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from: Chicago Business

AT&T ready to take on Comcast on TV

By John Pletz
Oct. 13, 2007

AT&T Inc. is laying the groundwork for an assault on Comcast Corp.'s local cable TV monopoly starting this spring, perhaps as soon as April.

Having cleared the legislative hurdles that stood in the way of offering TV here, AT&T is now sprucing up its network of roughly 65 local stores; hiring construction, engineering and call-center staffers, and building out the fiber-optic network needed to deliver its U-verse TV service.

AT&T plans to launch TV service in some suburbs and parts of the city by spring, and aims to reach all Illinois households within three years. A spokesman won't say which areas will get U-verse first, but Hoffman Estates cable TV coordinator Bruce Anderson says his town has been outfitted for the service and expects to be among the first to get it.

AT&T's entry into the local TV market represents the most muscular challenge yet to Comcast here, but observers say it could be an uphill battle for the San Antonio-based communications giant. The trick will be getting customers to switch. The buildout also will take time and will involve some technical challenges, says Patrick Comack, an industry analyst with Miami-based Zachary Research. "AT&T isn't going to hurt cable for a very long time," Mr. Comack predicts.

A local Comcast spokesman sounds similarly unfazed: "It's nothing new. They're already a competitor of ours in the phone marketplace and Internet marketplace."

To wrest customers from Comcast, AT&T will be leaning on price, but there is fine print to read.

Consumers will be able to get TV and Internet service bundled as low as $84 a month, but if unlimited phone service and broadband speeds comparable to Comcast are added, AT&T's offering is more like $129. Comcast offers phone, TV and broadband for $99, but that's a promotional price that rises to $134 a month after one year.

Based on what's happened in other markets where AT&T has taken on Comcast, a major price war is unlikely. But customers could get more features for their money, like high-definition television at no additional charge.

"You have to take what you can get at this stage of the game," says Doug Williams, an analyst for New York-based industry tracker Jupiter Research. "Some competition is better than none."

U-verse, which combines high-speed Internet and TV programming, is AT&T's primary weapon against cable companies such as Comcast as they seek control of the communications pipe coming into consumers' homes.

Getting a foothold in the TV business is no small challenge even for AT&T, the biggest U.S. phone company. For starters, consumers don't think of phone companies as entertainment providers, acknowledges Ralph de la Vega, who oversaw AT&T's entertainment division until being named CEO of its wireless business last week.

So AT&T is polishing its retail presence. In addition to the makeovers of its existing stores, AT&T will open two larger, flashier "experience" stores in Aurora and Oakbrook Terrace by December. That's where AT&T eventually will show off U-verse and push its other products, including wireless phones such as Apple's iPhone.

AT&T has already begun pushing onto Comcast's turf in other markets.

"I wouldn't say it's had no impact. It's had little impact because it's not widely available. We have a lot more of their phone customers than they have of our TV customers," says a Comcast spokesman in Indianapolis, where AT&T launched U-verse late last year.

Phone companies have a strong lure to tempt customers to try their TV service: wireless phone service. Although AT&T isn't bundling wireless or wireline phone service with its U-verse package, it hopes to soon, a spokesman says. Offering one-stop shopping for phone, Internet and TV can be a potent weapon. In a recent survey by Jupiter Research, telecom users said the feature they wanted most was a single bill.

AT&T recently began offering discounts on DSL to existing customers even if they only had wireless service, dropping a previous requirement to be an AT&T wireline customer. The deal, tested in Chicago, was so successful that AT&T is going to roll it out nationwide, Mr. De la Vega tells Crain's.

But before AT&T can start making any offers in Chicago to woo cable customers, it must win approval for a statewide video franchise from the Illinois Commerce Commission. The application is pending.

And AT&T must put a lot of fiber in the ground. Most of the U-verse rollouts in early markets — such as the San Antonio and San Francisco areas — took longer than expected.

Mr. De la Vega declines to say how much AT&T is investing to construct and market U-verse here. But, "as we go along, we've seen improvement in the cost it takes to build it and the time it takes to build it," he says.