With the exception of Verizon Inc., the RBOCs appear to be on again in their on again/off again love affair with video.
This spring Qwest Communications International Inc. told reporters at its media day the company was preparing to announce an alliance with a DBS provider to deliver video service, saying it doesn't view VDSL as profitable near-term method for video delivery. The company hadn't announced any developments on that front as of press time in late April.
Meanwhile, Qwest has stepped up marketing of its existing video services, which it provides to about 40,000 customers in Arizona and Colorado via VDSL technology. Since January, Qwest has reached about 100,000 customers in Phoenix with marketing campaigns. The company also has been marketing video in Highlands Ranch, a suburb of Denver, and in Boulder, Colo. Qwest is promoting a bundle of phone service, Internet access and video through direct mail and door hangers. Among the promotions is an offer for two months of free television and free installation.
In addition to its VDSL deployment, Qwest provides 15,000 customers in Omaha, Neb., broadcast television over a combination of fiber and coaxial cable, and 9,000 customers in apartments satellite television through a partnership with DirecTV.
Of course, SBC Communications Inc. also has made clear its interest in offering video via DBS. This spring SBC made a pass to buy DirecTV, but those talks reportedly broke down when Rupert Murdoch's News Corp. ultimately agreed to buy the direct broadcast satellite company.
Still, SBC has an existing alliance with DBS company EchoStar Communications Corp. The telco has not disclosed how much revenue or how many customers it has generated through the partnership, but an SBC representative underscores the importance of that arrangement. "We are very serious about the relationship," says spokesman Michael Coe. "It's not something we have been doing as a trial to see how it works. Going forward, we will continue to explore all available options, but right now, we are really happy with our relationship with EchoStar. As far as delivering the services ourselves that would require considerable upgrades to our network and right now we feel ... [the way] to provide an entertainment package is by working with a company such as EchoStar."
However, SBC might dabble in facilities-based video services. The company has installed fiber, using broadband passive optical networking technology, to apartment buildings and offices in a new development of the San Francisco Bay Area called Mission Bay, says Coe. As of April, SBC was awaiting the tariffs to provide broadband access. Video on demand could be a service over those connections, though the company hasn't announced any specific time line for a video offering there. "Mission Bay is an opportunity to look at both the economics of it and look at what kind of services we could offer," says Coe.
As for BellSouth Corp., the company provides video entertainment to 60,000 homes in Atlanta and south Florida over a combination of fiber and coaxial cable. "Our customers tell us they want to get all of their services from one provider and video ... is one of those components," says spokesman Jeff Battcher, but BellSouth has provided no timeline for an expansion. For now, BellSouth is focused on the "nuts and bolts" of the business, such as debt reduction, he says.
"Nobody is going to put out the funds at this time for a real large-scale deployment of video services with all the necessary costs that would entail among the RBOCS," says Michelle Abraham, a senior analyst with In-Stat/MDR. "It's definitely not this year. I don't even really think it would happen next year." Beyond 2004, Abraham says, it's hard to say.
"If [the Bells] do this over the next decade, it will be on an incremental basis," says Davenport & Co. LLC financial analyst Drake Johnstone. "They are unlikely to buy a provider of video services."
Other analysts say the Bells' actions will be in line with the imminent threat of cable telephony. The National Cable & Telecommunications Association estimates cable companies had 2.5 million residential telephone customers as of Dec. 31, 2002, or about 2 percent of the consumer market share.
Cable operators, including Cox Communications Inc., have demonstrated greater progress with rolling out phone service than the Bells have with television, says Matt Davis, director of broad-band access technologies at The Yankee Group.
"Although MSOs have garnered only 2 percent overall of the consumer telephony base, the potential long-term impact is likely to be more significant as demonstrated in select markets where MSOs have achieved penetration rates exceeding 25 percent of the addressable market," write Gartner analysts Elroy Jopling and Alex Winogradoff in a December report. The Gartner analysts say the telephone companies will delay their foray into broadcast TV until the cable operators' telephone strategy becomes more evident, specifically as they introduce phone service over IP-based technology. The analysts anticipate widespread telephone deployments and penetration in 2005 and 2006.
Some analysts say, for the RBOCs, that will be too late. "We believe most ILECs including, in particular, the U.S. RBOCs, will have to go down the VDSL path no later than 2004 in order to counteract the declining revenue from residential voice services, as well as a future loss of market share in business data/voice services," write Needham & Co. analysts Anton Wahlman and Brian Coyne in a report issued Oct. 9, 2002.
However, fiber could be a viable alternative for telcos to deliver video. In its February Triennial Review order governing telephone and broadband policies, the Federal Communications Commission said the Bells are not required to rent new networks to competitors at regulated rates.
Verizon Communications Inc., for one, has said the rules would figure in to its decision to expand broadband coverage. "One reason we're exploring ways to bring fiber to the premises is so we will have a network that could accommodate video if we were ever to decide to add that to our list of products," says Verizon spokeswoman Christy Reap. However Verizon also said it can compete with the cable companies with its current assets -- those assets do not include video.
"Based on research and actual customer response, we have no doubt that we have a very strong competitive response to the cable triple play in our stacking strategy with voice, data and wireless," says Reap. "But we see no strategic imperative to have a video component in our product line at this time."
