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Is AT&T Preparing To Put Its U-verse Video Service Into Reverse?

AT&T DirecTVThat’s the way it looks to Bloomberg: It reports today that the telco is “phasing out” U-verse and has stopped making set-top boxes for it as the company urges new customers to go with DirecTV, the satellite service it bought last year. AT&T says U-verse customers don’t have to worry — at least not yet.

“To realize the many benefits of our DirecTV acquisition, we are leading our video marketing approach with DirecTV, ” AT&T says. “However, our first priority is to listen to our customers and meet their needs, and if we determine a customer will be better served with the U-verse product, we offer attractive and compelling options.”

AT&T didn’t comment directly on the set-top box report.

In August, AT&T’s John Stankey, who’s now CEO of the company’s Entertainment Group, told analysts that over time U-verse and DirecTV customers would have “a new and common customer experience with personalization features, user controls and the ability to integrate managed and unmanaged content.”

AT&T has hinted that current U-verse customers will receive discounts or other financial incentives to stick with the cable-like service. U-verse lost 240, 000 subscribers in Q4 while DirecTV gained 214, 000. AT&T attributed the different results to a strategy that “focused on profitability and increasingly emphasized satellite sales, including U-verse subscribers switching to satellite.”

MoffettNathanson Research’s Craig Moffett called the growth of DirecTV over U-verse “a good trade” because “a big reason AT&T did the [DirecTV] deal was to get out from under the burdensome programming costs that plague U-verse.”

But he still deemed the numbers — with a net loss in video customers — “a clear disappointment.” He warned that U-verse “may become obsolete sooner than expected.”

Bernstein Research’s Paul de Sa also noted last month that by shifting U-verse video customers to DirecTV the wireline service can free about 20Mbps of capacity that it can use to “increase broadband speeds with little incremental capex” — while simplifying its video sales offering.

But that could be risky, he adds, since “consumers do not regard the two platforms as interchangeable – after all, current U-verse video subscribers have already revealed a preference not to take DirecTV (which was available as an option when they instead chose U-verse) – so AT&T will have to reduce prices to stimulate demand.”

The analyst forecast that the telco “will be quite aggressive in terms of promotions and cross-subsidies from other products” to boost the video subscription numbers and “avoid suggestions that the [DirecTV] acquisition was a strategic mistake.”

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