Numerous phone companies have partnered with satellite TV providers to add video to their communications packages.
SBC Communications Inc. and Verizon Communications Inc., the two biggest local phone companies, have partnered with satellite TV providers, EchoStar Communications Corp. and DIRECTV Inc., respectively.
The phone giants also are building multibillion-dollar networks to deliver video services, interactive gaming and other advanced features to millions of homes in competition with Comcast Corp., Time Warner Cable and other cable TV providers.
SBC, the second-largest local phone company, added 105,000 DISH Network customers in the third quarter through its relationship with EchoStar, ending the period with 226,000 subscribers. SBC began offering video services in March 2004.
EchoStar rival DIRECTV has partnered with three regional phone companies: Aside from Verizon, BellSouth Corp. and Qwest Communications International Inc. are its resellers.
BellSouth says more than 90,000 customers added DIRECTV through Sept. 30. The Atlanta-based phone company also announced plans to begin an IPTV field trial during the first half of the year.
Qwest planned to incorporate co-branded digital TV service across its 14-state region beginning in the first quarter of 2005.
Qwest first struck a relationship with DIRECTV in the summer of 2000 to market satellite TV service to multidwelling units, and in 2003 the companies partnered to deliver service to single-family homes in Arizona and Washington. Qwest also entered a relationship with EchoStar under a multiyear contract, but EchoStar announced in September 2004 it was not going to expand that arrangement.
Apart from its satellite TV arrangements, Qwest has been providing video services over a VDSL network in parts of Phoenix and Highlands Ranch, Colo., over the last several years. The company has not expanded 'Qwest Choice TV' to other cities or states. Qwest has approximately 43,000 customers subscribing to its video service.
Analysts say some of the Bells have partnered with the satellite TV providers to retain customers and familiarize themselves with the TV business before delivering content over their own networks beginning in 2005. Michelle Abraham, a senior analyst with In- Stat/MDR, says a primary motivation behind the partnerships is "to attract and keep customers." She doubts the primary purpose is to generate revenue because, for one thing, the phone companies and satellite TV providers have to split the sales; plus, she says about half of the revenue goes to the content owners like ESPN and The History Channel.
The four regional Bells are not the only large phone companies venturing into the video business. CenturyTel Inc. planned to begin delivering video services at the end of 2004 in select markets through a partnership with EchoStar before making a decision to introduce television to a wider territory within its 22-state footprint.
Chris LaNasa, vice president of broadband market development with CenturyTel, says the company views the partnership as a way to protect its customers and grow revenue before rivals can build a substantial base.
"It's something of a proactive measure rather than a reactive measure - not letting the competition get the better of us," says LaNasa, whose company operates in territories served by numerous cable companies, including Comcast, Cox Communications Inc. and Time Warner Cable. "Our interest in video has gone back so far, it really was not borne out of a concern [stemming from] the cable companies offering telephony service. We truly do believe it has a dual benefit of being a retention mechanism as well as being a growth mechanism for our company."
Some phone companies have been offering video services for a few years. In California, SureWest Communications entered the TV business in 2002 through the acquisition of bankrupt WINfirst.
SureWest picked up about $250 million in assets for $12 million and entered the TV market in Sacramento where the company is a competitive local exchange carrier, says spokesman David Kamp. In January 2004, SureWest launched TV service over an asymmetrical DSL network in Roseville, Calif., its incumbent territory. The company, which reported $195.3 million in 2003 revenue, has 16,000 digital TV customers. "The overall reason [for] getting into the television business is to diversify and grow," Kamp says.
Although most telcos entering the TV business have incumbent phone operations, there is at least one notable exception: Grande Communications, a competitive local telecom provider based in San Marcos, Texas, is providing cable TV over its network in several areas of the Lone Star State: Austin, Corpus Christi, Midland, Odessa, San Antonio, San Marcos, the northern suburbs of Dallas and Waco. The company offers more than 300 channels of digital programming, including 70 premium choices, 55 pay-per-view channels and 45 digital music channels.
On the CLEC Channel?
By Josh Long
As incumbent phone companies like SBC Communications Inc. venture into the television business, will CLECs follow suit?
Analysts say it's not a priority. The companies, they note, are struggling to turn a profit, compete with larger rivals and adapt to changing rules that limit their access to the incumbent networks extending to homes.
"I think the competitive carriers are so busy just keeping their noses above water," says Craig Clausen, senior vice president and COO with New Paradigm Resources Group Inc., the Chicago consulting and research firm. Offering video services is "an interesting concept, but I think for them it is too complicated."
Clausen also points out there are few competitive local phone companies targeting consumers. Most large competitors are concentrating in the business market and even some of the biggest residential providers like AT&T Corp., which sold its cable unit to Comcast in 2002, are retreating from the local phone market.
Jeff Kagan, a veteran telecom analyst, says local residential phone providers won't play a major role in the battle for television subscribers. "Some may decide to get into television as well as telephone, but in competition with the Bells and the cable TV companies, I don't see them posing a big threat," Kagan says. "They can be successful, just smaller."
A CLEC delivering phone service over the voice network typically would have to rely on the incumbent like SBC to make the necessary upgrades to bring hundreds of channels into the living room. Even those improvements wouldn't clear the way for a competitor to access the advanced network. SBC and Verizon Communications Inc. are spending billions of dollars on network upgrades to deliver video, interactive gaming and other bandwidth-hungry services to millions of homes, but they are not required to share new high-speed networks with rivals under federal regulations.
The regional Bells' competitors could bypass the phone networks by partnering with satellite TV providers. EchoStar Communications Corp. and DIRECTV Inc. have relationships with the regional Bells and other incumbents, but they have not announced any deals with competitive local residential phone providers like Cavalier Telephone or McLeodUSA Inc.
"We're eager to talk to anybody who we think will help advance our efforts to extend broadband services to DISH Network services," says EchoStar spokesman Steve Caulk. "I really can't [say] who we receive interest from."
EchoStar has partnered with several large incumbents, including CenturyTel Inc., SBC and Sprint Corp. DIRECTV spokesman Robert Mercer says the company receives inquiries from phone companies competing with incumbents once in a while. DIRECTV has relationships with BellSouth Corp., Qwest Communications International Inc. and Verizon. "We are focused on continuing to build the partnerships we have with our primary telco partners. But we do receive inquiries," Mercer says.
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