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from: The Tennessen

AT&T video debate heats up
Company wants TV franchise that lets it bypass areas
By NAOMI SNYDER • Staff Writer • February 17, 2008

A key point in a contentious debate in the General Assembly revolves around who will get AT&T's new TV service.

It has been rolled out in parts of 12 states, but not yet in Tennessee as a legislative battle over licensing rules plays out in the General Assembly. The cable industry wants to force AT&T to build out to a significant part of the state's population, following longtime local rules where cable companies typically must serve nearly every home in a county.
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AT&T wants legislative permission for a statewide franchise, bypassing local franchise agreements, saying it will increase competition and provide an additional choice that doesn't now exist.

To fight AT&T's proposal, the cable industry has been rolling out ads that include idyllic rural settings it says would be bypassed by AT&T's proposed new fiber-optic TV service.

The cable companies also ran ads for weeks that featured an African-American consumer saying AT&T wants to pick and choose its customers, suggesting the phone company would redline neighborhoods.

The word conjures images of business owners drawing red lines on maps to exclude inner-city neighborhoods from investment.

"There's no have and have-nots in the cable world," said Stacey Briggs, the executive director of the cable industry's Tennessee Cable Telecommunications Association. "Fairness is innate in the franchise program we have today."

AT&T says the company is not cherry-picking in the 12 states where it already offers its TV service, U-verse, and that the company wants to serve as many customers as possible.

"The purpose of video franchise reform is to streamline the franchising process, while protecting local authority, in order to speed the delivery of true competition to the video services market in Tennessee,'' said AT&T spokesman Bob Corney.

This is the second year AT&T has pushed for a bill at the Capitol that would let the San Antonio-based company sell TV services statewide without getting franchise agreements with individual communities.

Analysts who follow the company are not in clear agreement whether AT&T is picking wealthier neighborhoods over poorer ones to roll out U-verse, but telecommunications experts say AT&T is choosing metropolitan and suburban markets over rural areas.

"In rural areas it's too costly and the payback period is too long,'' said Michelle Abraham, an analyst with technology firm In-Stat in Scottsdale, Ariz. "It would take years and years to earn that money back."

The company's TV service is a clear threat to cable companies at a time when they are losing basic cable subscribers. AT&T's U-verse offers up to 320 channels.

Prices range from $44 to $99 a month, with discounts available for those who also buy broadband Internet from AT&T.
Technology isn't cheap

AT&T is stringing fiber optic cable out to neighborhoods and connecting with existing telephone copper cables to provide U-verse. But the technology isn't cheap.

AT&T plans to have spent $6.5 billion to $6.7 billion by the end of this year rolling out U-verse to a number of its phone territories around the nation. AT&T says it needs to get fiber within at least 5,000 feet of a home in order to provide U-verse. The company estimates it will spend roughly $300 per home passed with fiber in the coming years.

AT&T said it now has more than 230,000 customers and is passing 7.8 million homes in 12 states. By the end of 2010, it plans to have access to 30 million homes.

So far, it's choosing urban areas and suburbs around metro markets such as Chicago; Austin, Texas; Bloomington, Ind.; and San Francisco. Most of the states are those in which AT&T has already negotiated changes to state laws or favorable interpretations of the rules.

AT&T won't provide demographic details of its customer base or say exactly what parts of counties or cities it serves. Industry newsletter publisher The Bridge Data Group analyzed neighborhoods where AT&T and Verizon had launched TV service and found that they tended to prefer wealthier than average neighborhoods.

AT&T's U-verse served neighborhoods with an average household income of $74,000 a year, compared with a national average of $65,000, the group said.

"It's extremely expensive to lay the fiber,'' said Michael Nelson, an analyst with the Stanford Group Inc. in New York City. "They really want to selectively lay the fiber in neighborhoods that will have the largest return on investment."

Abraham said she doubts AT&T would concern itself as much with neighborhood incomes as with how close homes are situated together. The denser a neighborhood, the more customers for AT&T, she said.
AT&T disputes study

The Milwaukee Journal Sentinel studied the locations of permits awarded to install AT&T's equipment cabinets for U-verse neighborhoods around that Wisconsin city. It found that of 250 permits, only 15 were for census tracks in which the median household income was less than $24,130 — the federal poverty level for a family of five.

AT&T disagreed with the Journal Sentinel's analysis and said many of the low-income census tracts cited in the study were not primarily residential areas. AT&T says it does not discriminate and has committed to providing access to 5.5 million low-income households within three years, or 18 percent of the total customers who'll gain access.

"Right now AT&T has zero video customers in Tennessee,'' said Corney, the company's spokesman and a former Gov Phil Bredesen aide who left state service last month. "We want to get this to as many customers as practical. This legislation is about bringing real choices and greater choices to the consumer."

Corney pointed to a 2006 Federal Communications Commission order that said build-out requirements for new cable systems actually hinder competition and that such requirements ought to be "reasonable."

Some legislators who support statewide franchising say the technology will benefit the state, even if AT&T isn't required to serve rural areas or a certain number of low-income households.

"Up to now, we've had nothing,'' said state Rep. Charles Curtiss, D-Sparta, a sponsor of legislation pending in the House. State Rep. Steve McDaniel, R-Parkers Crossroads, said he recognizes that rural areas wouldn't be the first to get U-verse.

"There's not competition to speak of, anywhere," McDaniel said. "It's a free market system that will drive technology into all areas of the state."

Contact staff writer Naomi Snyder at 259-8284 or nsnyder@tennessean.com.