Two Giants Launch Video Service

Verizon teams with Microsoft to enter TV business midyear
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As the line between phone companies and cable companies blurs, Verizon is the latest telco to get into the TVgame.

Teaming up with Microsoft, the world’s largest software company, Verizon is transforming itself into a TV-delivery powerhouse. It will use Microsoft’s electronic programming guide as part of the video service launching on Motorola digital set-top boxes midyear.

Key to the telco’s success strategy is using the same delivery technologies that cable systems do (QAM), ensuring a similar viewing experience.

But unlike cable, which uses both coaxial cable and fiber, Verizon will rely solely on fiber. The result? It will be able to offer even more cable channels, as well as telephone and broadband services, since it will exceed cable’s 750 MHz.

So while rival SBC is busy buying AT&T, Verizon is spending upwards of $40 billion to roll out its fiber-to-the-premises (FTTP) service. Currently, the service (brand name FiOS) delivers three levels of broadband service to consumers: 5 Mbps, 15 Mbps and 30 Mbps.

The company is now adding FTTP services to 12 of the 29 states it serves, including California, Florida, Massachusetts, New York, Virginia, Indiana, New Hampshire, Pennsylvania, Rhode Island and Texas.

Verizon also plans to hire up to 5,000 employees by the end of the year to begin laying even more fiber to service its 30 million wired-phone customers.


Verizon’s use of fiber has a second bonus. It avoids relying on the Internet Protocol-based service (IPTV) that smaller telcos deploy. The advantage of using an IPTV-based system is that video services can be delivered over DSL or even existing copper lines. For telcos that can’t swing a multimillion-dollar upgrade, IPTV is the way to go.


But there is a downside to IPTV. Video is sent over small data pipes and sends only the channel requested. That means channel changing can be slow, in some instances taking seconds.

Cable, on the other hand, makes all the channels available to the viewer over the cable pipe, allowing instant channel changing and picture-in-picture —a clear advantage over IPTV.

Michael Goodman, a Yankee Group analyst, says that cable edge could hamper any telco that relies on IPTV delivery to compete.

But a bigger challenge, he adds, is persuading consumers to view telcos as entertainment providers akin to cable and satellite.

These issues, along with the desire to roll out TV services soon, explain why Verizon chose non-IPTV delivery using QAM.

“Down the road, we’ll deliver future applications using Microsoft’s IP software and our own software platform called IOBI,” says Mark Marchand, Verizon director, media relations for network and technology.

IOBI is a middleware software platform that marries the user’s phone to a PC. All calls that come into the phone can be managed and stored on the PC.

“We’ll be adding video to that platform for future applications, like video telephony and home networking,” Marchand says.

“Eventually, you’ll be able to answer your phone in one of two ways: voice or video,” he adds. “Home networking could mean retrieving a video clip of you and your kids on your PC and showing it on the 52-inch TV.”


But don’t expect IPTV to settle for lesser status. Ed Graczyk, Microsoft TV director of marketing, says Microsoft demonstrated IP-delivered picture-in-picture and instant channel changing at the Consumer Electronics Show last month. “Those services are a huge advantage for us over the competition,” he says. And the telcos are signing on.

Last November, SBC signed a 10-year $400 million deal for Microsoft IPTV services. The software giant is currently conducting trials with Bell South.

While the multibillion-dollar product upgrades being undertaken by Verizon, SBC and Bell South are getting attention, the smaller telcos are quietly expanding their business.


Consolidated Communications, the 15th-largest telco, with more than 250,000 subscriber lines in Illinois and Texas, is rolling out video services using Myrio’s IPTV product. It’s even offering VOD with the help of Entone’s StreamLiner NVR software.

“Our VOD software turns off-the-shelf hardware into video servers,” says Steve McKay, CEO of Entone, a manufacturer of IPTV-related products.

Consolidated has 400-500 movies on Hewlett-Packard servers and can serve as many as 2,000 customers concurrently. For now, McKay doesn’t mind the quiet world of telcos.

“Right now, we have this business to ourselves, since our competitors are so busy beating each other up in the cable market,” he says. “We grew up as an IP-based telco company, and we’re getting the lion’s share of the business.”