Will AT&T Phase Out U-verse TV in Favor of DirecTV Access?

AT&T Inc. is phasing out the U-verse TV service, a Bloomberg report argues, citing analyst Chris Ucko of CreditSights. “AT&T is going to actively get out of the U-verse business,” said Ucko. AT&T predictably denies the report.

Ucko argues that AT&T is shifting linear video operations to DirecTV, a strategy some had suggested would be the case in territory, as well as out of region, while others believed DirecTV would be relied on primarily where AT&T did not have fixed network footprint.

As evidence, Bloomberg notes that AT&T has stopped building U-verse set-top boxes.

That might be a premature conclusion, though it clearly makes financial sense for AT&T to serve new linear video customers using the DirecTV network.

As an example, per-subscriber content costs are about $17 a month higher for U-verse customers than for DirecTV subscribers, Chief Financial Officer John Stephens has said. That is a meaningful difference for a service that has pressured profit margins and likely faces continued decline.

That is a function of subscriber volume, as programming contracts feature lower prices as volume builds. DirecTV has about five times as many customers as AT&T has U-verse video subscribers.

In part, that is a result of relatively limited U-verse access network coverage.

Of the 57 million households AT&T passes with its broadband service today, only 13 million have U-verse, and only about half could receive U-verse TV, where all 57 million can be sold TV now as part of a bundle from AT&T that uses DirecTV for linear video delivery.

It generally makes sense to harvest cash flow from any declining legacy business, so that would be one explanation for why AT&T might prefer to use DirecTV as the linear video delivery platform of choice.

Of course, capping the incremental revenue from linear video makes the business decision on upgrading the access network more difficult. In essence, high speed access has to carry the load, where it comes to incremental revenue from deploying a next-generation network.

But AT&T might see other alternatives in that area as well. New fifth generation mobile networks might provide another way to supply high speed access, without a full fiber to home upgrade.

Likewise, there might be new opportunities to use fixed wireless, in 5G spectrum, for fixed high speed access as well.

The other angle is that if linear video bandwidth can be repurposed--as cable TV operators already do--then U-verse networks will be able to support higher Internet access speeds as well.

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