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Telco Video: Where’s the Edge?

3/13/2005 7:00 PM Eastern

Life is sure getting interesting in the broadband media space these days. The U.S. telephone industry has made its most significant push to date to get into the video business, with multistate fiber deployments by Verizon Communications Inc. and digital subscriber line rebuilds by SBC Communications Inc.

These new platforms, the telcos say, will allow them to compete with cable and satellite companies as cable sets its sights on today’s telephone subscriber. It looks and sounds like war is going to break out at any moment.

Last month, those same two telcos made bids for long distance and business telephony icons MCI Inc. and AT&T Corp., which immediately ignited a spate of stories how the telcos, once again, will backburner video plans to insure efficient integration of those purchases. Afterall, why would the telcos spend time and money on a new business (video), when they can boost revenue and earnings in the next several years by expansion in core product areas like long distance and business telecommunications?

It’s easy to envision a scenario where the telcos get bogged down on integration issues with these mergers, or run into technology integration and scaling issues on the video side, or hit a collective wall with local and state governments over franchising issues. Any combination of these situations could make them throw up their hands.

SBC has made less of a capital commitment to date, and would find it easier to pull back. Verizon is laying fiber as we speak, and probably is less inclined to postpone, on their own volition, a video rollout.

The answer to such conjecture is that no one really knows how soon the telco video strategy will play out. MSOs say overbuilds don’t make sense and point out that telcos have entered, and quickly exited, the business before. It’s true, wireline overbuilds haven’t worked economically. But look at the sky. Anyone remember how cable executives, 10 years ago, scoffed at DirecTV Inc. — just as they scoff at the telcos today — saying 'What’s the big deal with more channels and digital? We can do that too.’ Cable did add digital, but not in time to prevent satellite from accruing 24 million subscribers in a decade.

People like bundles. And the telcos can add a fourth product to the mix with a wireless play. Trend lines for wireline telephony subscribers are heading south. You can make the argument that cable, with voice-over-Internet protocol, is chasing a declining business with wireline telephony, as more and more homes use wireless as their first, and only, phone option.

There is one, admittedly mundane, situation I keep coming back to, when thinking about the telco video play. Ask yourself this question: When a household moves, today, how do they set up communications and video services in their new home? And what happens three and five and 10 years from now?

Who do they call first? Is phone service the first call? If I’m a wireless customer, do I figure I already have phone service, so do I go for the video or high-speed service first? If I want wireline phone service before I need video service, do I call my local phone company first? And if that telco customer service rep offers me a complete bundle, including video, what if I never get around to calling the cable company in town? Cable can lose by attrition, even if the regional Bell operating companies take years to get into the video business.

A key issue for all providers over the next decade is how to make their brands top-of-mind when a consumer wants or needs new services. It may well separate the winners from the also-rans. You wonder if disconnects for moves should automatically bring out marketing offers (free install, etc.) for reconnections at the new address. Cable’s got a move program to track that, and it’s in the best interests of the industry to exploit that for all it’s worth.

These are unsettling and uncertain times, because so much is up in the air. But such times will bring out the best in marketers and executive leadership to defend current territory, enter new territory and play the multilevel, multifaceted strategy game developing for all broadband providers in the second half of this decade.

September