Fiber optics could let phone companies launch TV foray

Monday, June 23, 2003

NEW YORK -- Let's say it's an unlucky week on your street in 2010. Your premium TV service with hundreds of channels suddenly goes dark. Next door, your neighbor is getting static on her phone.

Who are you going to call for repairs? It may sound counterintuitive now, but in this futuristic scenario you might need to get your phone company to fix your TV problem -- while your neighbor contacts her cable provider about the phone trouble.

Within a few years, both cable and phone companies -- as we now think of them -- could be widely offering a basket of phone, broadband Internet and TV services.

Already, 3 million U.S. households get phone service from their cable provider, and current trials of Internet-based calling technology figure to greatly expand that.

Now, after years of hesitation, the nation's regional phone giants are making strides -- well, baby steps in some cases -- toward the TV business.

The three largest phone companies, Verizon Communications Inc., BellSouth Corp. and SBC Communications Inc., jointly sought bids this month for equipment to bring fiber-optic lines to individual buildings. Fiber can carry thousands of times more traffic than existing copper phone wires, enough for high-definition television and video on demand.

"You could literally build your own broadcast lineup and set your own times and watch the programming as you desire it," said Keith Cambron, head of SBC Laboratories.

The fourth major regional phone carrier, Qwest Communications International Inc., isn't sold on building fiber-optic lines partly because the company serves wide open swaths of the West.

But Qwest shares TV goals: It already delivers more than 100 digital channels over DSL Internet lines to 40,000 customers in Arizona and Colorado and is considering an expansion.

Bell Canada and smaller U.S. phone companies have similar projects.

Verizon, SBC and BellSouth plan to be deliberate in installing fiber. Digging up streets and stringing up new overhead wires could cost tens of billions of dollars. The first deployments next year will be in new housing developments and then in locations where copper wires are due for upgrades.

Allan Tumolillo, an analyst at Probe Financial Associates, believes bringing fiber to every building in America will take one to two generations.

But the Bells probably can't wait that long to embrace video. Cable companies -- themselves facing competitive pressure from the satellite industry -- already have two-thirds of the residential high-speed Internet market as they prepare to blitz the phone business.

Most people who get phone service from their cable company are connected through traditional circuit-switching technology. But now many cable players are offering or testing Internet-based services that are cheaper to operate and carry new features, like voice mail that can be heard, saved or discarded on Web pages.

Internet phone service still has to get better at seamlessly connecting to 911 dispatchers, operating during power outages and letting authorities set wiretaps.

But there are signs of progress. Vonage Holdings Corp., an Internet phone carrier that has only 30,000 customers but a lot of buzz, recently signed deals to facilitate calling for two small cable companies in the East.

With phone service, cable companies have what the industry calls the "triple play" -- voice, video and Internet access, packaged at a discount to discourage customers from switching to rivals.

"The cable companies are leading the game. They're going to be there first, there's no question," said Elroy Jopling, principal analyst at Gartner Inc. "They'd be there even earlier if their balance sheets were in better shape."

Verizon spokesman Eric Rabe dismissed that threat, pointing out that his company bundles traditional phone and Internet service with wireless calling, which cable companies don't offer.

The triple play "is at the level of PowerPoint slides rather than reality," Rabe said. "I haven't seen any compelling research that says anybody who offers video automatically wins the phone business, let alone the data business."

Rabe said Verizon primarily wants fiber not for transmitting TV signals but for its increased reliability, lower maintenance costs and faster data delivery. He said Verizon might even opt to lease fiber lines to cable companies.

Biting the bullet

But many analysts believe that is careful posturing and say the phone companies must offer video somehow because of cable's threat and declining revenue from the traditional landline business.

SBC, for example, has a resale partnership with satellite broadcaster EchoStar Communications Corp. and explored buying DirecTV this year.

"The Bells all know cable telephony is coming, but haven't bitten the bullet to fight it hard," said Dave Burstein, who publishes DSLPrime, a broadband newsletter. "I think the most likely scenario is the Bells take partial measures till it really hurts."

Such measures could include greater use of technology by Next Level Communications, a Motorola Inc. subsidiary that facilitates TV service for 55 phone companies, including Qwest and Bell Canada.

Next Level's system works even if phone companies haven't installed fiber to every home -- it can use copper wires with extra-strength DSL for about a mile or two of the journey.

All this appears seamless to customers. The DSL lines feed channel-changing boxes atop TV sets or plug right into a home's existing cable lines.

The Thornton family of Chillicothe, Ohio, gets 70 channels from their local telecom, Horizon Chillicothe Telephone, in a package with phone and broadband Internet service that cost them $122 last month.

Jackie Thornton said her family likes having one bill for all three services and loves how the phone and TV systems are linked. So if she's watching TV and the phone rings, caller ID information appears at the top of the screen.

"That is so awesome," she said. "If I'm sitting on the couch, and I don't know who it is, I don't have to get up to answer it."

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