Editor’s Letter: The Telcos Are Coming

By John P. Ourand

Stop me if you've heard this one before: The telcos are getting ready to roll out video services, and this time they're serious about it.

Cable industry executives have heard this story so many times over the past decade that it's no surprise that they're exceedingly skeptical it ever will be true. Even as investment bankers are almost universally bullish about telcos' fiber-to-the-curb plans, cable executives are almost universally unconcerned.

It doesn't matter that Verizon is spending $800 million this year on a fiber-to-the-premises build-out in parts of nine states, as Mavis Scanlon reports in this issue. It doesn't matter that SBC is speeding up its fiber-to-the-node rebuild, expecting to complete it in less than three years. And it doesn't matter that Time Warner Cable CEO Glenn Britt is warning that telcos will be cable's biggest competitors in the next few years.

The problem is that cable executives of all stripes are jaded about the telcos' video plans. They heard telcos make these claims in the mid-1990s when they were conducting trials for something called video dialtone. Cable execs heard telcos make these claims a few years later when AT&T bought TCI.

In an informal poll of several network affiliate executives, not one was optimistic that telcos will roll out a competitive video service. All of these programmers had signed carriage deals with the telcos. But each believes the costs are going to be too high for telcos to compete effectively.

These opinions were coming from network executives who want telcos to become legitimate competitors so they could have leverage over cable. They simply don't think telcos will invest the money and manpower into a service that will be--at best--a loss leader for their other services.

"Even if they wind up with NCTC deals, they're still going to be paying us a rate 30% higher than Comcast's," one affiliate sales executive said.

"Until you really get into it and are spending the money, it doesn't mean much," another told me. "We have deals with a lot of different telcos. But that doesn't amount to much because they don't have the subscribers."

The problem, as these executives see it, is that telcos already have a compelling video play without having to build a fiber network thanks to their marketing deals with the DBS operators. These deals have been remarkably successful. For example, SBC added 105,000 new EchoStar subscribers in the third quarter through this deal. It also helped SBC add 402,000 DSL subs.

SBC surely will want to control those 105,000 video subscribers, which is why it's pursuing a video play. And this time, they really could be serious.