AT&T chases tempting idea
Updated 10/18/2006 3:51 AM ET
By Leslie Cauley, USA TODAY
SAN ANTONIO The Andrews household used to spend $80 a month to buy satellite TV services from DirecTV, $40 for cable with Time Warner and $50 for high-speed Internet services with AT&T. The family also invested $300 in a TiVo DVR and program service, using it to record Desperate Housewives,Gilmore Girls and other shows.
"We're done," says Donna Andrews, a mother of three. Time Warner (TWX) and DirecTV (DTV) are out. Her TiVo (TIVO) sits in a closet.
Their replacement: "U-verse," the new TV service from AT&T (T). Her U-verse receiver has a built-in DVR, and high-speed Internet is part of her package. Monthly cost: $110.
STORY: Bumps show challenges that new system faces
Thanks to the AT&T system's underlying IPTV technology short for Internet Protocol TV Andrews also finds some features, including the DVR, simpler. "It's so much easier than what we had before," says Andrews, whose three-month promotional rate of $15 expires this month.
AT&T is betting billions of dollars that there are millions of other families who will like its TV service as much as Andrews does.
The telecommunications giant is building an advanced broadband network to offer a fat package of phone, wireless, Internet and video services, all under the vaunted AT&T brand name.
Desperation is the driver. Phone company customers are increasingly dumping traditional phone service in favor of VoIP, a cheaper Internet-based phone service now being hawked by cable operators. The number of traditional lines in service dropped by 7% last year, and the losses are escalating. By diving into video, phone companies Verizon also is rolling out video hope to blunt the financial pain.
Consumers stand to benefit from the coming street brawl. When the companies start competing on the full range of services, prices and features should improve substantially, says Adi Kishore, director of Forrester's media and entertainment practice. "This is definitely good for the consumer."
The big question for AT&T, he says, is how fast it can roll out U-verse. Time Warner estimates that U-verse has only about 500 customers. AT&T won't be specific, but claims the figure is "in the thousands," and the company says it still plans to expand the service to 15 to 20 markets by December and to offer it to 19 million households by 2008.
Kishore, for one, is skeptical, noting that AT&T has made several deployment announcements, only to roll them back.
"It's one thing to say you're going to deploy. It's another thing to actually do it," he says.
Jeff Henry, a local marketing manager for Time Warner, agrees. U-verse currently is being sold only in some parts of San Antonio, AT&T's headquarters. To meet the 20-market goal, he says, AT&T would have to start deploying immediately.
It will work but when?
Holding things up, says Rick Thompson, an analyst at Heavy Reading, is the ornery nature of the cutting-edge IPTV technology. He says nobody doubts that AT&T can make IPTV work, but it requires getting a circus of hardware and software all of it brand new to work together seamlessly.
The largest IPTV deployment in the world, he notes, is in Hong Kong, where PCCW, a local broadband carrier, claims 650,000 users about half the population of San Antonio.
Thompson's point: Nobody knows for sure how the technology will hold up under the strain of millions of simultaneous users.
IPTV offers AT&T major cost advantages over other network options because it can deliver video over the existing copper phone lines that run to homes and buildings. AT&T needs only to run upgraded fiber-optic lines to neighborhoods.
Nagging concerns about IPTV figured into Verizon's decision to go the costlier route of replacing all the copper and running high-capacity fiber all the way to the home, Thompson says. That allows Verizon to use a more traditional, more cable-like design to deliver video, making the system relatively easy to manage.
In part because it is using existing technology, Verizon is ahead of AT&T in rolling out its FiOS TV service, which it now offers in parts of 100 markets to about 100,000 homes.
Some of AT&T's vendors "may have underestimated the challenges and complexities" of IPTV, acknowledges Chris Rice, AT&T executive vice president for engineering and network planning, though he won't name names.
For example, AT&T has touted that its system would offer true "whole home" recording and viewing: A customer could record a show on the DVR and watch it on any TV set in the house. Many providers offer some form of multi-room viewing, but this would be more complete.
Microsoft, which is developing the operating system, originally promised it would deliver a whole-home feature in the first phase of U-verse. But sorting out the technical complexities turned out to be a lot harder than anybody expected, Rice says, and the feature now is expected to be added "sometime in 2007."
Racing to hit the rollout
AT&T's biggest focus now is a race to meet the end-of-year deployment schedule. Rice says final lab tests are being conducted seven days a week, 24 hours a day, in some cases.
The industrial-strength testing is necessary, he says, to ensure that IPTV equipment software and hardware meshes perfectly and is bug-free. Otherwise, Rice says, "It's like dominoes. If something doesn't land in exactly the right spot, it doesn't just affect that spot, it affects everything down the stream."
The final hurdle to the rollout, he says, is perfecting the capacity to deliver TV in high definition. Rice says Microsoft is sending AT&T code updates almost daily.
But Microsoft (MSFT) isn't the only bottleneck. Other vendors, working on other aspects of HDTV, also have to deliver, says Christine Heckart, a general manager at Microsoft.
"The whole thing is very chicken-and-eggish," she says. "We are developing 80% of the code, but it doesn't work unless it all works."
Rice says he expects final testing on HDTV by the end of the fourth quarter, allowing AT&T to proceed, as planned, with the national launch. At that point, he says, U-verse will be able to "support millions of customers."
Asked why U-verse took so long to launch almost two years, assuming AT&T meets its latest deployment schedule Rice pushes back. He argues that the development cycle actually has been pretty fast, considering AT&T was working with "brand-new technology to create a brand-new product" from the ground up.
"It's like creating the cable industry, from inception to launch, in 18 months," Rice says. "We hit a few bumps along the way, but overall, we are pretty pleased."
Value is the key feature
None of this means much to Donna Andrews. Like many consumers, she is far more interested in getting the best value for her money.
Compared with the $110 per month she now spends, she used to spend $120 just for cable and satellite TV, plus $50 for AT&T's Internet service. Like many families, the Andrewses got both satellite and cable because they like extra programming options, such as more sports channels.
But money was only one part of the value equation. She also likes all the bells and whistles that are part of U-verse, particularly the video recording feature. It requires just one click of the remote's "Record" button to set up and initiate recording a show, and just one more click to record an entire season of the show.
Another plus, she says, is the "search" function that lets her hunt for a movie or program by simply typing in an actor's name. "I just love that," she says.
She's less wowed by this system's "picture-in-a-picture" feature, which lets customers open a window to see what's playing on other channels without changing the channel they're watching. Microsoft and other vendors spent months developing PIP for U-verse, and they're still tinkering to add audio. "It's OK, I guess," she shrugs.
She also isn't so keen on the set-top box, made by Tatung. Her biggest gripe: the color.
"It's white," she says, wrinkling her nose with palpable disdain. "It's really ugly."
One thing she likes a lot: the iconic AT&T name.
Like many Americans, Andrews grew up with the brand, and she likes what it represents. She says she'd consider buying any product that had AT&T's name attached.
Why? "Because it's AT&T," she says, gently chiding a reporter for even asking. "It's a brand I like, and a name I trust."
But brand loyalty goes only so far. Andrews says she'd reconsider Time Warner "if it would save us a whole bunch of money."
As for her TiVo DVR, she's holding on to that, just in case.
Willing to wait for now
Jerry Talmadge, also of San Antonio, was another U-verse convert.
A medical consultant who works from home, Talmadge says he'd heard about U-verse but didn't pay much attention until an AT&T salesman showed up at his door.
Talmadge says he was impressed by the salesman's manner and product knowledge. "I could sense his integrity," Talmadge says.
He signed up and says it shaved his video and broadband bill by about $24 a month, to $120. For that, he's also getting a fast, reliable Internet connection. Talmadge says his old cable Internet service was starting to slow at "peak" usage hours, and that influenced his move.
When a reporter calls back a few weeks later to see how things are going, there's bad news: An AT&T technician is there trying to fix a TV that keeps overheating. Talmadge says the picture also occasionally "freezes up" for no apparent reason.
He isn't worried. New, slim, silver tuners from Motorola are to be installed by December.
"They told me that right off the bat," he says. Talmadge guesses that will take care of the overheating and the frame-freeze problems.
The good news for AT&T: Thanks to features, price and faith in the brand, he's willing to be patient while the kinks in U-verse are worked out.
Says Talmadge: "I do feel they are going to get this right at some point. And when they do, I think it will be a superior product."
HOW IPTV IS DIFFERENT
Traditional cable TV service
In a typical cable TV system, the subscriber receives all the available channels -- analog and digital -- all the time and uses the TV tuner or cable TV tuner box to select which one to display. The number of channels that can be offered is limited by how many can be stuffed into the cable, or "pipe," into the home. Such a system requires a very large "pipe," generally coaxial or fiber-optic cable.
Short for Internet Protocol TV, IPTV is a system that transmits TV content in the form of digital Internet Protocol data packets. It is a "switched" system that delivers just the channels viewers want to watch when they want to watch them. The data traffic to the home is controlled by complex IPTV software. Because it delivers only what is wanted at the time, an IPTV system can offer unlimited choices with no worries about clogging the pipe.
In the case of AT&T's planned system, the efficiencies allow the relatively limited existing copper phone wire into the house to be used to deliver TV.
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