AT&T's U-Verse Planned for 15 Cities

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AT&T plans to expand the U-verse TV service to 15 markets by the end of 2006 — but identified only one of them, Houston, outside of its original San Antonio base. Some analysts are skeptical the phone company can hit that many markets before the year is out.

The rollout is at the bottom end of AT&T's previously stated plans to deploy the Internet Protocol-based TV service to 15 to 20 markets by the end of the year. AT&T said the move will increase U-verse's number of homes passed to 2.4 million, compared with 1.3 million at the end of the third quarter.

“By design, we're ramping the project in a measured way,” AT&T CFO Rick Lindner told analysts on a conference call last week.

But Chris King, an analyst for telecom equity-research firm Stifel, Nicolaus & Co., said U-verse has slipped behind schedule as AT&T tries to iron out some kinks, particularly with high-definition channels.

“There are questions about their ability to scale the technology across their footprint,” he said. “Nobody's done IPTV over any scale like this.” He added: “Can they really do it? There are only two months left in the year.”

AT&T first launched U-verse TV in San Antonio in June 2006, and the company announced last week that it has signed up 3,000 subscribers for the IPTV service. That amounts to 10% of the 30,000 homes it marketed the service to.

AT&T plans to next offer TV service in Houston, starting in late November. Lindner, on the call last week, said HDTV will be available in all 15 markets the carrier is targeting.

HD READY TO ROLL?

In response to an analyst's question about issues involved in delivering HD channels, Lindner said: “The field trial with HDTV is going well in Houston. We have done some upgrades to our network here in San Antonio, so we'll roll HDTV here at the same time. I believe the set-top boxes are on target, so I would expect by the end of November to be rolling on a commercial basis with HD in both San Antonio and Houston, and then we're lined up to begin rolling markets on a weekly basis after that.”

Lindner added: “Frankly, we didn't want to put too many customers on the platform before we had the HD capability. That was not so much an issue in terms of marketing and adding customers at this time, as it was the fact that we'll need to go back in for our existing customers; we'll have to replace the set-top boxes.”

AT&T would say only that the U-verse expansion will be in the 13 states in which it has traditionally offered wireline phone service. Analysts said they expected the cities might include Dallas and Oklahoma City. The states in which AT&T provides local phone service are Arkansas, California, Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nevada, Ohio, Oklahoma, Texas and Wisconsin.

3K U-VERSE SUBS

The company's 3,000 U-verse TV subscribers, a number it disclosed for the first time, is a drop in the bucket compared with those it has landed through a partnership with EchoStar Communications to resell Dish Network satellite-TV service. So far AT&T has signed up 583,000 video customers for Dish, increasing by 50,000 during the third quarter.

Nevertheless, AT&T executives claimed to be encouraged with U-verse's progress. “The service is working well, customer response has been positive and our marketing approach is producing good results with deployment on track,” Lindner said on the conference call.

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