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AT&T and Verizon Refocus TV Strategies as Landscape Shifts Underneath Them

AT&T U-Verse, Verizon FiOS entered fray when pay TV was a cash cow, but now consumer demand is shifting to mobile and Web delivery

A few weeks ago, I interviewed Apple co-founder and tech legend Steve Wozniak for a keynote conversation at the MindTrek conference in Tampere, Finland. I asked Woz what the world might look like in 2050, 100 years after his birth.

Woz is a pretty good futurist, but he demurred.

“With technology, when I guess one year ahead, I can sometimes be kind of close,” he said. “If I guess two years ahead, shocking surprises tell me that, oh my gosh, it goes in some totally different direction. So as a feet-on-the-ground engineer, I can’t predict that far out.”

I’ve dabbled in writing science fiction, so I love to play futurist myself, but I can’t argue with Woz. Tech CEOs like to imagine they’re playing chess, and if they study the game board hard enough, and they think far enough ahead, they can position their company to be ready for emerging trends.

But I think they’re really playing a game that’s more akin to shooting pool by candlelight during an earthquake. Nobody can really see very well, and the darn table keeps rearranging itself without warning.

One space where this is playing out is telco TV, namely AT&T U-verse and Verizon FiOS. Eight years ago, the telecom giants sailed into the pay-TV waters with great fanfare. Today, they seem to be making a course correction.

Verizon announced last year it was ending further expansion of its fiber-to-the-premises (FTTP) FiOS service. FiOS is popular where it’s available, but installing fiber-optic cables all the way to homes is expensive, and Verizon decided to shift resources to its LTE mobile network.

AT&T U-verse is in 139 markets in 22 states, and boasts around 5 million subscribers. It has been upgrading its interface and expanding its on-demand movie service to compete with Amazon and Netflix. But where U-verse once could advertise superior TV features, now Time Warner Cable is touting its superior DVR. (Disclosure: I am a U-verse subscriber.)

In the few years since the telcos got into pay TV, the Great Recession, the rise of mobile video and the popularity of over-the-top streaming have scrambled their game board.

The recession was the biggest economic shock since Mary Pickford was an Oscar contender, and it’s still depressing demand for premium-TV services. The rise of mobile video and over-the-top streaming look inevitable in retrospect, but when the telcos launched their TV services, BlackBerry was cutting edge and the iPhone was still more than two years in the future. Mobile video meant watching low-res video on your laptop. The imminent emergence of streaming services wasn’t obvious, either.

AT&T and Verizon may have entered a world where pay TV was a cash cow, but now consumer demand is shifting to mobile and Web delivery. Both companies are well positioned to handle that demand, since they offer broadband and mobile products, but expanding their pay TV services as well would require an enormous amount of capital, which is hard to muster as demand stays depressed.

Meanwhile, the introduction of Google Fiber — another potential earthquake — seems to have prodded the telcos to work on upping broadband speeds again.

And as they adjust, the ground may be about to shift again. Ultra-HD TV demands a lot of bandwidth, and it’s not clear who will step up to deliver it to homes. The AT&T and Verizon fiber networks could fill that void, by either boosting Web speeds for streaming or by offering UHD pay channels.

But UHD is just arriving at retail, and it’ll probably be five to 10 years before there’s mass adoption of UHD TVs. When I ponder the UHD future, I hear Woz’s voice in my ear: It’s hard to guess what the landscape will look like in three years, much less 10. The telcos seem to have learned that along with the rest of us.

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