The Fight Between Cable and IPTV Heats Up

By Michael Hayes
Thursday, July 6, 2006

SAN ANTONIO — The city that is home to the Alamo, site of the battle that eventually gave us the state of Texas, may soon play host to another historic fight between traditional cable and Internet Protocol TV. AT&T selected the city to fire the opening salvo in its IPTV campaign after recently launching its U-verse service there.

AT&T, which is betting big with U-verse, hopes the new product will revolutionize the way Americans connect to the world outside their homes. U-verse offers TV, data and (eventually) phone in one high-speed broadband connection. Users can view multiple channels at once, instantaneously retrieve information about the programs they are watching and — eventually — access some Internet content through their TV’s.

"We're on the ground floor of something that's going to revolutionize the industry," AT&T installation man Jesse Vallado said. "We have the whole world looking at us."
Vallado, who spent 20 years working for a local cable company, was interviewed for a New York Times feature article on the looming battle between cable and IPTV.

While the technology needed to build an IPTV infrastructure dictates the user experience, whether the service succeeds or fails will come down to attracting users.

To ramp up its subscription base, AT&T has offered deep discounts on its IPTV service. The company’s middle-tier plan comes with 170 TV channel, 31 premium movie channels and 17 music channels, a 3-megabit broadband connection, three setup boxes, a digital video recorder and a WiFi router for $94 per month.

Attracting the first 10 percent of the market to switch to IPTV should be relatively easy because there will always be a segment of people eager to change for the promise of lower prices, Sanford Bernstein telecommunications analyst Jeffrey Halpern said. Picking up the next 10 percent will be the real challenge because most cable and satellite users are either happy with their service or unwilling to go to the trouble of changing, according to Halpern.

Grabbing market share will be a vital issue for both AT&T and Verizon as they seek to recoup capital expenditures needed to overhaul their networks. Verizon spent $18 billion to bring fiber all the way to consumers’ homes; AT&T took a cheaper route, taking fiber only to local neighborhoods and using existing copper cable to go the rest of the way.

While AT&T is not the only phone company to experiment with IPTV, it has made the largest gamble. By the end of 2008, the company expects to have IPTV service available to half of the 38 million homes it provides local phone service to. AT&T predicts that a successful subscription rate will be 30 percent of that market, bringing IPTV to 5.7 million customers in 13 states.

In the meantime, cable companies such as Time Warner, which serves half the homes in San Antonio, have been fighting back, offering subscribers discounted rates and increased content to keep them from jumping ship.