BellSouth and the nation’s other regional telecommunications giants have reason to worry: As wireless customers ditch their landlines and cable TV companies begin offering phone service, the old Baby Bells’ core business is under serious attack.
Get ready for the counteroffensive.
As soon as next year, telephone companies are expected to make a bold play to grab customers from cable and satellite TV operators with the launch of a new, high-tech video service.
Internet protocol television, or IPTV, uses the technology that powers the Web to deliver video. BellSouth and the two largest of the former Baby Bells, Verizon and SBC, are working on projects to deliver IPTV to their customers using voice lines.
The companies are working closely with Microsoft to develop an operating system that they say will revolutionize the way people use their televisions. TV sets will offer features like caller ID and voice mail, and the infinitely adaptable Internet will bring untold new video channels to people’s remote controls.
High set-up costs
As compelling as the technology is, the cost of deploying it is potentially staggering. If the phone companies want to lure customers from cable and satellite providers, they will almost certainly have to offer a comparably priced service, even if that makes recouping investment in the delivery system a long process.
Improving the connection is an equally big challenge. To achieve the very fast broadband connection that seamless video delivery demands, the companies need to install fiber-optic cable close to their customers’ homes – if not directly to each one.
“Wall Street is beginning to raise questions about the very large capital investments involved,” said John Malone, a telecommunications analyst who is chief executive of Eastern Management Group in New Jersey. “But I don’t see any company backing down yet.”
BellSouth, which is still conducting product research, plans to announce a target date for its IPTV rollout late this year or in early 2006. The company won’t say how much it has spent on the technology so far.
In the meantime, the company offers customers discounted access to DirecTV, the satellite-television service.
Changing face of competition
The Bells have little choice. Just five years ago, most of their competition sprang from competing phone companies that piggybacked on their existing networks. Today, more and more of their rivals are using completely different technologies. Wireless and cable TV companies are moving in on what was once an unassailable monopoly.
For consumers who already have hundreds of channels at their fingertips, the prospect of an alternative service with its own big collection of channels could well prove less than intriguing. Analysts say that the telecom industry must explain why switching services is worthwhile.
“If the telecom companies make this all about price, they will lose,” said Laura Behrens, who covers IPTV for The Gartner Group. “It has to be all about added services and better services.”
Touting the benefits
Unlike cable television, which pushes a large number of channels to every customer on its system, IPTV selectively picks channels in the same way that a computer surfing the Internet does. That frees up a great deal of bandwidth. It also offers new possibilities for viewers.
IPTV would allow watchers to change camera angles. An auto-racing fan could switch from a camera following all the cars in a race to a camera mounted inside one of the cars. Football fans could zoom onto the field with the click of their remote control.
Microsoft, which is developing an IPTV operating system for SBC, Verizon and possibly BellSouth, has long dreamed of an even loftier use for Internet protocol – as part of a computerized home where television, computers and an assortment of peripherals are integrated in a single network.
But few industry experts expect a major transformation anytime soon. When it does arrive, and if it delivers as promised, IPTV will probably give consumers more video-on-demand options, but in most respects it will resemble conventional cable TV in the early going.
“In five years, there will be head-to-head competition between cable, telephone and satellite TV companies,” said Behrens, of The Gartner Group.
“Cable has the opportunity to get ahead of the others now because they are already able to deliver phone service.”
Behrens said that, if the phone companies succeed in rolling out IPTV next year, it will take them another year to really begin pushing the service. By that time, cable TV companies could make significant gains selling their bundles of television, broadband and VoIP phone service.
As with any new technology, the Baby Bells will have to convince customers that IPTV is better than what they have now. Lisa Olsen, vice president of Digital Assurance Certification in Orlando, said she sees potential problems.
“As a consumer who uses the Internet, I find that it sometimes goes down,” Olsen said. “And there is the issue of spy ware, which is all over the Internet. I’d worry that, with this technology, somebody could monitor what I’m watching.”
But Olsen said she might consider the new technology if her concerns are addressed.
“There is a lack of competition in the market now, and this would mean more,” Olsen said. “I really don’t see anything wrong with a little more competition.”
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