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Telco TV

$20 Billion Question

2/03/2006 7:03 PM Eastern

AT&T Inc. continues to glow about its plan to beam television programming and other services as pulses of light on glass fibers feeding into neighborhoods around the country, this time telling a group of analysts at a New York conference last week that the technology will force cable operators to pony up $20 billion or more in network upgrades to keep pace.

Through AT&T’s Project Lightspeed, customers will be able to receive three streams of regular TV programming, one high-definition signal and high-speed Internet service, all at once, said John Stankey, AT&T’s senior executive vice president and chief technology officer. Connections will operate at 20 Megabits per second or more, he said.

Other technology improvements, such as better video compression, will free up even more bandwidth to deliver multiple HD streams, “which we expect to deliver in mid to late 2007 — as well as additional headroom for bandwidth in those circumstances where it is needed,” Stankey said.

By contrast, Stankey said cable operators will face a constrained cable plant because of their dependence on coaxial cabling, which has less capacity, he said. Cable also faces limited prospects for improvement in quadrature amplitude modulation, the core transmission technology that packs data bits onto signals sent through cables, he said.

Cable operators can fit more data within the signal by varying the height and the length of the carrier waves.

To keep up with what AT&T is doing, Stankey said, cable operators will still be forced to either cut analog channels or switch to new compression technologies such as MPEG-4, which can deliver an HD signal at half of the bandwidth of the current 19.8 Megabit-per-second MPEG-2 stream. MPEG-4 broadcast, though, will require costly new set-top boxes and network-transmission gear, Stankey said.

“Consequently, the reality is they are going to be faced with significant spending — at the low end probably around $20 billion in the coming years,” he told the analysts.

But Lightspeed won’t come cheap for AT&T, either. It expects to spend $1.4 billion this year, $1.7 billion in 2007 and $1.3 billion in 2008 for construction. That will buy Lightspeed a growing network that reaches 3 million homes passed now to 9 million homes by the end of 2007 and 18 million homes by the end of 2008.

Project Lightspeed is expected to expand from a controlled deployment in San Antonio, starting some time this summer. AT&T plans to roll out a Lightspeed-powered video service known as U-verse to more than 20 markets by the end of this year, Stankey said.

At $4.4 billion total for the next three years, the capital expense is “a little higher than we thought, due to our desire to build a more robust core video infrastructure,” Stankey said.

For that, AT&T will build two Internet Protocol superhub offices — one of which is already built and operational. AT&T won’t say where they’re located, but the superhubs will receive and process video content, sending it in a compressed format to regional video hub offices in each metropolitan market served. From there, the video go to local offices, serving an area a little larger than a traditional local office now supplying digital connections to customers.

By replacing copper with more fiber links reaching closer to the customer premise could save the telco as much as $700 million in annual operational costs by 2011, Stankey said. Stankey noted replacing copper with fiber optic line in the segments between the central office and a digital multiplexer — the telco equivalent of a cable headend — will cut out 99% of the maintenance costs for that segment. Likewise, replacing the segment from the multiplexer to the neighborhood drop connecting to customers will cut maintenance costs 47%.

It also can ramp average revenue per user, particularly when it comes to video now delivered under AT&T’s co-marketing agreement with EchoStar Communications Corp.’s Dish Network direct-broadcast service.

For just video, AT&T estimates its average revenue per U-verse IPTV user will be at least $60, in line with the typical monthly revenue for existing AT&T DISH customers, “and there is no reason Lightspeed can’t match or exceed these levels,” Stankey said.

AT&T also expects U-verse to claim 30 percent of the television homes in markets it serves, by 2010.

By the time AT&T extends Lightspeed at mid-year, it also aims to increase its lineups of cable networks and on-demand title s, including more HD channels. It also plans to have in place a digital video recorder service that can ship around content to multiple sets in the home, Stankey said.

“We’re working with some of the best in the business to make this technology and network a reality, and we fully expect to launch our service by mid-2006,” Stankey said.

 

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