AT&T gets bundled up for TV-service battle
Cable, satellite responding to phone company's new offering
By Kathryn Balint
UNION-TRIBUNE STAFF WRITER
June 4, 2007
Traditional telephone giant AT&T enters a new arena today when it extends its pay TV service to San Diego County and takes on the local cable and satellite companies.
NADIA BOROWSKI SCOTT / Union-Tribune
AT&T's U-verse operates much like cable TV service and can cost less, depending on the options.
The company's U-verse service, which it touts as cheaper than comparable cable or satellite TV, is part of the company's $6.5 billion effort to create a hybrid network of fast fiber-optic cable and conventional copper wires to deliver TV programming to homes.
Currently, 400,000 U.S. households buy TV service from phone companies. But if U-verse is a success, AT&T plans to offer it in most of the places it has telephone service. U-verse was launched in San Antonio last year. San Diego will be its 21st market.
AT&T plans to offer U-verse service to 18 million homes in California and 12 other states by the end of next year.
The telecommunications industry is going through another major transformation, said Jeff Kagan, an Atlanta-based telecom analyst. This new wave of competition is going to put the old phone company and the local cable company in head-to-head competition.
With the addition of U-verse, AT&T now offers what the industry calls a quadruple play - a discounted bundle of TV, Internet, cell phone and wired phone services.
Cox Communications, San Diego County's largest cable TV provider, began selling a quadruple-play bundle almost four months ago when it offered Pivot cell phone service through Sprint. Time Warner Cable plans to offer the Pivot service in the county in the fall.
Yesterday, we did business with both (phone and TV) companies, Kagan said. Tomorrow, we're going to choose to say goodbye to one or the other. Most customers are going to choose a bundle. They'll buy telephone, television, Internet and wireless service all from one company.
AT&T declined to identify specific neighborhoods in San Diego County where it will introduce U-verse.
Company representatives were marketing the service this past weekend in the high-income areas of Eastlake in Chula Vista, northern Scripps Ranch, Rancho Bernardo and Point Loma. The company demonstrated the service at a home in Hillcrest on Friday. A notice required by the state also lists Carlsbad, Encinitas and the unincorporated areas of the county among the launch communities.
The service will be available only in select areas of launch communities. More information can be found at a section of AT&T's Web site - uverse.att.com/sandiego
- by plugging in a specific address.
AT&T and Verizon are the first major phone companies in the United States to use what's known as Internet protocol TV technology. While cable TV sends hundreds of channels to every subscriber on the network, Internet TV technology transmits only the channel each customer has selected to watch. This allows AT&T to use its copper wires - originally for phone calls - to transmit video the last mile to customers' homes.
The digital technology holds the promise of one day allowing viewers to interact with programming, by watching a ball game from different angles or maybe clicking on an item and buying it.
AT&T, Verizon and other phone companies have jumped into pay TV not only to compete directly in the TV market but also to help stem defections by phone and Internet customers.
Since the telephone industry was deregulated in 1996, the cable industry has been stealing phone customers from old-line telephone companies. Cox Communications, for instance, built its traditional telephone network in its service areas in San Diego County. Time Warner offers voice-over-Internet protocol to customers.
AT&T has signed up 30,000 U-verse subscribers overall, said Mike Paxton, a cable analyst for In-Stat in Scottsdale, Ariz.
U-verse operates much like cable TV service and at this point can cost less, depending on the options and bundled services a customer buys.
It doesn't offer anything substantially different or new from digital cable or digital satellite, Paxton said. That said, they are offering some very competitive prices.
For example, AT&T's U-family package offers 81 channels of digital television with two set-top boxes and one digital video recorder for $44 a month. That compares with Cox Communications' digital gateway service with 70 channels, two set-top boxes and one digital video recorder priced at $77 a month.
But for customers who opt for a bundle of services, there is less of a price difference among AT&T and the cable companies. Comparisons between cable and AT&T's U-verse service are difficult because each offers features the other doesn't:
The U-verse service is limited to four television channels streaming into a home at one time. That means a household that is watching four TV shows at once on separate TVs cannot record a different program or tune into a different show on a fifth television. Cable service does not limit the number of channels streaming into a household.
The U-verse service allows only one high-definition channel to be watched or recorded at a time. Cable service does not limit the number of high-definition channels that can be viewed or recorded at once.
Time Warner and Cox also show Padres games, which have been a popular draw for their cable TV services.
U-verse offers special features, including faster channel changing than digital cable TV and the ability to record up to four programs at once. In addition, Internet customers can program their digital video recorders from the Web.
Kagan, the analyst, predicted that competition from AT&T is going to drive down prices for pay TV. Cable prices have dropped in markets where AT&T has rolled out its service, he said.
In the past decade, cable companies nationwide have boosted prices 93 percent, according to a December report by the Federal Communications Commission. Prices are 17 percent lower, on average, in markets with cable competition, the report said.
The National Cable & Telecommunications Association disputes the FCC report, saying it is out of date and does not reflect the current state of competition.
The association says bundled video, Internet and phone services with cable companies cost 23 percent less than they did 10 years ago. It also says competitors are raising prices faster than cable providers.
Paxton, of In-Stat market research firm, said AT&T's lower prices are not necessarily enough of an incentive for customers to change TV providers.
In San Antonio, cable provider Time Warner has seen no net loss in subscribers, said Marc Farrar, Time Warner's vice president of public affairs in San Diego.
Since the launch of AT&T's cable service, Time Warner continues to see more and more subscribers, he said.
Cable companies are firmly entrenched in the pay-TV market with 69 million of the 111.3 million U.S. households with television, according to In-Stat. Until now, their biggest competition has been satellite TV, which is in 30 million homes.
In many communities nationwide, only a single cable company offers cable TV service.
Until recently, that was often true in California. But AT&T was a strong lobbying force in passing legislation that now allows telephone companies and cable providers to obtain franchises from the state instead of from communities.
Kagan estimates that, ultimately, the telephone companies and cable companies will end up with about the same share of the pay-TV market: 40 percent.
Both sides are gearing up for this big battle, he said.
Kathryn Balint: (619) 293-2848; firstname.lastname@example.org
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