As It Starts TV Service, AT&T; Hopes Its Pipes Are Fast Enough
As phone and cable companies race to be the be-all and end-all connection to the home, AT&T; Inc. is betting that its new broadband network will be fast enough to win over customers.
The nation’s largest phone company said it would begin “changing the way people watch TV” this month by starting to pump programs over the network, which combines fiber optic cable with existing copper lines.
The move by AT&T; comes as it is trying to thwart the advances of cable companies, which are aggressively trying to steal away phone customers.
The public rollout of the network and of AT&T;’s new pay-television service is scheduled to start within weeks in the company’s hometown of San Antonio. Executives say they will add 20 more markets, including Anaheim, by the end of the year.
AT&T; and its main partner, Microsoft Corp., have been keeping mum on most details about the service, including its plans for California beyond Anaheim. Nevertheless, industry experts are questioning whether the offering is enough to woo customers away from cable.
“A lot of eyes around the world are on AT&T; because this launch is on a very large scale,” said analyst Teresa Mastrangelo of Broadband Trends Research in Roanoke, Va. “Will it work? Will service meet expectations? Is there going to be enough bandwidth to do what they want?”
Microsoft also has a lot riding on the project. The Redmond, Wash.-based company wrote the software that will power the video system, which relies on Internet technology. Microsoft also has picked up contracts to provide the software to 14 other companies worldwide, including Deutsche Telekom in Germany, BT in the United Kingdom and T-Online Hungary.
Verizon Communications Inc., the second-largest U.S. phone company, has started adding some of the features of Microsoft’s technology to its existing cable-like, pay-TV package, and BellSouth Corp., the next-largest phone company, has committed to using the technology.
“It’s TV at the core, but a new type of TV,” said Ed Graczyk, Microsoft TV marketing director.
A TV system using Internet technology TV doesn’t broadcast all signals at once, as cable or over-the-air networks do. That would require more data than AT&T;’s copper lines could handle. Instead, the technology delivers only the channel the viewer wants. The software also predicts which channel a viewer is likely to visit next and buffers that data to give what AT&T; promotes as instant channel changes.
“Boom, you’re there,” said Alan Weinkrantz, a technology industry public relations consultant and San Antonio resident who joined the U-verse test group in mid-May and posted his impressions on his daily blog.
Microsoft and AT&T; say transmitting video using Internet technology offers richer colors than cable and makes it easier to order video on demand and to watch several picture-in-picture views.
“The user interface is so cool because it’s a software metaphor with pull-down menus,” said Weinkrantz, who gave up the high-definition TV service he had -- and liked -- with Time Warner Cable to join the test. “It’s faster and more intuitive.”
In his blog and an interview, Weinkrantz gave high marks for ease of use and picture quality, though he noticed a “couple of flickers” on the screen during an episode of “The Sopranos.”
He knew he would be giving up high-definition television on two of his three sets, including a 56-inch model. He said he would wait for AT&T; to introduce a set-top box in October that can handle high-definition and record one channel while he watches another.
“I did it because I really wanted to see what this was all about,” Weinkrantz said. “I thought it would be fun to be a tester, and I was curious to see Microsoft’s hand in it.”
Searching for videos on demand is quick, but it takes 13 seconds to get a movie, he said. And a program guide not only lists what’s on but also shows it in a box as he scrolls through the listings of 200-plus channels.
“Today, everything is fine. I’m just a consumer staying at home on the couch, saying, ‘Oh, I like this,’ and ‘Wow, look at that,’ ” he said.
With TV running over a pipeline along with voice and other data, the company can integrate services, said Chris Rice, an AT&T; executive vice president. Television programs, for instance, could be sent to a big-screen TV, computer, laptop or cellphone.
But industry analysts are skeptical about the network, dubbed Project LightSpeed, and the TV service, called U-verse.
“This is a complicated product launch on a scale that is pretty much unprecedented,” said analyst Adi Kishore of the Yankee Group research firm in Boston. “They’re going to have problems, especially given the relatively tight time frame to get things done.”
Experts question the wisdom of creating a network that’s likely to be technologically out of date by the time it’s complete. LightSpeed is designed to send data at an average of 25 megabits per second by extending high-capacity fiber optic lines to within 3,000 feet of homes. To cover the remaining distance, AT&T; plans to rely on new DSL gear to send data humming over existing copper lines.
That’s sufficient for standard television, one high-definition feed and a 6-megabit-per-second Internet connection. But cable companies say they have the technology to better that. And Verizon offers as much as 30 megabits per second for Internet use on a fiber optic network that extends all the way to homes. It offers video on a separate fiber optic strand.
“This is a huge debate in the industry,” said Maribel Lopez, lead telecom analyst for Forrester Research in Boston. “If you look at the technology three to five years out, this is not enough. But if you look at what most consumers use today, it is.”
Unlike Verizon’s separate strands for Internet and cable-like video, AT&T; must send everything over a combined pipeline, so it’s critical for LightSpeed to create an unhindered lane to the home, said analyst Matt Davis of International Data Corp. research firm.
LightSpeed customers would get as much as 6 megabits per second for their Internet connection; the rest would be devoted to the U-verse TV service, said Lea Ann Champion, AT&T;’s senior executive vice president in charge of the project. “We are seasoned players,” she said. “We know how to deliver broadband. We know how to scale, and we build the systems that are necessary to support growth.”
She says the company has a number of options to increase bandwidth as consumers’ needs grow. For example, it could extend the fiber optic lines closer to homes. The shorter the run on copper, the faster the speeds.
In newly built neighborhoods the company is taking fiber optic lines directly to the homes for the ultimate bandwidth.
Lopez said AT&T; also was looking at technology that would compress high-definition TV signals enough to allow two simultaneous streams.
Champion wouldn’t comment on the compression technologies the company is using.
The U-verse TV service will be rolled out gradually in each new market, she said, and upgrades will be added along the way.
AT&T;’s strategy is to bring LightSpeed to 19 million homes in 41 of its markets by the end of 2008 -- a little more than half the homes in its 13-state territory, including California. The rollout is expected to cost $4.6 billion. Other customers can get Homezone, a combination of satellite TV and high-speed Internet access, which will be available in the next few months.
Verizon says it will have fiber optic service available to 15 million to 20 million homes in 2008 or 2009. Fiber optic networks for 6 million homes, about 20% of Verizon’s territory, will be ready by the end of this year, the company said. The build-out is expected to cost $6 billion by then.
“AT&T; is saying, ‘This is a good enough network and we’ll try to make more interesting TV,’ ” Lopez said. “Verizon is making a big gamble on a solid infrastructure and will gradually add in more interesting TV.”
Edward E. Whitacre Jr., AT&T;’s chairman, has led lobbying efforts to ease local cable franchising rules for new pay-TV providers. He has touted the need for competition to, among other things, lower prices. But he recently told analysts that he didn’t envision a price war.
“I think it’s going to be a war of value and of services,” he said. With the ability to bundle landline and wireless phone service, video and high-speed Internet “all together, that gives us a lot of flexibility on pricing.”
AT&T; won’t reveal its TV package prices yet. But Internet information company Broadband Reports said users of its online forums learned that the basic bundle of 170-channel TV service plus 1.5-megabit-per-second Internet access would cost $85 a month. The top tier of more than 200 channels with 6-megabit-per-second access would cost $114 a month.
AT&T; is smart to look for ways to improve television viewing and make it different from cable TV service, said Kathie Hackler, an analyst at Gartner Inc. research firm. “To come in with a ‘me too’ offer would be a huge mistake,” Hackler said.
As the first company out the door with Microsoft’s TV technology, she said, AT&T; should take the time it needs to make sure the product works flawlessly because viewers will notice.
Because the Internet technology being used by AT&T; breaks signals into packets for delivery and reassembles them at the other end, a few lost packets could mean missing the winning field goal in the Super Bowl or a key scene in “Desperate Housewives.”
“There’s a big difference when you’re trying to go into a market that has been working well,” Davis of International Data Corp. said. “You can’t have any hiccups.”
