AT&T announced the launch of ConnecTech, a bold move into the home tech support market, and a direct shot across the bow of competing services from Best Buy, Circuit City, and others. ConnecTech will offer “television and home theater installation and personal computer and home network setup, plus an extensive list of repair services.” Home tech support services are growing among the telecom service provider community. Both large and small carriers are seeing the natural evolution of supporting customers in the home with the entertainment and broadband solutions they are increasingly marketing. Rather than just selling a service, these types of support services allow service providers to strengthen customer relationships by helping simplify the growing complexity of installing and managing entertainment and broadband products and services. Of course they also hope to gain some competitive advantage, and make a little money at it too.

It remains to be seen if this is a good business move from a dollars and sense point of view. But I do believe this is a smart move from a competitive positioning point of view. Despite all the cool applications that broadband and entertainment convergence products can do, they can create potential areas of frustration with customers. The average customer has no interest in configuring their wireless router, but they do have an interest in enjoying the experience and convenience a properly configured wireless router can deliver. Service providers that enable that experience and convenience only strengthen their relationship with customers, as well as enhance their brand and visibility. These types of enhancements also strengthen a service provider’s ability to effectively compete. Of course all of these benefits are only won if the tech support service works. By that I mean, technicians show up on time, calls to customer service are answered quickly (and by human beings), and technical problems are resolved to customer’s satisfaction the first time. If expectations are poorly met, these tech support services could backfire and do just the opposite – weaken customer relationships and brand equity. Moral of the story – if you launch these services – make sure they work - the first time. If not, you’re better off without them.

There’s no denying that DSL sales took a beating last quarter. AT&T might be trying to do something about it. They announced a new promotion that locks in DSL pricing for two years without the need for signing a contract. They’re also taking direct aim at cable companies, who’ve been known to promote a term contract or two, albeit less so lately. In a company statement, AT&T says the new pricing promotion offers “a guaranteed monthly rate for two years without the hassle of a term commitment like those of cable companies.” The guaranteed monthly pricing applies to residential AT&T High Speed Internet products, including the company's standalone and AT&T U-verse DSL packages, although some of their lower tier DSL packages don’t qualify.

At first glance, you kind of walk away somewhat unimpressed with this promotion. You can’t knock AT&T for offering promotions of any kind. But if the objective of this campaign is to significantly boost new DSL additions, I’m not sure this will be enough. I’m hoping AT&T is doing some market research to find out exactly why new broadband purchasers have been more likely to choose cable modem over DSL lately (by the way AT&T and others, our sister company, Pivot Group, is happy to oblige if said consumer research services are needed). Maybe some research revealed this issue to be a flashpoint. But it seems to me, more tangible issues also need to be addressed, including better throughput speeds (in both directions) and other value added applications. Giving free access to AT&T’s Wi-Fi network is a great start.

Recent discussion about cable companies beating telcos with new broadband additions has reignited the debate of FTTH and justifying its expense. One argument suggests that cable companies appear to be winning the current broadband battle because their network is superior to a telco’s copper and DSL based network. FTTH would level the playing field, the argument suggests. There is some evidence to support this theory. When you look at Verizon, they did see a big drop in DSL adds last quarter – but they also added new FiOS broadband customers at a much faster rate than DSL customers. But at what cost? In a recent New York Times article, Craig Moffett, an analyst with Sanford C. Bernstein is quoted as saying “… that Verizon would be $6 billion in the hole [as a result of FiOS] when all was said and done.” The New York Times article examines both Verizon’s and AT&T’s strategy for meeting the cable competitive challenge. It’s illustrative of an ongoing debate faced by telcos – should I “bite the bullet” and go with FTTH now, or should I try to extend the life of my copper plant investment for as long as possible. Both sides of the argument have merit.

The extending copper plant argument suggests that you should not strand too much investment in a new wireline network like FTTH, when the technology environment is changing so rapidly. Among other ongoing developments, there is no denying the momentous shift towards wireless for both voice and data. So there is some concern that plowing all this investment into FTTH may not pay off. The New York Times quotes AT&T CTO John Donovan as saying, “The last thing we want to do is overdeploy fixed capacity into the ground where there is no recovery for being wrong by putting in too much.” You certainly can’t disagree with the premise. Of course there is always a flip side to every argument. The competitive race is going on right now. The last thing any telco can do is stand still. FTTH proponents will argue, indecision will just allow cable competitors to pick you off, using a robust triple play bundle, powered by their “superior” network. So while you may not have “over invested” in a FTTH network, you also may not have a stable enough customer base to continue as a going concern over the long term.

What gets lost in this argument, especially when put into the context of Verizon and AT&T, is the impact of wireless. AT&T and Verizon can both afford to somewhat gamble with their wireline network of the future choice. The reality is, both of these companies are now really wireless companies, with wireline assets. Wireline derived revenue is increasingly becoming a minority of their revenue generation. If either of them mis-steps with their wireline strategy, they can afford to adjust accordingly. Other telcos who do not have that luxury are much more at risk with this decision. If you don’t have wireless, then your future obviously rides with broadband. Becoming the best at offering broadband in your given market should be the aim. Deciding on which route to take to achieve that objective will depend on a variety of factors. Factors like consumer preferences, competitor capabilities (present and future), technology innovation implications, and market demographics and firmographics, to name a few. Telcos need a comprehensive understanding of all of these factors before deciding which direction to take. Once these issues are understood, decisions about pulling the trigger on FTTH now, later, or never are much easier to make.

AT&T announced that U-verse is live in Wichita, Kansas. U-Verse TV, broadband, and U-Verse voice are all now available in Wichita. AT&T has not been uniform with the launch of U-Verse voice at the same time as U-Verse TV. Some markets wait several months after the launch of U-Verse before the voice portion is available. "With the launch of AT&T U-verse TV, Wichita customers are finally getting a better choice to break free from cable," said Kristopher Ryan, AT&T general manager for Kansas and Missouri.

AT&T announced a partnership with Yahoo! Sports Fantasy Football. The fantasy football feature will utilize the U-Verse U-bar to track fantasy teams and scores. The U-bar offers other interactive features focused on sports, weather, stock and traffic information. In a statement, G.W. Shaw, AT&T executive director of U-verse marketing says, “Because of the powerful integration that Internet Protocol (IP) enables, we're able to bring your personalized fantasy sports and NFL information directly to your TV screen.” The basic service is free, but a premium service featuring StatTracker, a real-time application that tracks player, team and league statistics, for $9.99 is available.

AT&T may look to WiMAX to provide broadband in rural markets, according to their CTO John Donovan. “WiMAX could come in handy in some U.S. markets, particularly rural areas where it's becoming prohibitively expensive to maintain copper,” quotes the USA Today in an interview with Donovan. It’s somewhat puzzling to hear AT&T talk about WiMAX, when they’ve committed to LTE for their 4G migration. But, they also already have WiMAX operating in Alaska and in some old Bell South territories. It’s conceivable for them to use LTE as their primary 4G technology, while using WiMAX to fill in gaps, particularly as a wireless DSL product in more rural markets.

Should AT&T find success in offering WiMAX in rural territories, what might become of their copper networks in these territories? We all know that U-Verse isn’t coming to too many rural markets, and if AT&T can provide a wireless local loop, will they need a copper infrastructure at all in these “non-strategic” markets? We could be witnessing early planning of a coordinated rural market divestiture strategy by AT&T. Serve rural consumers wirelessly with both a mobile product and a wireless DSL product, and give up (i.e. sell) that costly wireline infrastructure entirely. What do you think?

The triple play has historically been defined as a bundle of voice, video, and broadband. And of late, the cable industry seems to be executing a triple play strategy quite well. For example, Comcast’s triple play strategy execution has helped vault them to the fourth largest phone company in the U.S. (by access line count) – all within three years. How many decades did it take Embarq/Sprint to be the fourth largest traditional phone company? If you look at recent quarterly reports, cable companies seem to be executing the triple play better than their telco competitors. Take a look at each industry’s core product. Comcast lost 132K of its core product (basic video subs) last quarter. AT&T and Verizon’s losses in core product (switched access lines) are now being measured in millions each quarter. Current indications suggest that a triple play bundle of voice, video, and broadband favors cable companies.

But what if the future of triple play really involves wireless? Whenever wireless is injected into a bundle discussion, it’s seems to be as a part of a “quad play” – voice, video, broadband, and wireless. But what if we redefined triple play as wireless, broadband, and video. If the future of wireline voice service lies with IP, then there really is no reason to delineate voice and broadband separately. The two should be combined into “broadband,” since voice will simply be one of many broadband applications (you could conceivably say the same for video, but that’s the subject of another post). In this regard, future triple play strategies may shift to wireless, broadband, and video. If so, than despite the short term troubles of telcos relative to their cable competitors, the long term looks quite bright for the telcos who are fortunate to have wireless assets. Consider that in 2Q08, AT&T’s ($12 billion) and Verizon’s ($12.1 billion) individual revenue from wireless alone dwarfs Comcast’s total revenue of $8.5 billion. So while telcos may be licking their wounds over switched access line losses in the short term, they may well be positioning themselves for long term triple play dominance, with wireless at the center of their strategy.

Comcast released their quarterly numbers today, and they potentially offer some bad news for telcos. It begs the question, is cable pulling away from telcos in the competitive race? Perhaps. But we also know this race is a marathon, not a sprint. First let’s look at some numbers for Comcast’s 2Q08:

• 278K new broadband subs in 2Q08, 14.4 million total, representing 29% penetration of homes passed
• 555K new digital voice customers, 5.64 million total, representing 12.5% penetration of homes passed
• Lost 138K basic video subs, but gained 320K digital subs

Pretty impressive when put into the context of their major telco competitors, who are "licking their DSL net adds and switched access line loss wounds." I guess we know one of the reasons why DSL growth slowed so much last quarter. From a 2Q08 perspective, Comcast kicked telco butt. Sanford C. Bernstein & Co. Inc. analyst Craig Moffett tells Light Reading’s Cable Digital News, “...that U.S. cable will own as much as 90 percent of the broadband net additions when the book on second quarter is closed.” What’s even more alarming for telcos is that Comcast CFO Michael Angelakis revealed that new, “premium Internet tier” additions were added at a four-to-one ratio when compared to their “economy” tier. That suggests that cheaper priced broadband is not as appealing as faster more robust packages. If that is indeed true, than DSL may be in even more trouble. DSL is considered the “value” option because, generally speaking, it costs less than cable modem. But if customers are opting for faster bandwidth over cheaper pricing, cable may have an inherent advantage. An advantage that will only be enhanced when DOCSIS 3.0 or wideband becomes more available. Are all the “value” conscious broadband subscribers gone?

Recent quarterly reports from the likes of AT&T and Verizon paint an ugly picture for DSL. AT&T’s DSL growth rate slowed significantly last quarter, adding only 47K net new subscribers. Verizon fared much worse, losing 133K DSL subs. It’s true that Verizon’s marketing attention is FiOS right now, which certainly contributes to their DSL losses, but are those losses a reason for concern? Maybe. In their last quarterly report (1Q08), Comcast reported that 66% of their new cable modem customers defected from DSL. On the surface, one could argue that DSL is losing the broadband war. Perhaps this issue is apropos to Verizon and AT&T alone. Both of them are somewhat distracted. As mentioned earlier, FiOS has all the attention at Verizon and AT&T is in the midst of iPhone mania. It might not be fair to generalize DSL’s woes based on those two alone. As other telcos release their quarterly numbers, we may see a more general trend that either supports or detracts from this potential DSL growth hypothesis.

We all know that broadband growth is slowing. And the U.S. economy and the uncertainty it creates doesn’t foster great conditions for growth in any sector. These factors may be impacting DSL’s apparent slowing momentum. But what’s troublesome for DSL carriers per the economy, is that DSL has historically been the broadband “value play” (across a national average – this “value” price advantage is not present in every market). Logically speaking, in this economy, DSL should be holding up well relative to other more expensive broadband options. To get a true picture of DSL’s potential trouble, we’ll have to closely examine upcoming cable modem numbers. If cable modem additions are not slowing at relatively the same pace, DSL may indeed have a problem. It may signal telecom carriers will have to increase their efforts to make their bundle more attractive and their value proposition more relevant with subscribers. As their quarterly numbers reveal, AT&T and Verizon have less to worry about on this issue, because wireless revenue comes in to save the day for them. DSL carriers who don’t have that luxury may indeed need to ask what’s wrong with DSL. What is your DSL experience revealing for you?

AT&T announced their intention to oppose the Sprint-Clearwire venture. AT&T says the regulatory review process isn’t robust enough because Sprint and Clearwire are under reporting the amount of spectrum they will actually utilize. AT&T argues that if all the spectrum represented by the Sprint-Clearwire merger were represented, the FCC would have to scrutinize the merger more closely. This issue, they argue, is grounds to deny the merger.

AT&T has reason to kill the merger. The combined entity will have the capability to get 4G to market before AT&T Mobility. In addition, the new Clearwire will empower cable companies to gain a wireless product. Both of these developments potentially impact the core of AT&T’s growth engines – wireless and broadband. A successful Clearwire will grab existing and potential market share from AT&T Mobility. Additionally, Clearwire’s cable partners will conceivably gain “three screen” capability, allowing them to counter AT&T’s current competitive advantage.