AT&T, DirecTV give credence to partnering

This week, AT&T made its relationship with DirecTV official, offering a co-branded satellite service in 22 states. The deal is a reincarnation of AT&T’s Homezone service with Dish Network, discontinued last summer, and makes DirecTV the exclusive satellite partner for AT&T, Verizon and Qwest Communications. For fellow telcos struggling with IPTV deployments, the launch should reaffirm that there is still power in a partnership.

In a press release on the launch, AT&T said that it will offer a quad-play bundle of TV, broadband, home phone and wireless service with DirecTV — something cable still cannot do. The companies also plan to extend their combined services — AT&T’s broadband and wireless and DirecTV’s exclusive content — so customers can access programming on any of their devices, including the TV, PC and wireless handset. The service starts at $29.99 per month for the Family package of 45 channels. Higher-tier packages come with one-year promotional pricing, and a $5 discount applies to those consumers who bundle. AT&T's basic IPTV U-verse plans start at $49 for up to 120 channels, local channels and video-on-demand (VOD).

AT&T said cutting ties with Dish was just procedural for the end of a contract, but at the time AT&T accounted for about 15% of Dish’s total subscriber base; their separation preceded the satellite operator’s first-ever subscriber loss in the second quarter. The end of the Dish/AT&T relationship meant that while the telco would continue to support its existing customers, it wouldn’t sell the service to new ones. For a while it appeared AT&T was throwing all its weight behind U-verse, but now it seems the tables have turned. On its fourth-quarter earnings call, AT&T said it is slowing down its U-verse buildout by one year, focusing on selling services to the 17 million living units it already passes today. Despite the tempered expectations, Randall Stephenson, CEO and chairman of AT&T, said that the company still expects U-verse to be a multibillion-dollar business, as well as the heart of its consumer strategy as U-verse subscribers also tend to be broadband and voice subscribers.

Even though U-verse had its best quarter ever with 264,000 net adds, the cost of consumer acquisition and network buildout were still too high and the scale still not great enough — the same reasons cited by SES Americom for discontinuing its IP Prime service. On the satellite side, AT&T reports more than 2.1 million customers — nearly double that of U-verse — so while U-verse may be the heart of its consumer strategy, satellite is clearly the money-maker. AT&T’s TV options exist because U-verse can’t reach all the areas that satellite can; however, some saw it as a stepping-stone to the day U-verse is ubiquitous. Now, with the high costs and continued low adoption of IPTV, I think the two will have to co-exist for many years to come.

My bet is that most consumers don’t care — nor often know — what the infrastructure is that brings them service. They want features, high-definition programming and VOD, and of course low prices — whether it’s from satellite or IPTV is irrelevant to most. Based on this assumption, and given the cost and time involved with rolling out IPTV, the more a telco can partner, the smoother the path will be. The same applies to over-the-top video and Internet content. I’m not saying AT&T should give up on IPTV by any means, but its experiences can be a barometer for other, smaller telcos entering the TV business. It will be interesting to see the subscriber numbers from the DirecTV/AT&T relationship and U-verse over the next year, but the relative success of the two thus far should show carriers that there’s no shame in asking for help.

E-mail me at sreedy@telephonyonline.com.