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Telco Video Delayed

Jun 5, 2006  •  Post A Comment

It looks as if the video dreams of the nation’s top two telephone companies-hampered by technical glitches, regulatory hurdles and even owners of apartment buildings-will take a bit longer to come to fruition.

After two years of hype and big promises, AT&T and Verizon Communications are learning the hard way that morphing from a phone company into a cable competitor can be a more challenging process than anticipated. Indeed, one Wall Street analyst said he thinks the challenges facing Verizon and AT&T’s rollouts of their respective TV products could delay by a year their ability to capture a significant number of subscribers.

“To date, though the Bells have made real progress in deploying their fiber network infrastructures, the rollout of video has progressed more slowly than originally forecast,” Jeffrey Halpern, a telecommunications analyst at Bernstein Research, said in a research note.

While delays of new products and services are not a new concept, the price of a delay could be particularly high for the phone companies. Their chief rivals-cable companies such as Comcast, Time Warner Cable and Cablevision-are experiencing a performance resurgence this year, with a three-pronged product bundle of television, high-speed Internet and telephone helping them stem a years-long slide in basic-cable subscribers. Most cable industry analysts now see the competitive wind at cable’s back, which could make it more difficult for a new entrant to break through.

Meanwhile, phone companies are hoping they can beat cable with a similar product offering bolstered by their ownership of the country’s top cellphone providers (Cingular in the case of AT&T, and Verizon Wireless in the case of Verizon) and their ability to offer super-fast Internet.

“We want customers to pick us over Comcast, Cablevision or Time Warner Cable,” Verizon Chairman and CEO Ivan Seidenberg said at an investor conference last week. “If they pick us, [the cable companies] are out. If they pick them, then we’re out. Trying to share the house with a cable company is a difficult proposition.”

Though few observers expected AT&T and Verizon to easily transition to offering television services, the progress the companies have made so far points to both companies having an uphill climb-at least in the early days of their video rollout.

For AT&T, the challenges seem particularly daunting. Though the San Antonio-based company was the first to talk big about its video service, dubbed Project Lightspeed, the company is only now-a year later than originally planned-running a controlled rollout in San Antonio. Next month the company expects to begin offering the television service in Houston.

Bernstein’s Mr. Halpern said some of the blame for the delay rests with AT&T’s use of a video technology produced by software giant Microsoft. Early versions of the software had glitches, especially when it came to live video, that rendered the software not ready for prime time. Many of those problems reportedly have been worked out, enabling AT&T to begin offering its video service, called U-verse, on a broader scale.

Verizon, for its part, faces a different set of challenges, the most important of which is obtaining local government approval to offer television in a community. While both AT&T and Verizon are lobbying hard to change the current rules covering video franchises, Verizon has gone ahead and begun obtaining video franchise agreements. So far, the company has 72 approvals and has another 400 in process. But the road to getting approvals can be a long one and it could be years before Verizon gets enough to cover a significant portion of its market.

Apartment building owners could also pose a hurdle, especially for Verizon, which does business in several major cities with a large number of apartment buildings. To wire a building for television, Verizon must first get access to the building, which often involves negotiating a fee to be paid to the apartment building owner.