Telco video: why it will be different this time. The cable triple threat, combined with advances in compression and standardization around IP, are driving new business models

America's Network, Dec 1, 2003 by Kirk Laughlin

The provider's churn rate declined by 21% when two products were delivered, and by 50% when customers signed up for three services.

The big news of the year--that the country's three largest incumbents will jointly purchase gear for a FTTP program--continues to raise expectations about a bonafide video commitment. "Video is an integral part of the Bell's triple-play strategy and FTTP is the solution for video-capable bandwidth," wrote UBS Warburg analyst Aryeh Bourkoff in a recent note.

Although Verizon is expected to make FTTP a top priority in 2004, there are serious questions around the pace of deployment of fiber systems across the large, sprawling footprints of the three sponsoring carriers. Carriers keep promising that fiber will go deeper into the network, but the bottom line is economic--and only capex budgets will eventually reveal how dedicated major providers are to owning their own video pipes.

RELATED ARTICLE: BellSouth plays all positions.

BellSouth is used to multi-tasking, at least in a competitive sense. The Atlanta-based RBOC is competing against three different cable operators (Cox Communications, Comcast and Time Warner Cable) within its 14-state territory, and each of those carriers is developing plans to push voice, video and data packages into the core of the BellSouth customer base.

Bill Smith, BellSouth's chief product development and technology officer, recognizes the cable threat and realizes that the RBOC itself has to become a more formidable video provider. "Even if we activate the 1 million homes we will pass as part of our new fiber system growth, that still leaves 14 million homes in our backyard without it," says Smith. BellSouth has made fiber a priority during the last nine years, and reaching the 1 million household mark is representative of that progress. While fiber is effective in last mile distribution of high-speed services, it is only one of the weapons the carrier will be using to fend off cable operators.

"We have a mosaic approach. We are not looking to a single solution for us to get video and data into the market," he says. "Fiber is a no-brainer in some areas, but if you look at other areas and places with smaller pockets of growth then twisted pair copper fed by fiber is the right choice."

BellSouth fundamentally appears to have a three-pronged video approach (not counting a partnership with MovieLink which allows BellSouth subscribers to download movies across its broadband network). The fiber initiative is the long-term gainer as BellSouth is one of the sponsors of the FTTH collective purchasing program, announced with SBC and Verizon. Secondly, the carrier is beginning to rely more heavily on the new generation of video over DSL technologies that may likely lead to carrier-sponsored, commercialized PVR (personal video recorder) capabilities, according to Smith. "When you start looking at DSL with PVR systems, you can handle programming content in a new way," he says. The third leg, BellSouth's partnership with DirecTV announced over the summer, gives the carrier a needed shot in the arm to enable the placement of video in its voice and data bundle.