Interesting questions are raised by Verizon's third-quarter results. Though this reporter at The Street termed the results solid, he suggested that FiOS TV came up short. A breakdown of the final tally suggested the company's wireless arm saved the day. FiOS TV announced only 202,000 new customers. Analysts expected 220,000 to be added to the rolls.
The telecommunications industry has spent years fighting to position itself to compete in the video arena. Once they flip the switch, however, there simply is no guarantee of success. The story speculates that, in essence, the telco may be a fish out of water because it is not accustomed to peddling television programming.
Cable programmers have spent decades honing their marketing crafts. There is no assurance that telcos have the skills to battle cable on this playing field, and it seems unlikely that they can hire away enough cable talent to turn the tide. The situation is reversed when the cable players market phones. Selling phone voice services, however, is less creative than pushing entertainment.
On first blush, it doesn't seem that the fate of telco television is a particularly important issue for IT departments. After all, few people watch HBO or ESPN at work (with permission). Looking at it a bit more closely, however, suggests that the success of the telcos' video efforts indeed are important. Voice, video and data now are carried on the same infrastructure. The ability of telcos to recoup their investment will dictate their enthusiasm for fiber. Short (and alliterated) version: If telco television tanks, business services will be in trouble.
The telcos did get a bit of good news this week. The word is that the Federal Communications Commission is likely to change the rules for wiring multiple-dwelling units. Such arrangements, in which management of an apartment complex inks an exclusive contract with a provider, are cash cows for cable operators. Chairman Kevin Martin told The New York Times that the FCC is ready to terminate contracts that were signed under these rules. This would create a new source of potential customers for telcos and other non-cable video purveyors.
Though FiOS and AT&T's U-Verse are the two biggest providers, many rural telcos offer video services. These players feel different -- and perhaps more significant -- stresses. This Light Reading piece, written from the Telco TV 2007 conference earlier this month in Atlanta, describes a defensive dynamic in which video is aimed at breaking even while enabling the provider to hold onto its wire-line customers. The CEO of Cavalier Telephone is blunt: "We knew we'd be put out of business without video."
The telcos' gains will be hard won, and they will have to avoid incidents such as U-Verse's embarrassing nationwide outage last week. At the Goldman Sachs Communacopia conference last month in New York City, Comcast chief operating officer Steve Burke said FiOS TV is available to only about 5 percent of its markets, according to a report at Fierce IPTV. Sanford Bernstein senior analyst Craig Moffett also seemed skeptical. He said FiOS TV would be available to 15 percent and U-Verse to 23 percent of television households in five years.
The conference concluded that overbuilders -- service providers such as RCN that already compete against the entrenched cable operators -- are the most vulnerable to telco initiatives. The story is accompanied by a graphic predicting the portion of various cable operators' footprints that will be challenged by FiOS TV in 2012. Cablevision, which already is fighting a pitched battle with Verizon over the New York City metropolitan area market, is the most threatened at 79 percent.
Telco television will have its ups and downs during the next few years. Remember that just as voice, video and data now are interlaced on fiber, the three applications' financial fates also are co-dependent. The bottom line is simple: The failure of telco television will limit the access of small and medium-sized businesses to telco's fiber-based VoIP and data services.