Time is money, market share for U-verse
AT&T aimed to have U-verse, its ambitious IP-based video service, available in 15 cities by the end of last year; but at last check, it managed to reach a total of 11. AT&T plans to have 8 million households passed with the service by the end of 2007.
AT&T doggedly insists that the development of U-verse is going just fine, but given its situation, its assurances are something less than encouraging.
AT&T's fiber-to-the-node (FTTN) approach is far less expensive than Verizon's fiber-to-the-premises (FTTP) approach. Verizon is spending about $2,000 per FiOS subscriber. AT&T, meanwhile, is spending perhaps a quarter of that for each U-verse subscriber.
Analysts suggest investors would not have stood for SBC spending billions of dollars to reconstitute the pre-breakup AT&T and spend enough to do FTTP. AT&T argues it is being fiscally responsible with U-verse, but it also chose a technological path far more venturesome than Verizon's.
AT&T is trying to create an IPTV service by combining new VDSL technology with new middleware, new compression technology and IPTV set-tops that few in North America are familiar with.
The foundational element of U-verse is VDSL. VDSL technology is on the verge of being a commodity, experts say. The question is whether it's adequate for what AT&T wants it to do. Given loops of about 1,000 feet, VDSL can offer a maximum of about 26 Mbps.
AT&T's customer loops tend to be about 3,000 feet, however, which means AT&T is going to be able to consistently deliver to most customers only about 16 Mbps. That's enough bandwidth to simultaneously provide one stream of high definition (HD) video and one of standard definition (SD), leaving a few megabits-per-second for high-speed data, and a sliver of bandwidth required for voice-over-IP (VoIP).
To do all that, AT&T must rely on the most advanced MPEG-4 compression to squeeze the HD into 6 to 10 Mbps. Other services based on MPEG-4 will budget as much as 12 Mbps.
Some early adopters say they're completely satisfied with U-verse video overall; others report the quality of the HD is less than they can get from cable or satellite.
Still, offering only one HD stream is problematic. AT&T is giving almost every
U-verse subscriber a DVR that allows them to watch different shows on up to four TVs. How many people have multiple HDTVs? Very few, but the number is growing, and the people who do are the high-value customers AT&T professes to be targeting.
To get more bandwidth, AT&T plans to implement bonding, which combines the bandwidth of two wires. AT&T CFO Rick Lindner has said that by the end of this year, bonding will help the company improve bandwidth by 60 to 70 percent.
That's about right. Piyush Sevalia, vice president of marketing at DSL specialist Ikanos, says bonding might render an improvement in the range of 50 to 70 percent.
But using AT&T's estimation, for subs getting 16 Mbps, AT&T might be able to boost them to about 26 to 27 Mbps–enough to provide a second HD stream. And the bandwidth budget will still be tight.
At the same time, The Wall Street Journal reports that Microsoft continues to have problems with the middleware it is developing for U-verse. Both companies say that what Microsoft has delivered works well.
That may be so, but there's still a question of whether Microsoft middleware can scale. AT&T's largest deployment, in San Antonio, has been stuck for at least half a year at 3,000 subs. The middleware has yet to be tested with hundreds of thousands of subs, let alone millions.
With any project of similar complexity, it might take any company a year to test all the scaling issues involved, according to Peter Percosan, broadband strategy director at Texas Instruments.
So at the moment, AT&T is pushing the margin of what's possible with the bandwidth it's allotted itself, it is not scaling the deployments it has, it has experienced glitches with the technology it is using, and all of that has kept it from meeting its own schedules.
Furthermore, once AT&T does manage to up its bandwidth, cable rivals will quickly, if not instantly, be able to meet or exceed what U-verse offers. On top of that, all the time spent on just getting the service operational comes at the expense of time spent on developing and market testing content and features.
On top of that, new subscribers report that installs take in excess of four hours (a smattering of subscribers have reported positive experiences so far). But it's a certainty that AT&T is assigning its best installers to U-verse. It will still have to provide an enormous amount of training to a large installation staff for whom most of this technology will be new.
Simply put, AT&T is laboring to provide by the end of this year what most competitors are either doing today or could do today if they so chose. By the time AT&T actually finishes rolling out U-verse to the majority of its footprint by the end of 2008, it'll arguably already be behind by many measures.
And that's before taking the BellSouth acquisition into account. AT&T says it is still deciding how to upgrade its newly-acquired BellSouth territories. BellSouth had embarked on an upgrade it was calling fiber-to-the-curb (FTTC), which also relied on VDSL2 but aimed to bring fiber to within 250 feet of customers. FTTC promised greater speeds than U-verse, but also relies on different mixes of supporting technologies and of vendors.
The acquisition of BellSouth also begs a question of whether, on a corporate level, U-verse is a major focus. AT&T has the operational issues of the merger to deal with, plus the triple play upgrade, plus Cingular.
"AT&T executives have got so much on their plates, you have to believe their attention is scattered. Nobody could make this easy," says Tim McElgunn, chief analyst for Pike & Fischer's Broadband Advisory Services, which just issued a report on U-verse.
With all the delays to U-verse, AT&T is compelled to hedge its bets with its HomeZone service, which it completed rolling out in its entire SBC footprint in January. HomeZone is a bundle of DSL and satellite TV from EchoStar Communications that feeds into an advanced residential gateway from 2Wire which gives subscribers access to streaming video and some nifty options for shifting media around the home.
AT&T is therefore marketing two similar services. And since BellSouth is allied with DirecTV, AT&T is going to have to cut yet another deal if it wants to offer HomeZone in BellSouth territories.
It appears the price for AT&T's ambition will be ongoing delays introducing its triple play. And as every U.S. DSL provider knows all too well, the price for delays is lower market share.