AT&T's Stephens: Company ready for pay-TV changes; U-verse subs may migrate to cheaper DirecTV services

The slowdown in the pay-TV market is not a concern for AT&T (NYSE: T) because the company is well positioned to take advantage of the migration of customers from traditional pay-TV to over-the-top video viewing, according to a top AT&T executive.

Speaking at the Goldman Sachs 24th Annual Communacopia Conference, John Stephens, AT&T's SVP and CFO, said that AT&T has the ability to deliver video over broadband, satellite or wireless, which is different from any other operator, and therefore it can navigate the changes in consumer viewing habits. U-verse IPTV provider AT&T recently closed its acquisition of satellite TV company DirecTV, creating the world's largest provider of pay-TV services.

Stephens added that while pay-TV subscribers are on the decline, the hours of TV viewing are on the rise. "We have the ability to deliver services over multiple platforms. A lot of the industry will just be able to do it over broadband or over wireless. We can do it all. That's a different position," he said.

Stephens also said that he expects AT&T to be able to negotiate better rights deals with content providers now that it has a total of 26 million customers that could potentially view the content. "We are working with content providers to bring these prices in line and now we have 26 million subscribers to make an impact on that," he said.

When asked if he expects AT&T U-verse customers to migrate to DirecTV, he said that AT&T hopes to give customers a choice but that there may be DirecTV packages that offer cost savings to U-verse customers that may provide incentive for customers to switch.

Indeed, Wells Fargo analysts noted that there's a $17 difference on average between U-verse and DTV platforms. "In the event of this sub migration, we would expect these subs to benefit from the lower DTV rate card (which is a positive for the T cost structure)," noted Wells Fargo analyst Jennifer Fritzsche.

AT&T last week named Ericsson as the vendor that will integrate AT&T's pay-TV systems across its U-verse and DirecTV platforms. Ericsson's VP of Marketing for TV Platforms Ben Huang said that AT&T is still working on the details of exactly how it plans to integrate U-verse and DirecTV. Ericsson's Mediaroom initially developed AT&T's IPTV U-verse product.

However, Huang said AT&T plans to keep DirecTV's Genie set-top box hardware and install a new platform and user interface on the hardware that combines U-verse and DirecTV offerings.

Interestingly, Stephens also noted that the company is cross-training its installer force so they can install multiple products -- U-verse and DirecTV -- because the company wants to bundle its DirecTV product with its U-verse broadband service. Stephens noted that being able to do one truck roll and install both products will provide cost savings. "We are getting our technicians trained for a simple truck role so we can sell video products in our U-verse footprint."

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Mike Dano contributed to this report. This report was updated Sept. 16 to reflect Ben Huang's current title.