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from: LA Times

AT&T’s TV Rollout Slowed by Glitches

March 1, 2007
By James S. Granelli

California regulators are expected to adopt rules today to make it easier for phone companies to compete for cable TV customers. But don’t expect new competition next month — or even count on it next year.

AT&T Inc., the state’s dominant provider of landline service, covering 78% of California, is getting more aggressive in the TV business after pulling back its efforts to fix glitches in its newly crafted technology. But the company that lobbied ferociously last year for a statewide video franchising law still isn’t ready to turn on the switch everywhere in California, its biggest market.

Verizon Communications Inc.’s effort in television so far has exceeded AT&T’s. But Verizon is a quarter the size of its rival in the state.

Further delaying any rollout is the need to secure permits from each city for upgrading to market TV service.

“The thing that’s always so humorous is that when people think of statewide franchising, especially in California, they think that all of a sudden AT&T flips a switch and it’s on,” said Maribel Lopez, an industry analyst at Forrester Research Inc. “But it always was a town-by-town rollout.”

Though it entered 11 markets last year, AT&T stopped advertising its U-verse TV largely because of problems with the Microsoft Corp. software that powers the service. AT&T says those issues are now resolved.

“There has been a lot of talk about, does this stuff work. It works and it works well,” AT&T Chairman Edward E. Whitacre Jr. told analysts in late January.

Yet cable companies hope AT&T continues to take its time. “Nobody knows for certain, other than AT&T, when they are going to come out,” said Marc Burgat, government affairs director at the California Cable and Telecommunications Assn., a cable trade group. “The longer time we have to provide our service before AT&T comes into the market, the better it is for us from a business standpoint.”

Currently, AT&T offers U-verse TV in the California communities of Cupertino, Danville, San Ramon and Saratoga, and in 11 markets in other states.

The rules expected to be approved by the Public Utilities Commission would let AT&T and Verizon file for one statewide franchise instead of needing approval from each city where they have landline phone service.

AT&T and Verizon plan to file applications by next week. The state agency then has 44 days to deem the applications complete and approve or deny them.

Verizon already operates TV service in 18 California cities. It will be ready to add new cities within weeks after its statewide franchise is approved. It covers mainly Southern California’s beach communities and some inland neighborhoods. “We’re anxious to bring video choice to tens of thousands of consumers who would be able to get video service,” said Timothy J. McCallion, Verizon’s Pacific region president. “We can hook up most of them right away.”

In the last two months, AT&T has more than doubled the number of its TV customers to 7,000 from 3,000.

“Where we have the facilities built and upgraded, we’re going to start marketing the U-verse product aggressively,” said Kenneth P. McNeely, AT&T’s president of external affairs for its Western region. “But we’re also in the process of upgrading the network and we have more challenging districts to deal with here in allowing us permits to build these systems.”

In Anaheim, which welcomed AT&T’s upgrade last year, things haven’t moved as quickly as expected, and U-verse service that was to launch late last year has yet to arrive.

Los Angeles is doing what it can to help. The city has approved a majority of the requests for permits to install up to 3,000 electronic nodes in neighborhoods across the city. It expects to complete the approval process soon.

AT&T is installing fiber to each node and relying on existing copper wires to send TV signals the remaining 3,000 to 5,000 feet to each home served by a node.

AT&T expects to reach 8 million homes by the end of the year in California and 12 other states — its basic phone territory before December’s purchase of BellSouth Corp. In all, it is spending $4.6 billion to reach 19 million homes, which account for a little more than half of that territory, by the end of 2008.

The company had a tough start last year with a pilot offering in San Antonio, where it is headquartered.

Analysts said that with the all-new Microsoft technology AT&T is using, a series of glitches was inevitable.

Analysts and industry experts said the set-top box features were limited, voice quality was erratic, the companies’ software wasn’t always working together and features like instant channel change didn’t work well as more customers were added to the system.

AT&T didn’t go into another market until last fall, when it launched service in Houston. It added nine additional markets in December.

Verizon is taking a slower and more expensive approach by installing fiber-optic lines to homes in about half of its 28-state territory, essentially replacing the copper network with what most people consider the gold standard of networks.

But that is costing Verizon $23 billion, and it will take through 2010 to reach its target of 18 million homes. At the end of December, the network reached 6 million homes, and the company expects to add 3 million homes a year through 2010.

So far, Verizon serves 702,000 pay TV customers in more than 200 cities in 10 states