Verizon Leading AT&T on IPTV…for now

The triple-play derby is normally viewed as a contest between the cable providers and the phone companies. Cable companies have been busy stealing the phone company customers with cheap voice plans, and seem to have an early lead against their archrivals.

As 2006 comes to an end, it is time to take a look at the performance of two major phone companies – Verizon and AT&T – and the progress they have made in their IPTV/New Broadband business. To our surprise, despite Verizon’s dig-to-add-fiber strategy, it is doing much better than the new new Ma Bell.

John “CZ” Czwartacki over on Verizon’s PoliBlog lists some of the big achievements of Verizon FiOS efforts in 2006, in a fairly elaborate document. And despite our constant skepticism, they have made some solid progress, though Wall Street tends to be as much of a Grinch as us.

While CZ doesn’t update the number of FiOS TV subscribers (118,000 at the end of third quarter 2006) or the number of fiber broadband subscribers (522,000 at the end of third quarter 2006), he does point out that as of late December 2006, Verizon had 274 local video franchises. (That’s before Kevin Martin, the FCC commish, gave the phone companies an early Christmas present and helped get rid of the franchise laws that were slowing down the video rollouts.)

Those 274 franchises translate to about 5.4 million households, CZ says. He brags that with churn rate below 1.5%, customers seem to like what VZ has to offer. At the end of 2006, Verizon expected to have 175,000 video customers.

In comparison, AT&T seems to be making much slower progress. For instance, it had promised to roll out its LightSpeed Network in 15 markets by end of 2006. Last week, it changed its tune, and now says it will have 11 markets on “LightSpeed” by the time the clock ticks over to 2007.

The service is available in some parts of San Francisco, Oakland, Fremont, San Jose, Sunnyvale and Santa Clara. Not the entire Bay Area, mind you, but parts of it. Other cities where the service is available include San Antonio and Houston, TX. Service is expected to be rolled out in Indianapolis shortly.

It is a disturbing development. “The delay in launching in its target 15 markets by year-end is further evidence of the hurdles the company faces in getting the HD IPTV product to market in scale,” writes John Hodulik, telecom services analyst with UBS, in a note to his client.

Good point! This makes us think that AT&T might not be able to meet its own goals of reaching 8 million homes with Lightspeed by end of 2007 and 17 million by 2008. They were supposed to pass 2.4 million homes by end of 2006, but that clearly isn’t happening. In cities AT&T has announced availability, it is limited availability. Hodulik in part blames the delays to Microsoft IPTV software.

We believe much of the delay AT&T has been experiencing is due to the slower
than expected delivery of Microsoft’s IPTV software embedded on new, system
on a chip (SOC) infrastructure. MSFT 1.1, launched on October 9, supports
single stream HD and VOD. Later next year, Microsoft plans to upgrade its
software to provide whole home DVR capabilities.

The delay in opening new markets is likely caused by the inevitable tweaks and patches that will be needed to make sure the infrastructure scales given the expected demand for HD, VOD, and fast channel change, which all add to the complexity. (UBS Telecom Daily Report, December 22, 2006)

These delays might put AT&T at a disadvantage. In San Francisco, Comcast is being super-aggressive in getting folks to switch, and they are not even enforcing annual contracts. (Tells you something when cable companies are nice to customers, doesn’t it!) 2006 was full of fireworks; I cannot wait for 2007 to unfold.