Telcos Invest Big in Video Services

Mar 27, 2006  •  Post A Comment

Telephone companies including Verizon and AT&T are investing billions to deliver video services that are competitive today with cable and satellite but have the potential to leapfrog the incumbent providers because of the advanced technology the telcos are using.

That’s because the foundation for their services, Internet protocol television, can deliver a rich slate of advanced services, such as personalized interactive program guides, the ability to customize and view multiple live screens from different networks on one channel and digital video recorder programming from a cellphone.

Most of these gee-whiz features are not deployed today, but at last week’s telco TV-centric show TelecomNext in Las Vegas, phone companies and their suppliers detailed next-generation services that leverage the potential of the telcos’ platform. The IPTV business is likely to heat up quickly given AT&T’s pending acquisition of BellSouth and the expectation that BellSouth will adopt AT&T’s more bullish attitude toward TV.

When telcos first came on the scene in earnest early last year, skepticism ran deep on Wall Street and in the television industry about whether they could finally succeed in the video business. While the skeptics have not been quieted, telcos have found some early success.

At the show last week Verizon CEO Ivan Seidenberg said that in Verizon’s flagship TV market of Keller, Texas, more than 30 percent of the 14,000 homes passed have signed up for the FiOS TV product that has been available since September. Mr. Seidenberg cited that figure as “pretty dramatic evidence that customers are ready for competition and innovation in video.”

While Charter Communications, as the incumbent cabler in Keller, is probably suffering the most direct hit, Verizon is also likely draining customers from satellite and luring new customers to the multichannel table for the first time. The offering includes 180 digital channels, 22 high-definition channels for consumers with a high-definition box and video-on-demand for $34.95 per month.

Price is driving the penetration numbers, but customers are also responding to the prospect of choice in providers, said Terry Denson, Verizon’s VP of programming and marketing.

But Keller is not a blueprint for the future, warned Bruce Leichtman, president of Leichtman Research Group, which tracks video competition. “What you can do in that small footprint portends nothing for what could possibly happen in a real wide-scale rollout,” he said.

He pointed out that in 2005 cable companies added more than 1.9 million phone subscribers, while telcos added only about 5,000 non-satellite video customers.

But telcos insist that 2005 was a year for laying the groundwork and that 2006 will bring broader launches. To win customers for the long term, telcos will also look to shore up their bells and whistles.

For instance, just last week, Verizon inked a retransmission deal with CBS that also includes the ability to offer on-demand network prime-time content such as “CSI,” “NCIS” and “Survivor.” Comcast offers those shows on-demand for 99 cents an episode. Verizon will offer them for free, Mr. Denson said.

“We want to have the best content that that the most people are going to watch,” he said. “You need to have anchor content and then you want to go super-serve the niches. That’s why we are working toward anchor content-HBO, network, kids.”

Verizon’s VOD offering consists of about 2,300 titles, including movies, premium content and kids shows. Mr. Denson also said he intends to strike more deals for music video content for VOD. Because the FiOS TV service is all-digital, VOD is available to nearly 100 percent of Verizon customers. By contrast, cable VOD is available only to digital customers. The average digital penetration for the top 10 cable operators is 46 percent, according to Leichtman Research Group.

With an all-digital network, new services are made available to the entire footprint. So Verizon doesn’t have to upsell customers to digital to enable them to get new offerings such as interactive TV, Mr. Denson said.

For instance, in the fourth quarter Verizon plans to launch GSN’s slate of one-screen interactive content to its entire customer base. By contrast, when cable operators offer ITV, they have to fire it up market by market. Mr. Denson said he will look to add one-screen content from other networks as it’s available.

AT&T has rolled out what it calls a “controlled market entry” of its video services in San Antonio with more than 200 channels, VOD and instant channel change. The telco plans to expand into more markets this year with a broader launch, said Dan York, executive VP of programming for AT&T.

Mr. York declined to discuss how the potential acquisition of BellSouth might speed up AT&T’s IPTV plans, but he emphasized that AT&T will look to integrate across the three screens of the TV, computer and mobile phone.

“You can program your DVR with your cellphone, so you have remote access and control to your DVR,” he said. “Ultimately, a new competitor of the ilk of AT&T will be good for programming providers as well as their consumers.”

Huge Video Footprint

A merged AT&T and BellSouth will have a huge footprint for video, presenting a more formidable competitor to cable and satellite, said Braxton Jarratt, senior VP of marketing and business development for Tandberg TV, which supplies software and services to cable, satellite and telcos.

“The bottom line is AT&T is absolutely publicly committed to launching IPTV in a big way, whereas BellSouth was a little more tentative on its plans, and clearly what this means now is it accelerates BellSouth’s plans to launch IPTV,” he said.

But cable and satellite providers are not about to give up without a fight. Cox has begun the early work to integrate phone and video capabilities in its Florida Gulf Coast market, while Time Warner offers Caller ID on the TV. Many cable systems also offer interactive ads in local markets, while Comcast continues to shore up its robust VOD slate. Satellite providers, meanwhile, have been aggressive with interactive TV, including DirecTV’s current interactive features for March Madness.