Laying a new path to your TV

AT&T is preparing to deliver its TV service en masse in 2007, and cable operators such as Comcast are already gearing up for what will likely be a long battle to win control of the living room.

For more than a year, AT&T has been promising a new TV service built on Internet Protocol technology that would compete directly with offerings from cable and satellite companies. Even though the company's marketing campaign is in full swing, with TV advertisements already airing nationwide, the biggest phone company in the United States has been slow to actually offer new services to consumers.

But that could be changing. Last week, the company began its push in earnest, announcing service in two markets in the San Francisco Bay Area. And this week, it announced that it would be offering the U-verse IPTV service in four cities in Indiana. In total, AT&T is now serving 11 markets in limited deployments, a few markets shy of its earlier predictions of 15 to 20 markets by the end of 2007.

Meanwhile, cable companies have already begun responding to the threat. Comcast, the nation's largest cable operator, said on Wednesday that it will pour $80 million into improving its network infrastructure in the Bay Area.

"AT&T is serious about rolling out its TV service," said Joe Laszlo, an analyst at JupiterResearch. "But it won't happen overnight. Still, in markets that are fortunate enough to get the service, the cable companies will respond. It's going to be a long war that should ultimately benefit consumers."

For the past couple of years, AT&T and Verizon Communications have spent billions of dollars upgrading their networks with fiber-optic cabling so they can offer more services to better compete with cable operators.

For the phone companies, offering TV service is critical, since many cable companies have already begun offering discounted pricing for a triple play of services that includes high-speed Internet access, TV service and telephony. So far, the strategy has worked well, as cable companies have been reporting record subscriber growth.

Both AT&T and Verizon have hopes of winning back customers with new TV services added to their bundles, but the companies have approached the challenge in different ways. Verizon has taken an aggressive network upgrade approach, laying new fiber directly to customers' homes. But the company is using less risky, traditional cable TV infrastructure to actually deliver its television service.

While the network build-out is taking a lot of time and money to complete, the company has been able to rack up a significant number of customers over the past two years. For example, the Fios TV service is available to more than 1 million customers today. And the company plans to have more than 175,000 subscribers signed up for the service by the end of the year, according to statements Verizon executives recently made to the Federal Communications Commission.

What AT&T is up to
AT&T has been upgrading its network with fiber, but it is not deploying fiber directly to homes. Instead, it is using its existing copper infrastructure to deliver superfast DSL service that will carry video signals over an Internet Protocol infrastructure. Microsoft is providing much of the foundation for the service.

Because AT&T is using completely new video technology based on IP, it has faced more early technical glitches than Verizon has experienced, analysts say. This could explain why it's taken AT&T longer to add new cities to its deployment list and why it's offering the service only to small numbers of customers in each market.

The real test will be to see if AT&T can truly deliver on its promise to make the service widely available to consumers.

"Announcing service in a market, and actually rolling it out and ramping it up, are two different things," said Jim Penhune, an analyst at Strategy Analytics. "If they can make it all work on a larger scale, U-verse could make a big impact in the market."

In June, AT&T announced San Antonio, Texas, as its first commercially available U-verse market. It took five more months before it announced the second market, Houston. Now, at the end of 2006, the service will be available in limited areas around San Francisco, including East Bay cities San Ramon and Danville, and South Bay cities Cupertino and Saratoga. The telecommunications giant also plans to offer U-verse service in parts of San Jose.

In Connecticut, AT&T offers service in Hartford, New Haven and Stamford. And as of Thursday, it is offering service in parts of four cities in Indiana: Anderson, Indianapolis, Bloomington and Muncie.

In total, the company is spending $4.6 billion through 2008 to make the U-verse service available to about 19 million homes.

"The initial response in San Antonio, our first market, has been strong," Brad Mays, a spokesman for the company, said in an e-mail. "As of third-quarter 2006, customer totals were at approximately 3,000, or 10 percent of homes marketed to."

Currently, AT&T is offering only two services in its bundle: high-speed Internet and television. Pricing of the U-verse package starts at $44 per month and goes as high as $129 per month, depending on the selected programming and the speed of the Internet package. A company spokeswoman said AT&T plans to add voice over Internet Protocol, or VoIP, to its service package at a later date.

When compared to what's available from cable companies, AT&T's offering is priced a little high. For example, Comcast currently lists an introductory offering of all three services for $99 a month.

In addition to competing with the phone companies on price, cable operators are also responding to the companies' TV threat by upgrading their own networks. Comcast announced on Wednesday that it will invest an additional $80 million dollars to improve its existing network infrastructure in eight Bay Area communities.

Specifically, the company is targeting more than a quarter-million homes in Los Gatos, Milpitas, Saratoga, Santa Rosa, Hayward, San Leandro, Sunnyvale and Half Moon Bay with new 1GHz technology. Over the next 18 months, Comcast plans to lay more than 2,200 miles of fiber-optic cable, which will provide customers with access to more TV channels, video-on-demand, and Comcast Digital Voice services.

"When Comcast arrived in the Bay Area, we promised to create a company that Bay Area residents could look to first for the communications products and services that connect them to what's important in their lives," Rick Germano, regional senior vice president for Comcast, said in a statement. "This investment in turbocharging the network which serves these cities is further proof of our steadfastness in honoring our pledge."