January 25, 2007 10:53 AM PST

AT&T to ramp up IPTV's expansion

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AT&T's IPTV service is working better than the company expected--and AT&T plans to ramp up deployments in the coming year, Chief Executive Officer Ed Whitacre said Thursday.

Whitacre commented on the expansion of AT&T's IPTV service during the company's fourth-quarter 2006 earnings call. By the end of the year, AT&T's U-verse IPTV service will be available to 8 million homes, he said.

"Our fiber-to-the-node network is performing better than we had anticipated," he said. "We're getting better bandwidth both on the short and long loop links. And the customer feedback has been very good, outperforming what's available from cable."

So far, AT&T's IPTV service is available in only 11 markets. And in those markets, it's available only to a handful of subscribers. AT&T had said it expected to have service available in 15 markets in 2006, but the company changed its projections toward the end of the year.

Since the company first began testing the service, it has experienced glitches that have caused a series of delays. Executives on the conference call said the delays had been caused by software issues and did not reflect any problems with the network architecture, which AT&T has spent millions of dollars upgrading.

"It works and it works well," Whitacre said of the infrastructure. "The delays and difficulties have been related to programming. And we think we are just about to get all those issues solved."

Microsoft developed the IPTV software that AT&T is using. Microsoft is also supplying other major carriers around the world with its IPTV Edition software including Deutsche Telekom, Telecom Italia, T-Online France, British Telecommunications and Swisscom. Several others are testing the software as well.

AT&T's foray into the TV market is a response to increased competition from cable operators, which now offer TV service, high-speed Internet access and telephony. To compete, AT&T and Verizon Communications have been upgrading their networks to add television to their list of services.

Unlike Verizon, which has chosen to install new fiber that reaches directly into subscribers' homes, AT&T has extended its fiber network into neighborhoods, but is using its installed copper cables to deliver services the rest of the way.

AT&T's fiber-to-the-node approach is much less expensive than Verizon's fiber-to-the-home project, but in some ways it's riskier. Because AT&T's network does not use fiber all the way to the doorstep, its bandwidth capacity is limited compared with Verizon's Fios network. AT&T is using a flavor of broadband technology called VDSL (very high bit rate DSL) to provide higher-capacity links over the existing copper infrastructure, which delivers the high-speed broadband and IP-based television services.

But simply getting the IPTV technology to work has not been easy. And AT&T has taken its time in introducing new services and features. For the first several months, the service was being tested in San Antonio, Texas, subscribers were not able to access high-definition programming. Today, Whitacre said all U-verse customers in all 11 markets can get HD programming.

AT&T executives wouldn't say how many subscribers have signed up for U-verse so far, but Whitacre did say the company will make the service available to 8 million homes by the end of 2007. Among current subscribers, 75 percent have subscribed to the top-tier cable package, and 75 percent are also signed up for the highest speed Internet service, he said.

Initially, AT&T will expand U-verse throughout AT&T's existing territory. But Rick Linder, chief financial officer for AT&T, said that within a few months, the company may also unveil plans for expanding service to the BellSouth territory (AT&T completed its $86 billion purchase of BellSouth in late December). Whitacre says he believes U-verse deployments may actually be faster in the BellSouth territory than they have been in the AT&T territory.

"BellSouth has significant fiber plant in the ground already," he said. "So I expect the rollout to be much quicker there than the roll out in the old SBC footprint."

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