AT&T, the largest US telecoms group, said on Tuesday initial customer response to its internet-based internet protocol TV service, launched last month, was “extremely positive.”

The San Antonio-based carrier, which is pioneering IPTV delivery in the US in order to compete directly with its cable TV rivals, provided the update on the AT&T U-verse video service rollout during its second quarter earnings announcement.

AT&T is targeting 6,200 homes in the first phase of the commercial rollout of the service in San Antonio, Texas. The service is built around a new fibre optic network dubbed “Project Lightspeed”. This uses fibre to the node technology (FTTN) and Microsoft IPTV software.

Rick Lindner, AT&T’s chief financial officer, said the company expects to have signed up 10 per cent of its target audience by the end of this month and is on track to roll out commercial services – including high definition service – in 15 to 20 markets by the end of this year, a little later than previously planned.

“We feel very good about how the service is performing and the technology we are using,” said Mr Lindner.

AT&T said it expected the cost of Project Lightspeed to reduce 2006 earnings by 5 cents to 7 cents a share, rather than the 8 cents to 10 cents it forecast in January.

These reduced costs were one of the factors that enabled AT&T to expand its margins in the latest quarter and deliver a bigger-than- expected increase in second quarter net earnings.

Earnings were also boosted by strong growth in its Cingular Wireless mobile joint venture with BellSouth.

Net income rose to $1.81bn, or 46 cents a share, from $1bn, or 30 cents, a year earlier, before the SBC-AT&T merger. Revenues rose by 53 per cent to $15.8bn. Excluding costs related to the merger of SBC Communications and AT&T late last year and other special items, earnings were 58 cents a share.

The company said the integration of the SBC and AT&T operations was running ahead of plan and that it expected to achieve between $700m and $900m of expense synergies this year.

AT&T raised its full year operating income margins targets to between 17 and 18 per cent, from its previous 15 to 16 per cent target.

It also accelerated plans for a $10bn share buyback programme.

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