Thursday, October 18, 2007

"U-Verse in BellSouth Territory?"

DSL reports asks whether U-Verse, AT&T's cable-like video service, is every going to be seen in former BellSouth territory.

AT&T says: Yes...soon...in Atlanta.

The question arises because U-Verse has so far only been seen in former SBC territories--where it has been taken up by 100,000 users--not in any of the areas that were BellSouth territory before the merger. Denizens of the deep south have felt somewhat neglected.

AT&T's offering is interesting chiefly because it is a pure IPTV play; it uses the language of the internet. Verizon, which is driving Fiber To The Home, is using what is really cable technology on its video side. AT&T had considerable trouble getting the technology off the ground but now appears to have a usable product.

The telephone company insists that its product will be competitive but considerable doubt (aired in the article linked to above) exists that this is true. The concern is bandwidth contrainst will keep it from competing adequately on the broadband side (where its speeds do not match even current cable offerings) or on the video end (where many doubt that it has the bandwidth to offer dual HDTV streams). The basic problem is its last mile twisted copper infrastructure. There's only so far you can push old copper--and the phone companies are much closer to the practical limit than are the cablecos.

What most folks seem to expect is that bably Bells will follow the same pattern in video that they have with broadband DSL: offer a slightly inferior product for less--and offer it in some places where cable does not go. Unless they launch a really aggressive attempt to win market share by offering a superior product (as Verizon appears poised to do) the cable companies immediate fiscal interests are served by keeping their higher prices while loosing a few marginal potential customers to a low end phone offering. --Such is the nature of duopoly markets; competing on price is avoided where ever possible. Market segmentation is more profitable for both.

That (basically humiliating) strategy might work in most places to keep AT&T and the other phone companies afloat but it won't work in Lafayette where AT&T will be a third-best, not second-best network. They'll be trying to stand against a competitor in LUS who is clearly determined to undercut the market price of the incumbents using more capable technology. LUS clearly wants to be a broad-based utility and not a player in a segemented semi-monopoly market. Its market plan to lower prices across the board by 20% leaves no room on the bottom for an also-ran. And, incidentally, that same plan leaves no rich pickings on the premium tiers for Cox to use as a consolation for letting the bottom go.

AT&T makes no bones about the fact that it is NOT planning to deploy even the modest U-Verse to all its customers. Its plans work out to serving only about 50% of its customer base even if it mets its buildout goals. And the customers it will not be serving are its "low-value" ones....you and I can both guess how Louisiana shows up on such a ranking.

So the real question is whether AT&T will ever show up to play in the Lafayette market. Louisiana markets, like Southern ones more generally, are markets with lower per capita incomes and hence are marginal anyway under the AT&T game plan. The added challenge of coming up against a local, fiber-optic utility which starts out with prices low enough to destroy your margin may convince them to simply stay away when contemplating the extra costs of upgrading their local net to support U-Verse.

Cox has made its determination to compete plain. But in Lafayette Cox will play the unfamiliar role of the second-best network against LUS' fiber. And LUS won't be interested in taking up Cox's place in a duopoly market...it will compete for the lower-end customer as determinedly as it is allowed to by Louisiana's regulatory agency. (Only in Louisiana would a law be enacted that mandates only regulations that limit the cheapest price a utility can charge the consumer—erecting rules that prevent it from ever charging less—without hinting at limits on the most a utility could charge...unhappily that is precisely what the Cox/BellSouth-sponsored (un)Fair Competition Act does. Go figure. (Go figure that the incumbents understand their difficulty well))

LUS, in this one smallish city, is about to break open a cozy market duopoly that elsewhere in this country will surely solidify further as cable and phone networks seek to secure the best return possible out of their differing network capacities and costs.

I do hope the rest of the country posts a quiet watch on Lafayette. What emerges here will be a lesson in what, in a better world, competition in the telecommunications market could look like.

1 comment:

Counsel said...

AT&T is going to lose a customer--me. AT&T offers DSL pricing at lower cost and with faster upload speeds than AT&T customers who are former BellSouth Customers ($7.95 per month ...).

Now, AT&T won't roll out fiber to the home, and BellSouth had a paper in 1999/2000 describing their basic idea--see http://www.comsoc.org/~ci/private/2000/nov/spears.html

AT&T--you are NOT MaBell, and you are going to lose customers. I would rather have internet phone than have to deal with someone who charges more because I live in the SE USA.

And the idea that "it costs more to roll out service to the SE" doesn't fly. Your costs for fiber to the home, where you have it, is not higher than the cost of cable + internet access...