Will Workman /
05.30.2007 12:00 PM
Telcos Fiber Plans Finally Start Paying Off
Here they come, finally. After so much hoopla during the past decade about how they can present a valid IPTV competitor to cable and satellite, ye olde telephone companies are at last entering the fray.

With major consolidation and billions in infrastructure investment, the nation’s two largest telcos, AT&T and Verizon, are locked in fiber rollout plans that are at last bringing digital TV and other advanced broadband services to market.

However, these competing strategies—AT&T U-verse and Verizon FiOS—have raised significant questions about fiber architecture, capacity, and demand for new services—with major implications for consumers.

DEEPER ISSUES

The two competing efforts have also generated a heated debate that is playing out in PR spin from both sides, vendor clashes and conflicting news reports—all clouding the deeper issues.

On one hand there’s the new AT&T, still digesting its latest $86 billion merger with BellSouth (completed in December), and now counting a whopping 66.5 million landline phone subscribers, 62 million wireless subscribers and 12.9 million broadband (DSL) lines—making it the nation’s largest provider of DSL. With its market capitalization at an astounding $242 billion, and a relatively low debt load for such a mammoth operation, it’s poised to pump marketing and technology resources into U-verse.

The U-verse network employs a fiber-to-the-node architecture, extending fiber into neighborhood nodes, then using existing copper to carry the signal into the home. It’s layered Microsoft’s IPTV Edition software.

Though the IPTV service is on track to reach a mere 8 million subscribers by year’s end, rollout in the newly acquired BellSouth footprint should proceed even more rapidly because of its high fiber content, according to company executives.

Top speed for the service is around 24 Mbps, which AT&T says is superior to cable offerings.

While that’s certainly true, the prickly question some critics are raising is whether AT&T has taken a cheaper route that will prove limiting, once more bandwidth-intensive services become widespread.

Many of these critics are backers of fiber-to-the-home architecture, employed by Verizon’s FiOS service. It currently counts around 348,000 subscribers in the markets where it’s available.

Capable of an unshared data stream of up to 100 Mbps, FTTH is less prone to copper’s unreliability (weather and electromagnetic interference can cause problems), and can provide bandwidth for more advanced, video-intensive services.

While it’s significantly more expensive to roll out (FTTH critics say it can cost up to $6,000 per subscriber, though Verizon says its actual rollout costs are about a quarter of that), the increased capacity is alluring now, and perhaps necessary in the not-so-distant future.

“True, interactive broadband applications, like distance education and telemedicine, can only be accommodated with an unthrottled network; as in wide open (spelled FTTH),” argues one poster responding to a Computerworld blog.

These questions aside, the telcos in the meantime are pursuing several other, complementary, strategies.

First, both AT&T and Verizon are seeking video franchises at the state, not municipal, level. California recently joined eight other states in passing laws that allow statewide franchises in order to foster video competition.

Securing a California franchise will not be an easy task, however. Companies gaining a franchise must meet a tough timetable: A company with more than 1 million lines must provide TV service to 35 percent of its customer base within three years, and 50 percent within five years.

AT&T officials say they’re ready to do this, adding another $1 billion for initial deployment to the $20 billion they say they’ve already invested in California during the last 10 years.

Second, wanting to preserve whatever bandwidth their networks generate, both telcos are lobbying aggressively against network neutrality legislation (discussed in earlier Inside Broadband columns) that would protect content providers such as Google (owner of YouTube) from bandwidth constraints imposed by network providers.

Third, the telcos are partnering with other companies to market compelling new products throughout their other service offerings.

THREE SCREENERS

Apple, for example, is set to launch its much-hyped iPhone in June, exclusively on AT&T’s network. In accord with that, AT&T recently announced a video-sharing service allowing users to transmit live video over their phones. This is all part of what AT&T execs call its “three-screen” strategy of providing TV, music, e-mail or other data services to any PC, TV or wireless device.

Verizon Wireless in January relaunched its VCast TV service, sending live TV to cell phones on the back of MediaFlo, a dedicated video broadcast network from Qualcomm. It’s also testing FiOS with wireless phones, allowing the latter, for example, to control DVRs remotely.

Cable operators are certain to feel some heat from all these announcements. Indeed, Time Warner has reportedly upped its cable modem speeds to 10 Mbps in markets where it competes with FiOS. But in the long haul there’s always the question of what the consumer will want and whether providers can deliver that cost-effectively.

When will U-verse hit a limit? Will FiOS return enough profit to justify its expense? We’ll just have to wait and see—at high speeds, that is.


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