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From: Ashland City Times

Sunday, 02/18/07
AT&T ventures into 'Net TV
Legislation could help speed service to Tennesseans

By NAOMI SNYDER
Staff Writer

Jerry Talmadge was fed up with continual price increases for his cable service from Time Warner in San Antonio.

So when AT&T came knocking with a new Internet-based TV service, he jumped off the cable ship.

But Talmadge, 59, has ended up paying pretty much the same thing — $119 a month for TV service and a broadband Internet connection. He says he gets more channels for that price, though — close to 400.

"They seem to be doing a very thorough job as far as making the customer happy,'' said he said.

AT&T, which recently bought BellSouth, wants to bring a similar TV service to Tennesseans. Executives have promised expanded"choice, new technology and better pricing."

Yet, all-out price wars haven't materialized in many places where AT&T and other companies currently offer the Internet TV service. And although some think new competition will hold prices down or make them decline slightly, companies are wary of slashing prices because of how costly TV is to provide, analysts said.

"They don't want to go in and slash prices,'' said Gary Schultz, president of research firm Multimedia Research Group in Sunnyvale, Calif.

"They want to go in and offer quality service and build loyalty. They realize … if they come in as a low-priced leader, they put themselves in a bad position long-term."
No one in Tennessee can currently get AT&T's Internet-based TV service. But that may soon change.

AT&T clears hurdles

A bill introduced last week in the Tennessee legislature is designed to help the company begin offering the service.
The legislation would end the decades-long practice that forces cable TV providers such as Comcast and Charter Communications to get franchise agreements in each municipality where they do business. Instead, the new law would create a statewide certificate for any company that wants to offer TV service in Tennessee.

The new providers would get to pick what neighborhoods to enter, rather than be required to serve an entire city or community, as is typical for a cable TV franchise.

AT&T rolled out its so-called U-verse TV service in its corporate headquarters in San Antonio starting last June, and is offering it in limited supply in 11 markets in the U.S.
AT&T uses a combination of fiber-optic cable and copper telephone wires to send digital packets of TV programming to customers' homes.

But it needs to invest billions installing fiber and making other network improvements to send TV programming.

By last count, at the end of AT&T's fourth quarter, the company had about 3,000 customers subscribing to the service, about the same as the end of the third quarter.

Verizon, a competing company that developed its own software, has perhaps 175,000 to 200,000 TV customers, according to Schultz.

AT&T has been held back by the software developed for its TV service, which is so complex that it is difficult to ramp up service for thousands of new customers, Schultz said.
Also, the company had some initial problems with its set-top boxes for the TV, which eventually were replaced.

Talmadge of San Antonio said his TV shows would freeze midframe, a "pain," until he got the box replaced. Now, he gushes about the service.

AT&T spokesman Wes Warnock said the company has gotten over many of its technological problems and is ready to advertise seriously and push the network into new cities this year. The company hopes to offer the service to 19 million households by the end of 2008.

Companies are investing

Currently, about 360,000 people nation wide subscribe to Internet TV services provided by a phone company, a tiny fraction of the close to 65 million who have traditional cable and the 30 million with satellite TV, said Kurt Scherf, vice president at the digital technology research firm Parks Associates in Dallas.

Still, telephone companies are investing in the TV service.
Verizon is spending $18 billion to $19 billion to deploy
TV during the next three or four years, by some estimates. AT&T is spending about

$4 billion to $5 billion, Scherf said. AT&T is spending less money because it chose not to extend fiber as close to customers' homes as Verizon.

Aside from the expense of the network itself, the phone companies are finding the TV programming expensive, too. Hollywood has not wanted to slash prices for the telephone companies any more than it would for the cable TV companies, Schultz said.

Because of the expense and desire to make a profit, AT&T and other providers of Internet TV services are pricing their products comparably to their competitors', analysts said.
In fact, AT&T bumped up the price slightly for its U-verse service recently, according to Bancof America Securities analyst David Barden.

Prices range from $59 a month for 50 digital channels and a broadband Internet connection to $114 a month for more than 300 channels and Internet. The most basic level is $44 a month for the family package of 50 digital channels without the Internet.

Echostar's DishTV has a $39.99-a-month satellite TV service with more than 200 channels, a two-room digital video recorder and free installation.

AT&T recently launched its service on a limited basis in San Francisco, where Comcast charges $44.50 a month for its basic cable package with 80 channels. Comcast has said AT&T's U-verse has not affected its prices.

AT&T spokesman Wes Warnock said its services are actually cheaper than comparable packages from competitors, when AT&T's digital television and a digital video recorder are factored in.

"We've recreated the cable industry with a product that goes beyond what they can offer," he said, adding that customers can program their TV sets to record remotely from a Yahoo! Internet account.

Competition has benefits

Aside from the new technology, some believe the added competition will help drive prices down, albeit modestly.
Cable companies have raised prices higher than the rate of inflation for years. Comcast in Nashville, whose competition is mostly satellite TV, raised prices for its basic cable package by 4.7% this year and by 6.2% the year before, although there were no price increases for broadband Internet.

Schultz believes Verizon's new TV service may drive TV prices down by about 10 percent in Verizon markets.

Scherf thinks the entry of new technology and competitors in general helps consumers. He cites increased competition from satellite TV in the late 1990s that helped improve customer service among the cable companies.

"In the end customers do benefit from competition," he said.