AT&T Promised us The U-Verse by 2006

by Bob Wallace - xchange Magazine

AT&T Inc. has met mammoth challenges in the support of its U-verse launch and initial deployment. Still, industry experts, partners and insiders share concerns about the company’s ability to keep up with customer demand and changes in consumer entertainment behavior — and to hit the already twice-amended marks it has set for itself relating to service rollouts.

The first chinks in AT&T’s armor appeared the Friday before Christmas when the company confirmed it had changed its publicly stated deployment goal for U-verse from 15 markets by the end of 2006 to just 11 markets. The 11 markets include Anderson, Bloomington, Indianapolis and Muncie in Indiana; Hartford, New Haven and Stamford in Connecticut; San Antonio and Houston; and San Jose, Calif., and the San Francisco Bay area.

When asked why it scaled back its deployment market numbers at the 11th hour, an AT&T spokesman said only that: “We are continuing to fine tune, upgrade, and enhance our IPTV software and other systems based on some key learnings in our initial markets. Our network build and related operational systems remain on track.”

Perhaps the amended timeline shouldn’t come as a surprise given that AT&T — whose experience to date largely has centered on bandwidth — now is moving into the fast-evolving entertainment and consumer electronics markets with IPTV. Unlike data service launches of years past where service providers simply needed to make sure one brand of router spoke to another brand of switch, IPTV spans everything from the backbone network to the metro/access networks to the home to the call center and the back-office billing and OSS systems. One weak link in that long chain can be crippling.

Availability and Features
Yet even the extent to which U-verse service is available in the above-stated markets remains a question mark. That’s because AT&T announces markets where U-verse is available, but declines to define what it means by “available,” leading industry watchers to wonder if it’s available in one zip code or 100 per market. Skepticism about how widespread the service is available is not unfounded, as the major carriers have, in the past, claimed nationwide availability of services when in fact they were being provided only to a handful of dispersed switches. Such was the case with Sprint’s much-lauded frame relay rollout many years ago. And this service availability issue gained elevated status during the rollout of loop length-distance-sensitive ISDN and DSL services.

Nonetheless, in many ways, U-verse looks like it could be a winner, and Jeff Weber, the face of U-verse and vice president for product and strategy at AT&T, remains upbeat.

Though some might consider early U-verse a “me-too” offering in some cases and markets, consider that it didn’t launch minus any key content or capability as was the case with satellite TV providers, who initially couldn’t provide highly valued local TV channels.

“We’re sitting on a really good product, a very robust service with HD and DVR service that’s really easy to use,” says Weber, adding the DVR feature can be accessed by consumers remotely via the Internet. “That’s what we launched with as our first entry.”

However, months after launch, AT&T wanted more HD. The U-verse launch included a slew of channels, many in HD, and DVR functionality as key attributes. However, the package contained a single HD stream and three standard definition (SD) streams. “HD is not a wild card,” says Weber. “We’re going to need several streams into the home, but I’m not sure when we’re going to get to multiple ones.”

The lack of multiple HD streams becomes limiting for some subscribers that plan to use the service’s innovative DVR feature because if users are watching an HD channel, they are only able to record an SD channel and vice versa. “If a consumer has multiple HD sets, they will be out of luck, but it is a safe assumption that only the ‘big’ TV will be HD and the rest will be standard,” explains Teresa Mastrangelo, principal analyst with broadbandtrends.com.

Raising the Stakes
Just how customers choose to use U-verse — a service package that delivers IPTV and Internet services over a new FTTN/VDSL access infrastructure — could raise the cost of deploying the service for AT&T, which already has sunk $8 billion into the network side, according to analysts. If the carrier does need to make changes, the U-verse price tag could rise, while deployment could slow.

“The kind of metro/access infrastructure needed to support broadcast TV over IP is very different from that required to support video on demand,” says Tom Nolle, president of CIMI Corp. “That means that either the current investment will be devalued as consumers move to a more personal experience, or the plant will have to accommodate both at the same time — either way raising AT&T’s costs.”

Changing consumer consumption habits also could factor prominently if AT&T didn’t consider and plan for them a few years ago, which is a distinct possibility considering Internet video has evolved primarily in the last year.

“There seems to be a shift toward store-and-play TV that is based in part on the fact that this type of content doesn’t require premium access delivery, meaning the portal players like Google can serve it up,” explains Nolle. “This will make any TV-specific infrastructure investment less valuable.”

That’s why industry analysts and select vendors are concerned about AT&T’s effort to build an infrastructure capable of supporting U-verse widely, given the company’s projections for 19 million homes passed by the end of 2008 and questions about scalability.

Microsoft conducted research with an outside firm in which the duo chose different packages of IPTV services carrying different brand names. “We estimated that the package most similar to U-verse in channels, price and DVR would pick up 13 percent market share in a new market just by being there,” says Christine Heckart, general manager for Microsoft TV, a 500-person software unit that handles everything from live TV, digital rights management and VoD to management and client areas. “If we added different features such as HD, more movies and the ability to schedule TV remotely — without touching pricing — we’d lift the market share another 7 percent.”

Given these lofty projections, questions arise surrounding AT&T’s ability to keep pace.

“A lot has to happen to expand and upgrade networks to ensure the architecture is sound for scaling,” says Heckart.

Industry analysts that track broadband infrastructure and the services that ride atop it agree that AT&T needs to get going.

“According to their third quarter earnings call, the target was to pass 2.4 million homes by end of 2006, with the bulk of the build expected to occur in 2007 and 2008. But they are really going to have to hustle to meet their target of 19 million homes passed,” says Mastrangelo of broadbandtrends.com.

Big Problems?

One industry insider, who works for an AT&T IPTV partner and asked not to be identified, says AT&T simply isn’t deploying an adequate number of terminal servers, VoD servers and other network-based infrastructure to handle the estimated 19 million homes by 2008.

The source tells xchange AT&T only had simulated 200 users with 200 set-top boxes in their test environment.

He says the 1:1 implementation includes the concept of “service groups,” which is basically a collection of network-based machines — including client gateway, terminal servers, VoD servers, databases, etc. — that the STB works with.

“Initially, they were discussing doing up to 100,000 STBs in a service group, but AT&T/Microsoft is now scaling that down,” according to the source. “The development guys are saying only 50,000 STBs to a service group and only 15 service groups per VHO [the video hub in the network].” Once you hit that ceiling, he says, you’ll run into a lot more expense and a need for more real estate/video offices and a lot more machines.

AT&T declined to discuss infrastructure testing and volume specifics as they relate to the ratio of customers per device/site or the ratio of total/active consumers per VoD server, making it difficult to determine the size and flexibility of the network infrastructure.

Awash in reports for months that the lack of scalability of its middleware has slowed IPTV here and abroad, Microsoft neither would confirm nor deny the allegations. “We take the arrows because we’re big and we’re Microsoft and have so many people looking to take us to task for things,” says Heckart. “I tell our folks to take the arrows to keep them off our customers and because our products are not any more ready than anyone else’s.”

A Muddy Marketing Message
Bob Wallace
 

One of the more daunting nontechnical IPTV challenges for AT&T Inc. is, ironically, one that they seem the most clear on — their dual TV offerings.

While U-verse is the focus of the carrier’s IPTV effort, AT&T already widely offers a service called Homezone, which is a combination of TV service from DISH Network and high-speed Internet access via its partnerships with Yahoo! and Akimbo Inc.

Though AT&T claims the offerings are complementary, with Jeff Weber, vice president for product and strategy at AT&T, explaining that U-verse is its primary package in markets where both are available, the distinction between the two is unclear, even to some within the industry.

“I find it interesting that they refer to it as complementary to U-verse and still think the fact that they are marketing both in the same markets is going to be very confusing to the consumer,” says Teresa Mastrangelo, principal analyst with broadbandtrends.com.

“Homezone is an interesting service — it really does bring together the best of all worlds with proven technology, but new features,” she adds. “In my opinion, Homezone will be a lot easier for consumers to understand.”

Homezone could provide AT&T a means of reaching a broader audience in a timely manner if the buildout for U-verse and the company’s related FTTN effort, Project Lighspeed, become more expensive or of lower value. Having this valuable tool in its arsenal also could prove priceless if interest in Internet video continues to climb.

“We’ll sell U-verse where we’ve built out the network and Homezone where we haven’t,” explains Weber. “If we’ve built out for U-verse, we’ll lead with it. In the other half of the marketplace, we’ll lead with Homezone.” The first U-verse market, San Antonio, also has Homezone, he says, adding that other metro areas will have access to both video-driven service packages.


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