Telco TV

SBC Climbs the Video Mountain

10/21/2005 8:00 PM Eastern

Five years from now, consumers with SBC Communications Inc.'s Microsoft TV-powered pay-TV service may be able to program digital video recorders with a mobile phone, hold video conferences via the television or share photos and even home movies with other subscribers.

But in the near term, SBC's video service won't look very different than plain old cable or satellite TV. The telco will launch video commercially in several unnamed cities in its 13-state footprint next year. And when it does, “it's not going to have all the future entertainment kind of stuff — some of which we've talked about, some of which frankly the technology is there to do. But it wouldn't make sense to try to roll that kind of stuff out in version one, because it becomes overwhelming for the consumer,” says Microsoft TV director of marketing Ed Graczyk, whose company is supplying the software that will make SBC's video product tick.

KEEPING QUIET

Much of SBC's video strategy remains a mystery. Company executives won't detail what its channel lineup will look like, how it will be priced, where the TV service will roll out, or what will be unique compared to that of rival telco Verizon Communications Inc.'s FiOS TV product, which launched in Texas last month.

But one thing is clear: SBC executives believe that their video product, which relies on Internet-Protocol television technology, will make it a player in the pay-TV business, and help it compete for consumers' monthly subscription fees with major cable operators and satellite providers DirecTV Inc. and EchoStar Communications Corp.

“The nature of IPTV allows for a rather robust content offering, both on a linear and on-demand basis. So I think those are going to be some of the benefits,” says SBC executive vice president of programming Dan York, a cable industry veteran who worked at In Demand LLC before joining the telco in 2004.

SBC is no stranger to the pay-TV business. It bought struggling overbuilder Ameritech New Media and its 310,000 subscribers in 2001, and sold the company the following year to WideOpenWest LLC.

Since 2003, SBC has been reselling EchoStar's Dish Network direct-broadcast satellite service. The EchoStar agreement gave SBC a video product that it could add to its bundle of traditional telephone, digital subscriber line Internet access and mobile phone service. The co-marketing deal performed well initially, drawing 101,000 video customers in the second quarter of 2004.

But SBC and EchoStar reworked their agreement in September, under more of a traditional sales-agency approach. Now, SBC receives less revenue per Dish subscriber, but none of the acquisition costs.

The EchoStar relationship gives SBC an interim video solution until its IPTV-delivered video service is available in the company's entire 13-state footprint: California, Illinois, Nevada, Texas, Ohio, Connecticut, Oklahoma, Kansas, Arkansas, Missouri, Michigan, Indiana and Wisconsin.

SBC spokeswoman Denise Koenig says the IPTV-delivered product, which is currently branded U-verse, will be available in 18 million homes by mid-2008.

“We'll offer IPTV to half of our 13 states. It is a potential video solution for that half of the footprint, and Dish [Network] services as the video solution for the rest of the footprint,” Koenig says.

SBC began testing the U-verse video service with a number of SBC employees in San Antonio in August, Koenig says. The product hasn't yet been field tested with consumers.

While Verizon is further along than SBC in terms of commercial rollouts, the two regional Bell operating companies are using different technology. Graczyk says that FiOS TV is pursuing a hybrid approach. It combines a traditional cable architecture and conditional-access system (which decrypts programming), with on-demand services that are delivered through IPTV technology.

“SBC is what I'd call pure IPTV video,” Graczyk added, noting that all programming, including live TV channels, will be delivered on demand to U-verse customers.

One of the biggest differences between traditional cable architectures and SBC's IPTV strategy is how channels are tuned for the viewer. Cable operators deliver all programming from local headend servers to all subscribers, who are able to view channels based on their subscription package.

With IPTV, SBC would deliver a video signal for an individual 24-hour channel like ESPN or Home Box Office only after a subscriber tunes it with his remote control. But to the subscriber who hits the channel up or down button, it would appear similar to traditional broadcast television, since the channel is delivered in less than 300 milliseconds, Gracyzk explained.

Cable operators rely more on digital set-top boxes to deliver programming, while SBC and other companies that build IPTV-based platforms will rely more on their network infrastructure, he adds.

“We're not limited by the capabilities of the set-top box,” Graczyk says. “We're able to take advantage of the broadband network, and do on servers what cable and satellite systems have done on the set-top box.”

It's still not clear what programming SBC will deliver, although York says some carriage agreements are in place. “We are not talking specifically about any deals, but we have a number of deals with major content categories,” he added.

York says SBC is also looking to carry the signals of local-broadcast stations, including HDTV channels. But he wouldn't say if SBC will be forced to pay for the broadcast content, as some stations are pushing cable operators to do.

WIRELESS IN BUNDLE

While Cablevision Systems Corp. and Time Warner Cable are marketing “triple-play” bundles of digital video, high-speed Internet access and local and long distance telephone, SBC, with its Cingular Wireless unit, will be able to offer a “quadruple play” that includes mobile-phone service.

In fact, SBC is already offering customers all four telecom services, thanks to its EchoStar relationship. Its high-end bundle, costing $202.88 per month, includes unlimited local and long-distance phone calls, DSL service, and the Dish Network America's Everything Pak (which includes four premium networks), along with Cingular's mobile phone “GSM Nation Family Talk Plan.”

The mid-range package, which costs $83.93 monthly, features landline and mobile phone service, DSL Internet access and Dish's America's Top 120 programming package.

SBC's least expensive bundle package of landline and mobile phone, and DSL service, costs $54.90 monthly.

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