AT&T to spend billions on net TV

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AT&T is raising its bet on TV by more than $1 billion.

The telco giant has revised the estimated expenditure for its struggling IPTV offering known as U-Verse for this year and 2008, according to a 10-Q filed Friday.

In addition, AT&T will have to spend more to reach fewer subscribers than initially projected: The target subscriber base was lowered by 1 million to 18 million homes.

U-Verse, which delivers TV via Internet to select markets, initially was expected to require $5.1 billion to reach 19 million homes by 2008. But the latest estimate envisions AT&T dishing out as much as $4.5 billion over the next two years, which amounts to a $1.4 billion increase over the original cost projection.

AT&T has reported just 20,000 U-Verse subscribers to date, a drop in the bucket compared with the cable industry's sizable advantage in the multichannel category. U-Verse has encountered legal and technical problems, resulting in AT&T putting the service in four fewer markets than originally expected last year.

In addition, AT&T indicated in the 10-Q more potential pitfalls in further deployment, particularly the specter of outsourcing U-Verse installations.

"Our rate of expansion will be slowed if we cannot hire and train an adequate number of contractors and technicians to keep pace with customer demand or if we cannot obtain all required local building permits in a timely fashion," according to the 10-Q.

Pending legislation also is key to ramping up U-Verse market penetration.

"If the courts were to decide that state and local regulation were applicable to our U-Verse services, it could have a material adverse effect on the cost, timing and extent of our deployment plans," according to the 10-Q.

However, Wall Street seems to have turned somewhat more optimistic on Verizon Communications' FiOS TV service, which added 141,000 net new subscribers in the first quarter to end it with 348,000, according to the company. It also recently reported that the number of net additions per business day has risen compared with the fourth quarter.

In addition, cable executives indirectly gave Verizon shares a boost when they signaled that their subscriber growth momentum and especially their user churn, or customer turnover, has been somewhat affected by the competition from FiOS.

Cablevision Systems COO Tom Rutledge said in a quarterly earnings call that he believes his company's churn has been impacted by FiOS. Similarly, Comcast Corp. COO Stephen Burke said at his company's analyst and investor day that some of his firm's customers seem to have moved to FiOS.

Some analysts took these comments as a sign that Verizon is making more inroads against cable operators than AT&T and that its big infrastructure investment is starting to pay off.

Verizon has estimated it will have to spend $18 billion between 2004 and 2010 to roll out the fiber network needed for FiOS.

Georg Szalai in New York contributed to this report.
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