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from: SF Gate

AT&T's TV alternative
After some delays, company says it's ramping up its U-verse service

Ryan Kim, Chronicle Staff Writer

Monday, February 26, 2007

It's been two months since AT&T last announced new markets for its cablelike television service called U-verse.

The company fell behind its initial projection to hit 15 markets by the end of 2006 and instead rolled out in 11 regions, including parts of San Ramon, Danville, Saratoga and Cupertino.

Since then, AT&T hasn't announced any new markets. That has disappointed some would-be customers and stoked skepticism among analysts and observers, who question whether AT&T can hit its larger goal of bringing the service to 19 million homes by the end of 2008.

AT&T says the service, which was rolled out in San Antonio in June, is on track after some initial delays and adjustments and will ramp up aggressively in the coming months.

The delays underscore the complexity of the new service, which utilizes Internet protocol -- sending a television stream in packets through DSL -- and involves huge network upgrades and new software and hardware deployments. It also highlights U-verse's vital role to AT&T, which is investing more than $6 billion on the ability to offer a so-called triple play of voice, Internet and now television services against similar offerings from cable competitors like Comcast.

Unlike cable or satellite, which broadcasts all of its programming to a customer's set-top box, U-verse maintains the programming at local centers. When customers select a channel at home, U-verse will instantly beam the video packets for that channel to their set-top box.

The service works to AT&T 's advantage. The company can use much of its existing DSL rather than rely on bigger coaxial cables. By sending the entire program lineup to the home, U-verse can facilitate quicker channel changes and can send up to four video streams to a home. And because it operates on Internet protocol, it allows the TV to become part of a home network that interacts with the PC and Internet telephone services.

But the jump to U-verse requires a number of upgrades. Three years ago, AT&T began extending its fiber-optical network closer to its customers to ensure they received the 20 to 24 megabits per second necessary for U-verse. That has meant extending fiber to nodes, physical boxes that sit on sidewalks within about 3,000 feet of customers.

AT&T has also had to install new software to help run everything from the user interface on the set-top boxes and handle the transmission of the video feeds. Most of that has come from Microsoft, which is deploying its Internet protocol TV software in five countries.

"It's infinitely harder for telecommunications companies to offer video than cable to offer voice," said Vince Vittore, senior analyst with the Yankee Group. "There are so many moving parts in video service -- a breakdown in one part can break down the system."

Christine Heckart, general manager of marketing at Microsoft TV based in Mountain View, said the challenges early on have been to make sure the system can grow to handle the increasing number of customers. But she said the software is performing well and in the future will provide more-personalized experiences for users.

It's little comfort for some television fans who have been hoping for an alternative to their current choices. Arye Bender, 64, of San Francisco said he'd like to get out of his Comcast service because of its price, but he's had no alternatives. The building he lives in won't allow him to receive a satellite signal.

"I'm disappointed (U-verse) is not available now, but when it becomes available, I'll be right there saying, 'Switch,' " said Bender. "I want an option."

People like Bender represent the promise of U-verse for AT&T and underscore its strategic importance. Bender already buys phone and Internet service from AT&T, so providing television would sew him up as a full triple-play customer. And it would also provide AT&T a defensive move for other customers like Bender who might be tempted to switch to Comcast for all three services.

But while the need to start getting a return on its investment continues to grow, AT&T can't afford to rush headlong into video. Patrick Comack, an analyst for Zachary Investment Research who has criticized AT&T's U-verse delays, said the company nonetheless needs to make sure it nails its TV product if it wants to be a viable player.

"It's got to be flawless," said Comack. "When it comes to video, people live off this stuff."

Analysts, though, wonder whether the company may be falling behind. AT&T reported just 3,000 households with U-verse at the end of 2006, almost unchanged from the end of September.

"I don't think they will have U-verse available to all 19 million homes by the end of 2008," said Michelle Abraham, an analyst with In-Stat, a research firm. "The pace so far has been pretty slow; they would really have to increase the pace very quickly."

AT&T said it is confident it can meet its goals, which include reaching 8 million homes by the end of this year. It won't say, however, what markets are due to receive service next.

"The delays are old news," said AT&T spokesman John Britton. "We're happy with the platform and the way it's preforming and we expect to see significant deployments in 2007. We think the speed bumps are behind us."

Britton said the delays have had to do with fine-tuning the service to ensure a consistent experience for users. Specifically, engineers have had to make adjustments to the software and middleware developed by Microsoft that allows users to receive programming on their set-top boxes. At one point last year, AT&T exchanged its customers' existing set-top boxes with new devices that could handle high-definition video.

Britton also said some reasons for the delays are more mundane, such as hiring installers and other employees to support the U-verse service.

AT&T should also get a boost soon when the California Public Utilities Commission grants a statewide franchise to AT&T, allowing it to bypass individual municipal franchise agreements. The company has only started marketing the service in the past two weeks, which should also stimulate sales.

AT&T's U-verse television service

Cablelike television service offers 300 channels, including 25 high-definition channels

Price ranges from $44 per month for about 100 channels to $99 for 300 channels

Features include quick channel changing, four streams of TV, picture in picture, search for shows and movies by actor's names.

Rollout began in the Bay Area in December in Danville, San Ramon, Saratoga and Cupertino
The AT&T U-verse television system

Internet protocol television

U-verse sends video content in data packages over AT&T’s Internet Protocol network using a combination of fiber-optic lines to local neighborhood nodes and then existing copper wires that connect to the home. While cable broadcasts all of its programming to a subscriber’s television or set-top box, AT&T’s service sends out just a few channels at a time, depending on what a subscriber selects. The technology helps compress the video and also creates fast channel changes. It also allows U-verse to eventually offer an almost limitless amount of programming.

-- Requesting a channel

When a viewer selects a channel, the set-top box sends an IP request to switch the signal to the desired program.

-- Node

Switching boxes found within 3,000 feet from homes convert fiber-optic signals to standard copper wire.

-- IP video hub

Receives programming from super hub, adds local programming and stores video-ondemand programming.

-- IP serving office

Distributes programming to homes.

-- IP video super hub

Acquires programming from providers. Encodes content.

Source: AT&T

John Blanchard / The Chronicle