AT&T’s IPTV Ends Year With Regulatory Wins, Rollout Setbacks
The year ends on a mixed note for AT&T’s burgeoning U- verse IPTV service. The company is selling the product in fewer markets than it had expected, amid what analysts say are technical glitches common among new video products. AT&T’s video rollout may be significantly bolstered by state and federal regulatory actions such as the FCC’s Dec. 20 franchising order (CD Dec 21 p1).
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A provision in the order helps AT&T because it prohibits local franchise authorities (LFAs) from regulating telco construction of video gear in existing rights of way used to sell other products like wireline phone service, a Commission official said. The order may help AT&T more in some ways than other Bells because the company contends it doesn’t need franchises. Verizon has gotten more than 300 franchises. For AT&T, the FCC official said, “they can go out and build because they can say they are building a network used for mixed purposes, so LFAs can’t have jurisdiction.” LFAs can ask AT&T to get a franchise “when they're about to offer video,” the source said. If the sides can’t agree, AT&T can start selling video 90 days after discussions start. AT&T has said it doesn’t need LFA approval for IPTV. But it said it has memos of understanding with about 20 towns to sell video.
AT&T’s regulatory victories aren’t necessarily conclusive. For instance, the FCC franchise order is all but certain to be challenged -- whether in court or on Capitol Hill. “This order appears to be headed to court on appeal in very short order,” lawyer Rudy Baca said: “There is too much at stake here, not only between the video competitors, but also between the municipalities and the federal government/regulators.”
“Political heat from Democrats in Congress and the recent progress on franchising already achieved at the state legislature level suggest the FCC’s decision will offer only modest benefits to the entry strategies,” when combined with the potential for a lawsuit against the FCC, wrote Paul Gallant and Paul Glenchur of Stanford Group. AT&T has approval to sell U-verse in 60% of its wireline “territory,” CFO Rick Lindner told a Credit Suisse investor conference in early Dec.: “We are in pretty good shape there.”
Mich. is an example of state action with mixed benefits to AT&T. The same week that the FCC video order was adopted, Gov. Jennifer Granholm (D) signed a law revamping franchising that AT&T had supported. The company plans to “quickly provide our video service to as many homes as possible,” a company spokesman in Mich. said: “We will certainly live up to the requirements contained in the legislation. But we have a track record of deploying new technology quickly.” AT&T and cable companies face the prospect of net neutrality legislation, which both industries oppose, in Mich. Granholm asked lawmakers to bring her a bill with net neutrality provisions next year.
Technical, not regulatory, hurdles are believed to have slowed U-verse’s rollout, said cable executives and Wall Street analysts. The service is sold in 11 markets, a spokesman said Thurs. That’s less than the 15 markets the company had planned to reach this year. “We revised the number of markets to make enhancements to our IPTV software and other systems based on some key learnings in our initial markets,” said the company official. Slower-than-expected delivery of Microsoft IPTV software may have caused some delay in introducing U-verse, UBS analysts including Aryeh Bourkoff and John Hodulik wrote: “The delay in opening new markets is likely caused by inevitable tweaks and patches that will be needed” to ensure it can be sold widely.
Customer demand for U-verse has been “strong” in San Antonio, where the company began its first IPTV sales, the spokesman said. About 3,000 people there were subscribing Sept. 30, in 10% of homes passed, he said: “Our network build and related operational systems remain on-track,” as does a plan to pass 19 million homes in 2 years. The past year was one of progress for the company and Verizon in selling video, and cable VoIP has added competition in the telecom industry, said an AT&T spokeswoman.
Also Thurs., the company said it started IPTV sales in 4 Ind. markets, including Bloomington, Indianapolis and Muncie. Other cities where U-verse is sold include San Francisco, San Jose, and Hartford and New Haven, Conn., the spokesman said. The company has an average of 25 Mbps of IPTV capacity, Lindner told the investor gathering. He said the company plans to sell the Homezone broadband and DBS service “across our entire local wireline footprint.” In 12-18 months, he predicted, “we will be strongly positioned under a single AT&T brand, with extensive broadband coverage and a broad set of video options.”