As published in the November 1, 2008 Toledo Business Journal

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Michael E. Kehoe(L) and Dennis J. Hellmann (R)

 

Michael E. Kehoe
AT&T Ohio

AT&T brings video services
to Toledo

Toledo Business Journal recently interviewed Michael E. Kehoe, AT&T Ohio vice president, and Dennis J. Hellmann, AT&T Ohio director external affairs. They shared the following thoughts.

Toledo Business Journal: Can you discuss major trends and changes taking place in the telecommunications industry, including cellular phone usage, wireless Internet, Wi-Fi, and WiMax?

Michael Kehoe: One trend we want to talk about is the increased usage of the wireless phone for Internet access, other data such as the video over the phone, and also texting. There is tremendous growth in that regard.

As of October of this year, we had seen more text messages across the network than last year saw total. We saw 90 billion text messages over our network last year.

One of the predecessors to the WiMax is the Wi-Fi. WiMax has been in the labs, and people are looking for applications for it and trying to perfect the technology. I think the hardware is probably close to stability and usage such that you?ll see it implemented more and more.

If you do bring it out, where can you use it? My suggestion would be for rural area applications. But, there's a cost to that. I could see WiMax replacing Wi-Fi in some larger corporate applications.

It's definitely a technology of the future as well.

The world of telecom as we know it today, is very exciting. From an AT&T perspective, there have been a number of consistent quarters of growth turned by three main engines and a fourth one that is trucking along as well.

First is our wireless unit, AT&T Mobility. The tremendous growth quarter upon quarter continues. The July launch of the new iPhone and the tremendous response to that will be reported with the third quarter results. Through the second quarter, AT&T Mobility had shown tremendous growth. Not only in growing additional lines, but also in the wireless data.

Internet access and text messaging continue to just take off. I could also add to that video on the cell phone. That's another dimension of the wireless world today.

So, clearly mobility is one of the huge growth engines for us. The second one, not quite as large, is high-speed Internet service as people migrate from dial-up service to high-speed Internet. There are multiple speeds available, and we're looking at ways to make even higher speeds available.

The third growth engine is the video world. Today, if you were in Columbus and you called in for traditional telephone service, we would sell you that along with high-speed Internet and then ask if you need video service. Because we have available AT&T U-verse TV or, if that's not available in your neighborhood, we can offer you Dish Network TV. We'll continue co-marketing Dish TV through January 2009 and then in February we'll begin offering DIRECTV.

When we acquired BellSouth a little over a year ago, it had an agreement with DIRECTV. AT&T had an agreement with Dish. Both agreements are running out this year, and after head to head negotiation we have selected DIRECTV as the platform for the future for satellite.

But the main driver for video right now is AT&T U-verse TV. That will be available in the Toledo market before the end of the year.

The fourth growth engine would be our business services and our major corporate accounts, such as Owens-Illinois, Huntington Bank, Nationwide Insurance, Procter & Gamble, and other major networks like that.

TBJ: Can you discuss AT&T plans concerning capital spending in Ohio and surrounding states?

MK: Continued capital spending is planned along with network investment on the wireless side and more.

In Ohio, we are integrating a company by the name of Dobson Communications over in the eastern portion of the state. We acquired Dobson, which had some property there, in Pennsylvania, and other states in the Midwest. We're bringing their network into ours.

I'd also say that significant investment is planned to grow our AT&T 3G network. That's the high- speed wireless network that is used by customers with the new iPhone, newer Blackberry, or other AT&T individual phones that run over the network; it gives customers enhanced capabilities for Internet access, video service if they want it, and so on.

The other capital investment will drive growth for the U-verse expansion. We continue to expand that footprint in this environment.

The $500 million spent on video and high-speed Internet is separate from about $500 million spent on the wireless side over the last couple years. That level of capital investment will probably continue as long as we show the growth that we think is there to drive that capital investment.

TBJ: Can you explain the impact of the passage last year of Ohio Senate Bill 117 involving video reform? (Editor's note: According to AT&T, SB 117, sponsored by Senator Jeff Jacobson, reformed Ohio's video franchising system, bringing the benefits of video competition to Ohio consumers by establishing statewide uniform standards that streamlined the authorization process and encouraged competition and new investment. SB 117 passed by large bipartisan majorities in both the Ohio Senate and Ohio House. Governor Ted Strickland finalized reform efforts by signing the bill, which became effective in September 2007.)

MK: Senate Bill 117 was a tremendous shot in the arm for both capital investment and jobs; 470 jobs were added in Ohio as a result of that bill passage and I commend the foresight on the part of the legislature to see that the world is changing and we need to adapt to it, especially on this video side. So that has been a positive thing.

Are there more changes needed? Certainly there are. You will still see in the Ohio statutes references to the telegraph. At the Federal level, in 1996 when the last telecom act was passed, this thing called the Internet was never mentioned. Both at the State and the Federal level, there are things that are necessary to be done to update the laws to match where we are with regard to technology.

When we look at the competitive situation that we're in, there is what we call a need for some regulatory parity. There are things that we are required to do that cable companies are not. A couple of quick examples are lifeline service for the poor, automatic pricing flexibility, and service standards that need to be met.

We have launched in other markets, like Columbus, Cleveland, Akron / Canton, and Dayton. The launches have really been set in Ohio by the video legislation that was put in place last year by the General Assembly, which enabled us and other new entrants to more easily get into the video market. We did not have to go out and negotiate more than 600 individual cable franchises – even though we're not a cable company – with all the individual cities, villages, townships, and so on. That had to happen before this legislation.

After the legislation was signed into law, we announced a $500 million investment in infrastructure in Ohio. So we're now spending down that infrastructure investment so that we are in a sense building, and we have been building in the Toledo area for a couple years getting ready for this launch. We're also adding additional high-speed Internet access to about 22 rural areas of Ohio. And that will then put us in a position where 100% of our switching offices in Ohio will have AT&T DSL available to customers in that area.

For those customers that may be out of range of our DSL, we have a partnership with WildBlue, a company that offers a satellite high-speed Internet access service. So, we would hope that one way or another, any customer interested in high-speed Internet could have it.

TBJ: Can you discuss the competitive situation in the telecommunications industry in our region?

MK: The consumer market is extremely competitive, including our bundle versus Buckeye CableSystem's bundle and more. That's going to continue even more intensely as we get our AT&T U-verse TV launched.

I believe you will see a trend for more and more wireless activity. That certainly hasn't reached a saturation point. We continue to see growth and significant competition there. Our AT&T Mobility folks have done a lot in the way of revising existing plans and practices to make our product much more user and consumer friendly.

On the consumer side, we're seeing a loss of market share driven by customers moving to Skype and Vonage, substituting their wire line for a wireless phone. Cord cutters have eliminated their phones and gone wireless. And of course there are the Voice-over-Internet- Protocol (VoIP) providers like Buckeye CableSystem, other cable companies, and so on that have jumped into that market.

AT&T has 250 employees in the Toledo metro area and continues to look at opportunities to open new stores in this significant retail market where it can. A new kiosk store opened last month in Westfield Franklin Park Mall and features a range of AT&T products. We will also be in these stores announcing and making available our video services. We're looking at different ways to do that.

In a number of stores in the Columbus market, the customer can walk in and have full service with their video, wireless, high-speed Internet, and so on to make it a true retail experience. We're receiving feedback from customers that this true retail experience is what they would like. They like the bundling, they recognize the savings they achieve in bundling, and they like the convenience of having everything on one bill.

TBJ: Can you share information on AT&T's plans to enter the video market?

MK: The U-verse TV is now available in a number of markets across the US; it's in about 30 and growing almost weekly as the service begins to roll out.

U-verse TV is an investment on AT&T's part to the tune of about $8 billion in the first phase, and that first phase will go for almost a 3-year period. And we're well into the second year of construction.

When we launch U-verse here, it won't be available everywhere in Toledo.

As of the second quarter, we had about 507,000 U-verse customers in the United States. Before the end of this year, we project to have over one million customers with AT&T U-verse TV.

TBJ: What do you see in the future for new technology in the telecommunications industry?

MK: Probably more enhancements to our Internet protocol television. Also, the way the iPhone has been rolled out, I think is clearly a signal that there will be more and more evolution of what the wireless telephone will do.

Apple was very astute in saying the architecture is open. People with ideas in software can design them and bring them to Apple. If they are good and cool, they are going to sell. I think it's very progressive thinking on the part of Apple.

Admittedly, it makes their iPhone a more attractive device, but that's what it's all about. We see Verizon, who does not have an iPhone, going to their vendors and saying they want something similar. They are trying aggressively to come up with something like that. Samsung, Motorola, and others are coming out with new hardware. As that hardware hits the market, it continues to push what you and I find to be acceptable. I think that's what we'll see more and more of in the future.

TBJ: Are there any other issues you would like to discuss?

MK: This is not cable TV service we're bringing. Yes, we're bringing 300 channels of video into your home and a lot of other features, but it's not cable TV. The architecture is totally different. This is Internet protocol television. Certainly, we believe it's very cutting edge and that's why we're making the investment here, because it does a lot of different things that the architecture in cable TV cannot do.

For example, U-verse uses Microsoft software with several picture in picture options. It can also interface with the computer.

Technology continues to push us and push the competition.

Unlike DSL, the U-verse TV architecture is such is that we can put a cabinet in a neighborhood, typically at the end of a subdivision, and extend the service area further than we could have otherwise. We can wire from the cabinet and connect into existing infrastructure in homes.

The U-verse focus is primarily on Toledo right now; though other areas AT&T serves include Findlay, Fremont, Tiffin, and Upper Sandusky.