AT&T notified DISH Networks that it will sever their existing resale arrangement at the end of this year. AT&T has been reselling DISH’s video services since 2003 and expanded the relationship further after their Bellsouth acquisition. It’s widely believed that through this move, AT&T is forcing DISH’s hand into a bidding war with DirecTV for a long term resale arrangement with them. AT&T will need a DBS resale partner, just like every major telco in the U.S. currently has. Despite all the hype surrounding U-Verse, AT&T will need a DBS partner to field a competitive triple play bundle for years to come. Even after the current billions of dollars that are committed to U-Verse have been spent, it will still only reach a large minority of AT&T customers. The mid to long term strategy for AT&T and other telcos is to use DBS to fill the gaps. Of course, AT&T may have something else up its sleeve as well – a possible acquisition of DirecTV. Is this DISH development a pre-emptive merger move, with DirecTV being the acquisition prize?

The U.S. Supreme Court has agreed to hear a case involving AT&T and LinkLine Communications Inc. LinkLine is an ISP which buys wholesale broadband circuits from AT&T and then uses those circuits to compete with AT&T in some California markets. It’s a scenario played out all across the country with other incumbents and competing ISPs and CLECs. LinkLine sued AT&T, citing unfair and anti-competitive pricing for those wholesale broadband circuits. AT&T says it’s not obligated to provide wholesale circuits to competitors at favorable pricing. LinkLine obviously disagrees and so did the 9th U.S. Circuit Court of Appeals in San Francisco, who ruled in LinkLine’s favor. So on to the Supreme Court for a case that will be closely watched by telecom’s competition interests.

Sprint released its main competitor to the iPhone with an aggressive entry price point. The Instinct, manufactured by Samsung, will be priced at $129.99, a direct shot across the iPhone bow, which is priced at $199 (or $299 for a better version). The Instinct offers many of the same features of the iPhone, minus the fanatical following. Sprint will market the Instinct through their retail footprint, website, and through telesales. It will also be sold through an exclusive retail window at Best Buy from June 20 - August 28.

The Instinct mimics the iPhone in many ways, including a touchscreen, visual voicemail, and advanced data and web friendly features. Unlike the iPhone, the Instinct also has a slide out QWERTY keyboard. Sprint is marketing the Instinct as their “… first EV-DO Rev A consumer-centric device,” referencing the consumer appeal of the iPhone and 3G broadband capabilities. Sprint needs all the help it can get. We’re sure the iPhone has contributed to Sprint’s customer hemorrhaging problem of late, which has been averaging one million+ customer defections per quarter this year.

AT&T today announced the availability of U-verse Voice in several Ohio markets, including Columbus and Akron. U-verse voice is an IP voice product which is bundled with U-verse broadband and video services. U-verse voice adds a suite of features to traditional voice service including, unified messaging, click to call from the TV or PC, simultaneous ring of up to four phones, and a web based call management portal. AT&T offers to U-verse voice plans; 1) U-verse Voice Unlimited, which includes unlimited local and nationwide minutes for $40 a month, and 2) U-verse Voice 1000, which includes 1,000 Call Anywhere minutes to any location in the U.S. or U.S. territories for $30 a month.

AT&T today announced the availability of U-verse Voice in parts of Oklahoma City. U-verse voice is an IP voice product which is bundled with U-verse broadband and video services. U-verse voice adds a suite of features to traditional voice service including, unified messaging, click to call from the TV or PC, simultaneous ring of up to four phones, and a web based call management portal. AT&T offers to U-verse voice plans; 1) U-verse Voice Unlimited, which includes unlimited local and nationwide minutes for $40 a month, and 2) U-verse Voice 1000, which includes 1,000 Call Anywhere minutes to any location in the U.S. or U.S. territories for $30 a month.

A very interesting competitive development is taking place in the Dallas, TX suburbs. Verizon is apparently preparing to overbuild AT&T U-verse territory with Verizon FiOS service. This is a first, at least that I'm aware of, where large incumbent "baby bells" enter each other's territory with competing landline services. Apparently, the rules have changed, and dramatically so. Verizon appears to be taking advantage of statewide video franchising rules (as Texas provides), and acting as a cable overbuilder, as opposed to a traditional telecom CLEC. The development was reported in this OneTrack post. I guess the gloves are slowly coming off.

This strategy does go counter to conventional wisdom. Verizon is entering the market as the third triple play provider, competing with well established brands (not to mention the DBS competition). Most business consultants would advise against such a move. What does Verizon have up their sleeve? Do they feel that strongly about FiOS and its competitive advantage/differentiation? Perhaps. It will be an interesting test case to observe. If Verizon has some success with this overbuild strategy, will we see it in more territories where Verizon is geographically positioned against AT&T and Qwest? Verizon's purchase of GTE several years ago gives them multiple territories in multiple states that are closely aligned with incumbent AT&T and Qwest territories. Qwest would seem to be more vulnerable, since they have no triple play network of their own. Of course, if Verizon aggressively moves on an overbuild strategy, AT&T certainly won't sit back and wait - they may decide to strike first. I recognize this is just speculation, seeing as the first household in AT&T territory has yet to be lit with FiOS. But this is definitely a development to keep a close eye on. We may be witnessing the first salvo of an historic competitive battle.

Apple CEO Steve Jobs confirmed the long rumored launch of the 3G version of the Apple iPhone today. Today's 3G iPhone news is not so much of a surprise, but its new pricing might be. The new 3G iPhone will come in two models, 8 and 16 GB models, costing $199 and $299 respectively. That's a significant drop in price over the previous cheapest iPhone model of $399. The new pricing reflects a revised partnership agreement between AT&T and Apple. Under the new terms, AT&T will not share iPhone monthly service revenue with Apple, but will subsidize the handset purchase, resulting in the lower costs. The new pricing will be offered based on a two year service agreement with AT&T. The new iPhone will be available July 11th.

The price drop will certainly put competitive pressure on iPhone's rivals, including the venerable BlackBerry and smartphones running Microsoft's Windows Mobile operating system. The iPhone has demonstrated already that it is a powerful player in the smartphone market and this price drop will surely strengthen its impact. RIM's BlackBerry has held its ground quite impressively against the iPhone. But the added features of the new 3G iPhone, which also includes GPS functionality, and a lower price will up the competitive ante with BlackBerry.

AT&T might also see a tangible bounce in subscriber additions due to this new 3G iPhone pricing strategy. AT&T Wireless CEO Ralph de la Vega said in a statement, "...The device is built, and priced, to sell." They are looking for "mass market" appeal. It may provide enough incentive for hundreds of thousands of additional Sprint customers, who are already leaving Sprint at the pace of 1 million+ per quarter, to churn over to AT&T. The biggest knock on AT&T and the iPhone was lack of true broadband wireless speed. With that barrier removed and this aggressively priced 3G iPhone, look out Sprint.

AT&T is leveraging their broadband wireless capability with DSL service to provide a converged broadband to go service. Branded as AT&T Net Reach, the new $79.95/month service targets laptop carrying customers with seamless access to Wi-Fi, 3G wireless, and home DSL/Wi-Fi service. Net Reach provides a laptop broadband connection manager that automatically connects with the strongest available broadband service among AT&T's 17,0000 Wi-Fi hotspots, 3G GSM wireless network, or the customer's home broadband service (via a home wireless network). Conceivably, customers won't know (or care) which network they're connected to - they'll just be connected to broadband. Customers must opt-in to unified billing of wireline and wireless services.

The strategy makes great competitive sense. It creates competitive differentiation between AT&T and their cable competitors. It's a great example of how telecom carriers can leverage their wireless advantage. But for how long? Cable will soon catch up. Between Cablevision's (granted they don't compete directly with AT&T) pending launch of a mesh Wi-Fi network and cable's involvement in the Clearwire WiMAX joint venture, the cable industry will soon try to flex some broadband wireless muscle of their own.

An important milestone was reached for the first time last quarter. Telcos like AT&T and Verizon collectively added more video subscribers than DBS providers. AT&T and Verizon collectively added 411K new video subs, while DirecTV and DISH added only 310K. DBS has historically been the leader in new net video subscriber additions for the past few years, mostly at the expense of cable companies. Expect that trend to change. TelcoTV providers will probably take that quarterly “growth crown” for the next few years, as they ramp up their triple and quad play offerings. In fact, as Investors Business Daily accurately points out, telcos haven’t even begun rolling out in the largest cities yet. As they do, their growth rates should accelerate. Verizon’s recent news about offering FiOS in New York City, should it actually materialize, will be a good indicator on the growth impact caused by extending their reach into larger cities.

Interestingly enough, DBS providers are taking a double hit from the telco’s video progress. A good portion of the new telco video adds are coming at the expense of DBS, as evidenced by DISH’s poor first quarter for net new adds. In addition, telcos are slowing down there DBS resale efforts (AT&T – DISH and Verizon – DirecTV), as they ramp up their own video efforts. Those telco resale arrangements have been a good source of growth for DBS providers. As their telco partners get distracted with their own video launches, DirecTV and DISH will have to work much harder to replace those lost resale additions. Part of DirecTV’s strategy is to try to attract higher value subscribers with advanced feature portfolios and more robust HD content packages, hoping their higher ARPU will help replace revenues lost by smaller gains in net new subscriber additions.

Sprint is about to launch its latest response to the iPhone craze, the Samsung Instinct. The new Instinct is scheduled to be available on June 20th. Sprint hopes the Instinct may help stop the bleeding of subscribers who are leaving Sprint in droves. Prime beneficiaries of the Sprint exodus have been AT&T and Verizon. The iPhone may be just the excuse that hundreds of thousands of Sprint subscribers need to leave Sprint and go to AT&T. Sprint hopes the Instinct may cause some of those subscribers to pause and evaluate this iPhone “like” option. The Instinct is very iPhone like, offering many of the same features, including:

• touchscreen
• visual voicemail
• up to 8GB of memory
• music and other multimedia options
• web browsing

Unlike the iPhone, the Instinct offers a slide out QWERTY keyboard. Sprint may have some challenges with the Instinct because its scheduled release is right in the middle of the rumored release of the 3G iPhone, rumored to be announced on or around June 9th. The iPhone’s biggest drawback has been the lack of true 3G type wireless broadband speed, which handicapped the many web enabled applications of the iPhone. With that problem solved, the iPhone may be even a more formidable adversary than it has been in the past, which wouldn’t be good news for its competitor’s or the wireless providers who do not have access to it.