AT&T Chairman and CEO Edward Whitacre could not have been more clear.

In addressing financial analysts on AT&T's fourth-quarter and full-year 2006 financial results, the AT&T executive said the company's fiber-to-the-node (FTTN) network is performing well, delivering even more bandwidth in the field than expected.

“We are committed to IPTV and our fiber-to-the-node network,” he said. “It is the right architecture for the long term. We see it in the field, it works and it delivers the right services for our customers.”

Within two weeks of those statements, however, both The Wall Street Journal and BusinessWeek ran articles questioning AT&T's strategy and its ability to ramp up its IPTV service over a hybrid fiber/copper network. Neither article contained major new details of AT&T's troubles, and both focused in part on whether AT&T should be following the example of Verizon in building a fiber-to-the-premises (FTTP) network.

Last week, Pike & Fischer's Broadband Advisory service issued a new report in which it claims AT&T will soon be forced to switch to Verizon's strategy in order to stay competitive with cable.

AT&T's response to the Pike & Fischer report was to reaffirm its current plans.

“We will continue to pursue primarily a fiber-to-the-node approach,” a spokesman said. “In new neighborhoods, we will deploy fiber to the premises. This is the approach we have said all along, and the one we will continue.”

Among the analysts applauding that resolve is John Celantano, president of Skyline Marketing, who believes AT&T is on the right track.

“AT&T's existing access infrastructure is still predominantly copper,” Celantano said. “It will take decades to get anywhere near the broadband penetration needed using fiber. Telco outside plant networks are complex and messy to the point where no one solution can ever fit all. To do it right, all telcos, AT&T and Verizon included, are mixing and matching broadband technologies to deliver Internet access and video to their entire customer base.”

Tim McElgunn, chief analyst for Pike & Fischer's Broadband Advisory Services and author of “AT&T U-verse: Analysis of the Business Strategy,” believes AT&T will be forced to a general FTTP within the next year because of increasing demands for video uploads, as well as downloads.

“They keep talking about 25 megs and how the speeds are higher than they hoped, but what you are really looking at is a radically asymmetrical bandwidth that is all downstream,” he said. “The fact of the matter is, the reason everyone is looking at GPON is to figure out how do we get the upstream bandwidth. We are finally getting to a place where video is moving in two directions.”

In addition, there are commercial reasons to push fiber deeper into the network, McElgunn said.

“You can make an argument that Verizon's fiber plant makes sense from an enterprise perspective, especially given their region,” he said. “If I build out fiber-rich networks between Boston and Washington, I wonder how many of those are going to be within spitting distance of enterprises? They can afford to take their lumps for their fiber plant and leverage that plant to provide services to any customer.”

Cablevision, Comcast, Cox and other cable operators are moving more aggressively into the commercial space, and AT&T must be prepared to defend its turf, McElgunn added.

He believes AT&T took the cheaper FTTN approach to avoid running big capital budget numbers by Wall Street at the same time it was doing mega-mergers. Those deals would become much more expensive if AT&T's stock had fallen, McElgunn said.

Wall Street may have to send the signal that will reverse AT&T's strategy, said Danny Briere, president of the TeleChoice consultancy and another analyst who believes Verizon has chose the right path.

“This becomes an issue for them when it affects their stock price,” Briere said. “The call here that gets made is by Wall Street. The minute AT&T pops up and doesn't do the numbers it promised, their stock is going to get hammered. What Wall Street basically heard was ‘Trust me, we know better. Verizon is going one way, we are going the other way, our's is a better way to go.' When it turns out AT&T was wrong, then they are in trouble.

“Does AT&T know something we don't because if we were all making this decision, we would say do what Verizon did: bite the bullet and future-proof your network for 80 years,” he added.

Celantano believes AT&T is taking the right approach by using multiple technologies, including FTTP in green-fields, FTTN and fiber to the curb in overbuilds, and multiple forms of DSL technology and satellites to achieve 100% broadband access by the end of 2007, which was promised to the FCC to get the BellSouth merger approved.

“Its adoption of IPTV for streaming both standard and high-definition video versus broadcast video can be handled adequately with bandwidth of up to 50 Mb/s with VDSL over short copper drops,” he said. “Verizon needs close to 100 Mb/s bandwidth to deliver cable-like [radio frequency] TV that is very different from IPTV.”

More important, Celantano said, the video issue is not a “zero-sum” game where one side is 100% right and the other 100% wrong.

As for symmetric video services, that kind of bandwidth isn't required today, Celantano said, because most of the video traffic and the higher bandwidth requirements are still largely on the downstream side.

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