AT&T’s rivals are likely to cry foul over the company’s practice of “zero rating,” in which it exempts its own video services from data-cap usage. The Wall Street Journal’s Shalini Ramachandran explains how this could impact the proposed AT&T-Time Warner merger. (2:44)

DirecTV Now, AT&T’s over-the-top online streaming cable television alternative is preparing to launch this Friday, Nov. 4, offering selected customers a free 7-day trial followed by a subscription offering more than 100 “premium” basic cable networks for $35/month.

As AT&T is rushing this service to the marketplace, details are still trickling in about the channel lineup, device compatibility, and exactly where AT&T plans to market the service. Stop the Cap! has collected details from a variety of sources to give readers additional insight about whether DirecTV’s satellite-less cable television alternative is right for you.

AT&T Will Not Market DirecTV Now to U-verse/DirecTV Satellite Customers

To protect against revenue cannibalization, AT&T will not be marketing or mentioning DirecTV Now to current AT&T U-verse or DirecTV satellite customers. The phone company does not want to lose their more profitable fiber-to-the-neighborhood or satellite dish customers to a lower-priced streaming-only alternative. A memo obtained by SatelliteGuys directed to AT&T and DirecTV supervisors and field technicians warns against even mentioning DirecTV Now unless they cannot complete an installation of U-verse TV or DirecTV satellite service:

As you may have heard, AT&T is launching a new over-the-top (OTT) service called DIRECTV NOW on November 4, 2016. OTT services provide potential customers with a streaming-only option when they are unable to have traditional DIRECTV or U-Verse TV service installed.

Though DIRECTV NOW does not require professional installation, technicians may want to be aware of the service and what it entails. For instances where a DIRECTV or U-Verse installation cannot be completed due to line-of-sight, landlord permission or other issues (emphasis from SatelliteGuys), technicians can provide information on the DIRECTV NOW service and let customers know they can visit directvnow.com to learn more.

Please note that DIRECTV NOW is a completely separate offering from traditional DIRECTV and U-Verse and should only be mentioned to customers when those services cannot be installed. If the customer is able to receive broadcast TV service, technicians should not proactively mention DIRECTV NOW as it is redundant with the DIRECTV and U-Verse Apps, which still offer streaming capabilities to subscribers of the DIRECTV and U-Verse TV services respectively.

In short, AT&T has no intention of competing with itself, which means customers in AT&T service areas will continue to be referred to U-verse for broadband and phone service and DirecTV’s satellite service for television, not DirecTV Now. The service will predominately be marketed to Millennials and the rest of an estimated 20 million Americans that have cut the cable TV cord or never signed up for service at all.

Key Points: You Need a Qualified Streaming Media Player and a Fast Internet Connection

• DirecTV Now is not expected to work with Roku at launch. Customers will need Apple TV, Amazon Fire TV/Stick, and/or Chromecast. More options are expected to arrive later. AT&T will initially promote the service for use with iOS or Android smartphones and tablets. AT&T Mobility customers will be able to stream DirecTV Now programming without it counting against your data plan, a controversial practice known as “zero rating;”
• A minimum internet connection speed of 12Mbps is required for “high quality” streaming;
• The DirecTV Now app will co-exist with the DirecTV app intended for satellite customers. The two services are considered independent of each other;
• A programming package will be required, but there is no contract. Customers cannot choose channels a-la-carte, except for premium movie channels like Starz. One streaming video-on-demand package dubbed Freeview will target Millennials specifically, and is expected to be advertiser-supported and provided at no charge;
• Customers can take advantage of a forthcoming free seven day trial by visiting directvnow.com and pre-registering.

DirecTV Now Programming Lineup

AT&T currently has agreements with 10 large programmer conglomerates, covering most of the major popular cable networks. A robust library of on-demand programming is also anticipated.

Among the networks we are confident will be a part of DirecTV Now:

• Disney: ESPN, ESPN2, ABC, Freeform, Disney Channel, Disney XD and Disney, Jr.;
• A+E Networks: A&E, Lifetime, History, LMN. FYI, VICELAND;
• Scripps: HGTV, Food Network, Travel Channel, DIY, Cooking Channel, Great American Country;
• Discovery Networks: The Discovery Channel and these likely additions: TLC, Investigation Discovery, Animal Planet, Science and Turbo/Velocity and OWN: Oprah Winfrey Network;
• Agreements have also been signed with Comcast/NBC, Time Warner, Turner Networks, Starz, AMC, and Viacom.

Missing are agreements with CBS and FOX. We’re also uncertain about the availability of local channels. Additional channels are expected to be offered at an additional cost above the $35 for 100+ channels. We’ll learn more by the weekend.

With the advent of AT&T/DirecTV Now, AT&T’s new over-the-top streaming TV service launching later this year, AT&T is preparing to bury the U-verse brand.

Earlier this year, AT&T customers noticed a profound shift in the company’s marketing priorities. The phone company began steering potential customers to AT&T’s latest acquisition, satellite television provider DirecTV, instead of U-verse. There is an obvious reason for this – DirecTV has 20.45 million customers as of the second quarter of 2016 compared to 4.87 million customers for AT&T U-verse TV. Volume discounts make all the difference for pay television companies and AT&T hopes to capitalize on DirecTV’s lower programming costs.

AT&T’s buyout of DirecTV confused many Wall Street analysts, some who believe the days of satellite television are past their peak. Satellite providers lack the ability to bundle services, although some phone companies partner with the satellite company to pitch phone, broadband, and satellite TV to their customers. But consider for a moment what would happen if DirecTV introduced satellite television without the need for a satellite dish.

Phillip Dampier: The “U” in U-verse doesn’t stand for “unlimited.”

AT&T’s DirecTV Now will rely on the internet to deliver television channels instead of a satellite. AT&T is currently negotiating with most of the programmer conglomerates that own popular cable channels to allow them to be carried “over-the-top” through broadband connections. If successful, DirecTV Now could become a nationwide powerhouse alternative to traditional cable TV.

AT&T is clearly considering a potential future where DirecTV could dispense with satellites and rely on broadband instead. The company quietly began zero rating DirecTV streaming in September for AT&T Mobility customers, which means watching that programming will not count against your data plan. For current U-verse customers, broadband speeds have always been constrained by the need to reserve large amounts of bandwidth to manage television viewing. Although AT&T has been boosting speeds in selected areas, a more fundamental speed boost could be achieved if AT&T dropped U-verse television and turned the service into a simple broadband pipe that relied on DirecTV Now to manage television service for customers.

AT&T seems well on the way, adding this notice to customer bills:

“To make it simpler for our customers U-verse High Speed Internet and U-verse Voice services have new names: AT&T Internet and AT&T Phone. AT&T Internet product names will now align with our Internet speed tiers. Our voice plan names will remain the same.”

An earlier internal company memo suggested AT&T would eventually transition all of its TV products into “AT&T Entertainment” after completing a transition to its “next generation TV platform.” Increasingly, that platform seems to be an internet-powered streaming solution and not U-verse or DirecTV satellite. That transition should begin in January.

Gone by end of 2016.

It would represent a formidable change, but one that makes sense for AT&T’s investors. The transition to IP networks means providers will offer one giant broadband pipe, across which television, phone and internet access will travel. The bigger that pipe becomes, the more services customers are likely to use — and that means growing data usage. Having a lot of fiber infrastructure also lays the foundation for expansion of AT&T’s wireless network — particularly towards 5G service, which is expected to rely on small cell technology to offer faster speeds to a more localized area — fast enough to serve as a home broadband replacement. Powering that network will require plenty of fiber optics to provide backhaul access to those small cells.

Last week, AT&T announced it launched a trial 100Mbps service using point-to-point millimeter-wave spectrum to offer broadband to subscribers in multiple apartment complexes around the Minneapolis area. If the initial trial is successful, AT&T will boost speeds to include 500Mbps service to those same complexes. AT&T has chosen to provide the service outside of its usual service area — Minneapolis is served by CenturyLink. AT&T acquired a nationwide license to offer service in the 70-80GHz band back in 2009, and an AT&T spokesperson claimed the wireless signal can reach up to two miles. The company is also experimenting with new broadband over power lines technology that could offer service in rural areas.

Just like its wireless service, AT&T stands to make money not just selling access to broadband and entertainment, but also by metering customer usage to monetize all aspects of how customers communicate. Getting customers used to the idea of having their consumption measured and billed could gradually eliminate the expectation of flat rate service, at which point customers can be manipulated to spend even more to access the same services that cost providers an all-time low to deliver. Even zero rating helps drive a belief the provider is doing the customer a favor waiving data charges for certain content, delivering a value perception made possible by that provider first overcharging for data and then giving the customer “a break.”

As of mid-September, streaming media analyst Dan Rayburn noted Akamai — a major internet backbone transit provider — was selling content delivery contracts at $0.002 per gigabyte delivered, the lowest price Rayburn has ever seen. Other bids Rayburn has reviewed recently topped out at 0.5 cents per gigabyte. According to industry expert Dave Burstein, that suggests large ISPs like AT&T are paying something less than a penny per gigabyte for internet traffic.

“If you use 139GB a month, that costs your provider something like $1/month,” Burstein wrote, noting doubling backbone transit costs gives a rough estimate of the cost to the carrier, which also has to carry the bits to your local exchange. In this context, telecom services like broadband and phone service should be decreasing in cost, not increasing. But the opposite is true. Large providers with usage caps expect to be compensated many times greater than that, charging $10 for 50GB in overlimit fees while their true cost is well under 50 cents. Customers buying a cell phone are often fitted with a data plan that represents an unprecedented markup. The extent of price increases customers can expect can be previewed by looking at the cost of phone service over the last 20 years. The average, often flat rate telephone bill in 1995 was $19.98 a month. In 2014, it was $73 a month. In 2015, it was $90 a month. Those dramatically rising prices in the last few years are mostly as a result of the increased cost of data plans providers charge to clean up on customers’ growing data usage.

Both Comcast and AT&T are dedicated to a campaign of getting customers to forget about flat rate, unlimited service at a reasonable cost. Even as both companies raise usage caps, they continue to raise prices as well, even as their costs to provide the service continue to drop. Both companies hope to eventually create the kind of profitable windfall with wired services that wireless providers like AT&T and Verizon Wireless have enjoyed for years since they abandoned unlimited flat rate plans. Without significant new competition, the effective duopoly most Americans have for telecommunications services offers the opportunity to create a new, more costly (and false) paradigm for telecom services, based on three completely false claims:

• data costs are expensive,
• usage must be monetized, and
• without a bigger return on investment, investors will not finance the next generation of telecom upgrades.

But as the evidence clearly shows, profits from selling high-speed internet access are only growing, even as costs are falling. Much of the drag on profits come from increasing costs related to licensing television content. Voice over IP telephone service is almost an afterthought for most cable and phone companies, often thrown in for $10-20 a month.

AT&T’s transition puts all the attention and its quest for fatter profits on its broadband service. That’s a bad deal for AT&T customers no matter what the company calls its “next generation” network.

Is this the future of satellite TV?

Ten years ago, large programmers like NBC-Universal, Fox, Viacom, and Time Warner started bundling new niche channels into their programming packages, forcing pay television providers to add networks few wanted just to get a contract renewal agreement in place for the networks they did want. Now, in the era of cord-cutting, those programming conglomerates are preparing to slim down.

One of the largest — Comcast/NBCUniversal — is the first to admit “there are just too many networks,” to quote NBCUniversal CEO Steve Burke.

Burke warned investors back in July that axing networks like Style and G4 was just the beginning.

“You’ll see us and others trimming channels,” Burke said during Comcast’s second-quarter earnings call. “We will continue to invest what we need to invest into our bigger channels, and we’ll continue to trim the smaller ones.”

Cable operators hope that day arrives sooner rather than later as cord-cutting continues to have an impact on cable-TV subscriptions.

For every popular cable network like USA and Bravo, cable operators get stuck carrying ratings-dogs like CNBC World, Centric, Cloo, VH1 Classic, Fox Business Network, and Fuse — all of which attract fewer than 100,000 viewers nationwide at any one time. Fuse barely attracted 51,000 viewers in 2015. But just about every cable TV customer pays for these channels, and many more.

Many cable channels wouldn’t survive without subscription fees because advertisers consider them too small to warrant much attention.

While Burke’s prediction has yet to slash the cable dial by more than a few networks so far, it has slowed down the rate of new network launches considerably. One millennial-targeted network, Pivot, will never sign on because it failed to attract enough cable distribution and advertisers, despite a $200 million investment from a Canadian billionaire. Time, Inc.’s attempts to launch three new networks around its print magazines Sports Illustrated, InStyle and People have gone the Over The Top (OTT) video route, direct to consumers who can stream their videos from the magazines’ respective websites.

Fierce Cable this week opined that forthcoming cord cutter-targeted TV packages streamed over the internet from players including DirecTV/AT&T and Hulu, among others, will likely start a war of cable network attrition, which may make the concept of a-la-carte cable a thing of the past. Editor Daniel Frankel believes the future will be a finite number of cable networks delivered primarily over IP networks, which are expected to dramatically pare down the traditional cable TV bundle into fewer than 100 channels. Only the most popular networks will be included in a traditional cable TV lineup, and some of these providers expect to deliver a bundle of fewer than 50 channels, including local stations. Those booted out of the bundle may still find life from viewers going OTT, if those networks can attract enough people to watch.

AT&T is hoping for the best of both worlds as it prepares to launch an internet-based package of networks under its DirecTV brand called DirecTV Now. Sources told Bloomberg News AT&T is hoping DirecTV Now will attract more subscribers by 2020 than its satellite service. At some point in the future, it may even replace DirecTV’s satellite television service.

DirecTV Now is expected by the end of this year and will likely offer a 100 channel package of programming priced at between $40-55 a month, viewable on up to two screens simultaneously. The app-based service will be available for video streaming to televisions and portable devices like tablets and phones. No truck rolls for installation, no service calls, and no equipment to buy or rent are all attractive propositions for AT&T, hoping to cut costs.

Since AT&T has taken over DirecTV, it has lost over 100,000 satellite customers. The threat to AT&T U-verse TV is also significant as customers increasingly look for alternatives to cable TV’s bloated and expensive programming packages. AT&T no doubt noticed the impending arrival of Hulu’s cable TV streaming platform next year and other services like Sling TV. Deploying their own streaming alternative with AT&T’s volume discounts from the combined subscribers of DirecTV and U-verse means AT&T can sell its streaming service at a substantial discount.

If consumers find the offerings from DirecTV Now and Hulu a credible alternative to traditional cable television, cord cutting could dramatically accelerate, provoking a response from cable operators likely to offer their own slimmed-down packages. So being among the 100 or so networks carried on DirecTV Now, or among the 50 or so networks Hulu is planning to offer, could be crucial to the future survival of any cable network. Those stranded in the 500-channel Universe of today’s cable television packages could be forced off the air or to an alternative means of reaching an audience such as OTT.

The lesson learned by the cable television industry is that customers are tapped out and unwilling to pay ever-rising cable TV bills for dozens of networks they’ve never watched and don’t intend to. The longer term lesson may be even more scary for some networks. Live, linear television as a concept may have seen its time come and go, at least for entertainment programming. While viewers are always going to seek live television for sports and breaking news, alternative on-demand viewing of everything else, preferably commercial-free, is a growing priority for many, especially if the price is right.