IPUrbia

Om Malik wrote a piece about the the ongoing struggle that the Bells have to stem the bloodflow while trying to transition to a new revenue model. Amid reports of Comcast adding two million voice customers in a matter of months, we hear reports of AT&T getting bogged down with their IPTV rollout. As Om summarizes, “Cable is eating their lunch.” Nicely stated.

It still is too early to call, but, AT&T’s slowdown in their U-Verse (IPTV) rollout couldn’t have happened at a worse time. While it is easy to play fast and loose with someone else’s money, it’s hard to see the wisdom of a massive network upgrade that still leaves your customers with a total of 6Mb/s Internet access. With 100Mb/s DOCSIS 3.0 around the corner and Verizon laying out a fiber network, that 6Mb/s is barely competitive today and a lame horse in 2 years. Their best–and only hope–to surviving the brutal telcom brawl in the residential market is to lock their customers into triple-play packages while the 6Mbs is still respectable. In two years, they won’t be able to win anyone over to their network, so customers they lose now are lost for good.

As a side note, AT&T is signing content deals and does have some leverage to get some good content. Their lower investment does give them the ability to offer premium packages at lower price points and still have good profit margins. It is my guess that this approach is their long-term plan–it’s risky, but it’s not impossible. The main weakness is that it is based on a 90’s approach to the media market. Sooner or later, consumers are going to transition to the Internet for their premium content. That transition is already started for movies and, with Apple, Netflix, Amazon, Google, and Microsoft (an AT&T’s U-Verse partner!), and more scrambling to make that a reality, my bet is sooner than we think.

However, analysis like this does miss an important advantage of AT&T over the cable companies–their network. While the cable companies have the edge over the telco’s in the residential market over the next few years, they fall flat on their face in the business market. AT&T’s massive network with built-in support for MPLS, private and public transport, and all the other bells and whistles is not to be underestimated, and, while residential fiber gets the buzz, the business market has much better margins.

So, it definitely will be an interesting next few years. Get the popcorn and sit back and enjoy the show.