AT&T, Chernin Group $500M online video pact plays into bandwidth, content hunger

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AT&T's (NYSE: T) $500 million agreement to launch an over the top (OTT) video venture with The Chernin Group reflects the telco's move to enhance its growing video business with another option that plays into the consumer desire for content and higher bandwidth broadband services.

The announcement comes just after the service provider announced an ambitious initiative to expand its last mile fiber network to up to 100 of what it calls candidate cities and municipalities nationwide, including 21 new major metropolitan areas.

However, the telco said that its expanded buildout will not impact its 2014 capital investment plans.

The proposed GigaPower expansion is part of AT&T's ongoing Project Velocity IP (VIP), a multibillion-dollar network upgrade to expand the broadband capabilities of its wireless and wireline networks. AT&T said it expects its wired IP broadband network to reach 57 million customers over its 22-state footprint by the end of 2015.

An alliance between Chernin, which brings its expertise in content distribution, and AT&T's wireline and wireless customer base make sense. AT&T would be able to market over-the-top online video to both its existing fiber to the node (FTTN) U-verse broadband subscribers and those who live in areas where it eventually builds out its 1 Gbps FTTH service.  

"Combining our expertise in network infrastructure, mobile, broadband and video with The Chernin Group's management and expertise in content, distribution and monetization models in online video creates the opportunity for us to develop a compelling offering in the OTT space," John Stankey, chief strategy officer at AT&T, said in the release.

While AT&T has some grand plans for fiber to the home FTTH, much of the telco's traditional DSL and higher speed hybrid fiber to the node (FTTN)-based broadband networks can't deliver anywhere near a gigabit.

The telco's overall slower speeds have become a source of ridicule from online video provider Netflix (NASDAQ: NFLX). In its first-quarter 2014 letter to investors, the video provider said that AT&T's U-verse service "has lower performance than many DSL ISPs such as Frontier, CenturyLink and Windstream."

Other than to say that the "goal of this initiative will be to invest in advertising and subscription VOD channels as well as streaming services," neither AT&T nor Chernin revealed financial details of the deal or what initial markets would be the first to get the service.

For more:
- see the release
- here's FierceCable's take

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