Crunch Time for Project LightSpeed

Project LightSpeed, the much talked about IPTV service from AT&T, is beginning to get some critical scrutiny on Wall Street, with analysts questioning the near and long term potential of Ma Bell’s TV efforts.

Our good buddy John Hodulik at UBS points out that the only thing weighing down on AT&T is Project LightSpeed and the IPTV rollout that is running behind schedule. There have been scalability problems that AT&T hopes will be fixed by later this month. In a note John points out that there are technical snags and that is why AT&T is not marketing the service aggressively.

John predicts that AT&T will have 93,000 subscribers for its IPTV service at the end of 2007, and is generally upbeat about the prospects for AT&T’s U-Verse services that will ride atop the LightSpeed infrastructure. The Wall Street Journal, on the contrary, published a pretty damning update on Project LightSpeed & U-Verse earlier this week, outlining various problems with the company’s IPTV plans. The story noted that:

1. AT&T U-Verse had 4,000 users at the end of the fourth quarter 2006, pretty much unchanged from the third quarter of 2006 that ended on Sept. 30. AT&T wants to offer U-Verse to 20.5 million customers by end of next year. (Readers, please add your own choice of snark here!)
2. There are problems with the Microsoft IPTV software, which the companies say need fine-tuning. Unfortunately, this fine-tuning has been going on for too long.
3. The problem is “channel switching” which is slow according to the WSJ. The fix is to add more servers, which means operational expenses go up, and well the whole thing is a mess, which is not going away with spending some serious dollars. Microsoft has said in the past that it has fixed the problems, and we saw some pretty fast channel switching, but then that was in Microsoft Demo room, so that really isn’t a true real life situation.
4. U-Verse apparently needs 20 megabits/second of bandwidth to transmit video, WSJ says. I am not sure on the exact details, but I remember reading somewhere that the bandwidth requirements are much slower.
5. There are problems with the video compression technology AT&T is using to cram high definition signals over copper.

So what does this all mean? Over next few months expect AT&T to push the satellite TVit offers via its Home Zone service, something we have written about in the past. They own 2Wire, the set-top box maker, and can easily boost the bandwidth available to the homes to create a rather meaningful interactive experience. That may do for a short-term fix while Ma Bell gets its IPTV act together.