much wider reach than what it plans for U-verse. The telco plans to extend the Lightspeed network to 18 million of its 36 million customer territory, leaving half of its potential subscribers outside of the U-verse.

Enter Homezone, which can extend to 80% of potential subscribers.

NO BOOBY PRIZE

AT&T is not positioning Homezone as a consolation prize, but rather as an interactive offering in its own right, with features such as digital video recording, on-demand video downloads, personal photo storage and the ability to program the recorder remotely.

AT&T started testing the service in December with about 100 users.

That trial was expanded last week to 230 users. These include employees of AT&T and technology partners 2Wire Inc., Movielink LLC, Yahoo Inc. and EchoStar Communications Corp. spread throughout the former SBC Communications Inc.’s 13-state territory.

The Homezone hardware supplied by 2Wire consists of a HomePortal digital-subscriber-line modem and a Homezone receiver, a satellite box 2Wire developed with EchoStar. The two are linked by either Wi-Fi or wired Ethernet connections.

The Homezone receiver comes in high-definition and standard-definition versions. Each comes with a digital video recorder with a hard drive ranging from 250 Gigabytes to 320 GB, depending on the model the customer selects, according to Arthur Cinader, 2Wire’s director of product management.

With that, customers can watch standard linear satellite TV through EchoStar’s Dish Network direct-broadcast satellite service and have access to a raft of content and services supplied by the DSL line. Content includes more than 1,000 on-demand video titles provided by Movielink.

AT&T also struck a deal with Internet video provider Akimbo Systems Inc. to tap its 10,000-title library of video and independent films that will be added to the service later this year.

Through Yahoo, AT&T’s resident digital subscriber line Internet-service provider, Homezone users will be able to tap movie listings, personal photos stored on Yahoo servers and access to LaunchCast Radio via the set-top box.

They also can listen to music files and view personal photos stored on their home computer systems, and they can program that DVR from any Internet-connected computer outside the home.

AT&T also is looking at the possibility of adding a feature that would allow customers to watch their TV service remotely via a computer outside the home, along the lines of a Sling Media Inc.’s Slingbox. But it also is aware of concerns about protecting copyrighted content and how it moves from one device to another.

“It’s a pretty neat feature, and I think the response to the Slingbox device has been very positive,” Homezone managing director Ken Tysell said. “But I think it creates a lot of issues among the rights holders.”

But there are limits to just how computer-like HomeZone is. Although it does provide TV display of incoming caller ID and the ability to access and e-mail photos stored on the box hard drive, you won’t see e-mail messages presented on the TV screen. AT&T decided the TV set was not best suited as a de facto big-screen computer.

“That was a huge debate we had some number of months ago — is a television set sitting in your living room that you use with a 10- or 15-foot interface the right experience that most customers want to interact with e-mail?” Tysell said. “For this initial version of the HomeZone service we haven’t built in capabilities to enable people to access their e-mail.”

FOCUSED ON THE TRIAL

For now, AT&T is focusing on the expanded trial under way to test out all of the systems needed to field the service, including the installation, provisioning, billing and customer care.

It also is testing how the features work “to really run it through its paces with a larger user base, as people are going in and using the linear television service from Dish and the DVR and the program guide, to make sure it is as robust and working the way we want it to,” Tysell said.

If all goes as planned, AT&T will launch Homezone in late summer — roughly the same time frame as it plans to move U-verse to an expanded market launch.

“And then, even after Lightspeed is fully deployed and U-verse is fully deployed, there will be areas that are just not economic to offer fiber everywhere,” Tysell said. “Homezone gives us a great product to make available to residential customers in all of the other areas, too. So we are going to coordinate the offer strategy and the rollout strategy between the two.”

Aditya Kishore, Yankee Group’s director of media and entertainment strategies, said that might also help AT&T avoid accusations of red-lining — the practice of offering services only in more affluent areas while avoiding lower-income customers.

“I think that actually makes perfect sense and it is a pretty logical marketing strategy,” he said. “You do not want to go out and say, 'We can do this, just not in your neighborhood.’ ”

REASONS TO BE QUIET

But while Homezone does dovetail with the U-verse IPTV service, the Bell operator could face problems when people inevitably compare the two, according to Greg Ireland, IDC Corp.’s research manager for consumer video markets.

“The trouble, I think, is that AT&T has so much invested in Project Lightspeed, and the partnerships with the satellite guys have been viewed of as sort of this stop-gap, that AT&T is in a tough position,” he said. “How do they promote the cool stuff that’s going on with Homezone, but not do it in a way that suggests that they are not 100% focused on Lightspeed?”

That could be one reason AT&T has not played up the service to analysts and the press, he noted.

Another reason might be a concern that investors would see Homezone as a way to offer on-demand, interactive TV and high-speed data elements without the costly Lightspeed buildout.

“It would give them essentially the most advanced set-top platform in the business,” Ireland noted. “You are going to be the only ones out there able to offer this integration of traditional broadcast content and with Web based services, all within the living room.”

Tysell insists Homezone is not a stop-gap offering ahead of U-verse. And it isn’t clear yet whether Homezone customers will be encouraged to move over to the all-IPTV U-verse service if Lightspeed comes to their neighborhood.

“Obviously there is the subscriber acquisition cost for putting a Homezone service into their living room and activating it and getting them up and working, and if you upgrade them subsequently to U-verse there is an additional cost,” he pointed out. “We may still go down that path. I don’t think we’ve finalized anything yet but that’s certainly under discussion.”

While Homezone does extend AT&T’s TV service reach, U-verse does offer a stronger revenue potential for the telco.

“In U-verse we obviously have a lot more control over that whole experience and the economics associated with it, with revenues,” Tysell said. “So there are a lot of benefits to the U-verse model that aren’t there for Homezone.”

Kishore, agreed, adding that with Homezone, AT&T also doesn’t have control over the programming lineup or the video packages Dish chooses to offer.

“You are dealing with another company with its own set of objectives and its own plans, and a larger business vision,” Kishore said. “So it leaves neither of them fully integrated or fully satisfied. And there always is that danger of getting in a fight.”

ADDING CONTENT

For now, AT&T is looking to expand the content offered through Homezone, particularly in the on-demand content library. It also is looking to add mobile remote access to the box DVR, giving users the ability to set up a program recording with a Cingular Wireless handset.

It also may add some casual gaming applications to the Homezone box, although Tysell is quick to say AT&T is not looking to rival Microsoft Corp.’s Xbox or Sony’s PlayStation gaming consoles.

“I think we are actively working to find the right applications for the living room environment, which we acknowledge is different from a home office environment and the appliances that live in that environment,” Tysell said. “So I think we are just trying to find the right content for the right device, or the larger, three-screen strategy.”

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