U-verse pause in IPTV buildout an opportunity to focus on improving penetration

editor's corner

Jim O'Neill

A new report from ABI Research says telco TV and IPTV platforms are beginning to erode cable TV's subscriber dominance, albeit slowly, in North America and Western Europe. Over the past year, cable's whopping 72 percent market share has slipped slightly to 69 percent.

AT&T (NYSE:T) recently said its U-verse TV service will be widespread but not deployed universally across its wireline service footprint by the end of 2011, with 55 percent to 60 percent, or roughly 30 million homes, having access to its IPTV and Internet services. And, that, said President John Stankey, may be as far as the service provider goes with the buildout, meaning as many as 10 million homes won't be offered U-verse TV.

It's an interesting stopping point for the company, which has seen the services reanimate its wireline revenues after a steady decline of customers fled to mobile phones and, in many cases, bundled VoIP services from cable providers.

But U-verse quickly has become the "little engine that could," with its 3.2 million TV customers-almost all of them with high-speed Internet service as well--in 1Q2011 getting credit for producing a third consecutive quarter of year-over-year growth on the wireline side. Despite seeing an overall decline in consumer revenue connections for the quarter, AT&T's revenues per household grew 6.5 percent from the previous year.

In the first quarter, the AT&T U-verse High Speed Internet attach rate continued to run above 90 percent and nearly 60 percent of subscribers took AT&T U-verse Voice. More than three-fourths of AT&T U-verse TV subscribers use a triple- or quad-play option from AT&T.

U-verse TV, at a time when cable operators have been lambasted for poor service and as have been losing subscribers in droves, has seen consistent quarterly uptake by consumers who overwhelmingly give the service high marks (customers routinely rank it as a favorite in JD Power customer satisfaction surveys). It added 218,000 subscribers in the most recent quarter, making it the fastest-growing pay-TV service in the U.S.

Broadband DSL Reports posits that AT&T may be shifting its focus to wireless, and its LTE build out in an effort to keep pace with Verizon. And that's as good a guess as any.

There may, however, be another factor. AT&T's U-verse penetration of the 28 million homes it currently passes is pretty slim. A small bump, a couple of hundred thousand more subscribers in areas it already has deployed, is a much cheaper strategy than continuing to add employees or contractors to push for broader coverage.

It has, in the past, done exactly that. During a January 2009 earnings call, AT&T Chairman and CEO Randall Stephenson said the telco would slow down its then-rapid U-verse build and focus on selling services to the 17 million living units it then passed. U-verse was, he said, the heart of the company's consumer strategy, especially since those customers generally also bought voice and broadband services.

"This is a more elegant build plan," Stephenson said.

U-verse has become the multi-billion dollar business A&T was hoping for. It has reduced churn, expanded customer base and delivers a hefty ARPU.

AT&T may be putting the U-verse build on hold, but I suspect the focus will now move to more aggressively plundering cable TV's often-disappointed subscriber treasure chest of subscribers. --Jim