AT&T's Faulty New Connection—Broadband?

With its new broadband TV service, the giant phone company is betting consumers want to watch TV away from home. But the perk is pricey

by Olga Kharif

On Sept. 12, AT&T launched its first paid wired and wireless broadband TV service. Called AT&T Broadband TV, the service will initially offer 20 live channels, including The Weather Channel, Biography, A&E, and Bloomberg. But analysts are skeptical that consumers will tune into a service that charges nearly $20 on top of existing broadband bills.

Supported by content and technology partner MobiTV, Broadband TV is available nationwide and doesn't require users to buy AT&T-branded broadband access, new hardware, or software. Currently, AT&T (T) offers a 14-day trial with a limited number of channels for free. After that, Broadband TV, expected to appeal to people who want to watch TV programs at work, college students who don't have TV sets in their dorms, and business travelers, will cost $19.99 a month (see BusinessWeek.com, 7/13/06, "MobiTV Lands a Cool $70 Million").

FREE VIEWING.

This steep price seems to hark back to 2004, when AOL rolled out its broadband service that, for $24.95 a month, allowed users to watch video from ABC and CNN. Fast-forward two years: Time Warner's (TWX) videos are now available for free. "What AOL realized was that people already paying $40 a month for broadband aren't interested in paying more," says Gerry Kaufhold, an analyst with consultancy In-Stat. "It seems like AT&T is redoing what AOL has tried, and that didn't work. The pricing just seems completely wrong."

AT&T's Shahid Butt, vice president of broadband entertainment, says that the online video market has changed since the AOL and other video subscription services debuted. Last year, nearly 44.6 million U.S. households had broadband access, necessary for decent-quality video transmission, vs. 6.2 million in 2000, according to consultancy Forrester Research. Butt says AT&T's internal market research shows "there's an appetite to watch TV away from home." The research indicates that users are willing to cough up $19.99 a month because AT&T offers something that's still not easy to find: live channels vs. video clips.

But many analysts are not so sure. "We are not very bullish on being able to charge for broadband TV," says Maribel Lopez, an analyst with Forrester Research. After all, most of the video content available online today, through sites such as YouTube.com, Google (GOOG) Video, and AT&T's own Blue Room, is free. Granted, much of that content is between 30 seconds and six minutes long, but that's changing rapidly.

In April, Walt Disney–owned (DIS) ABC offered episodes of its Lost and Desperate Housewives shows online for free. On Sept. 5, CBS started streaming its evening news with Katie Couric online, and on Aug. 31, CSTV.com launched more than 100 live broadband TV channels of college sports, with many games available for viewing for free (you just have to watch commercials). CSTV.com also is experimenting with subscriptions (see BusinessWeek.com, 7/31/06, "The Phone Companies Still Don't Get It").

À LA CARTE.

By comparison, AT&T Broadband TV's programming doesn't appear to be as extensive. While AT&T plans to expand its lineup to as many as 40 channels within 60 days, that's still a far cry from hundreds of channels most users receive through cable and satellite TV services. And some of its channels, like Fox, will only be available to AT&T Broadband TV subscribers who also buy AT&T broadband service.