AT&T / U-Verse Stumbles, Verizon / FiOS excels

Implications: 1.AT&T U-Verse has encountered legal technical and outsourcing problems, resulting in AT&T putting the service in fewer markets than originally expected. 2. Verizon FiOS is making inroads to Cable Vision Systems and Comcast Communications coverage areas 2. Verizon FiOS is making inroads to Cable Vision Systems and Comcast Communications coverage areas

Analysis: AT&T has reported just 18,000 to 20,000 U-Verse subscribers to date, a drop in the bucket compared with the cable industry's sizable advantage in the multichannel category and Verizon’s FIOS growth of 141,000 net TV subscribers over the last quarter. U-Verse has encountered legal, technical and outsourcing problems, resulting in AT&T putting the service in fewer markets than originally expected last year.

According to AT&T’s 10-Q, “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." Furthermore, “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."

For the other main multi-service telco, Verizon Communications' FiOS service, Wall Street has been optimistic. FiOS added 141,000 net new subscribers in the first quarter to end it with 348,000. Verizon recently reported that the number of net additions per business day has risen compared with the fourth quarter.

Cable executives have signaled that their subscriber growth momentum and especially their user churn has been affected by the competition from FiOS. Tom Rutledge, Cablevision Systems COO, said in a quarterly earnings call that he believes his company's churn has been impacted by FiOS. Furthermore, Comcast Corp. COO Stephen Burke has said at his company's analyst and investor day that some of his firm's customers seem to have moved to FiOS.