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Are You Versed in U-Verse? - TvTechnology

Are You Versed in U-Verse?

They claim it's the largest private infrastructure investment in history: $65 billion. That's the amount the cable industry says it spent on plant upgrades between 1996 and 2002.
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They claim it's the largest private infrastructure investment in history: $65 billion.

That's the amount the cable industry says it spent on plant upgrades between 1996 and 2002. In the wake of the Telecommunications Act of 1996, which cleared the regulatory environment and spurred competition, cable operators laid down some fat, 750 Mhz broadband pipes as a basis for offering a range of convergence services--digital video, high-speed data and IP telephony.

Several dynamics spurred this movement. Direct satellite providers were making inroads with customers who jumped at the chance to escape cable's horrendous customer service. DSL presented a competitive threat with high-speed data, and the dizzying conglomeration of cable operators merged into a handful of bemuscled behemoths, with Comcast swallowing AT&T, which had swallowed TCI.

Give credit to the cable guys. They built the infrastructure, taking on enormous debt just before the Internet bubble burst and cast all their stocks into the doldrums. That they've persevered, if not prospered, attests to the faith of their investors, the spells woven by their digital-dream offerings and the inelasticity of demand for cable TV. (Consumers complain about ever-increasing cable rates, but since cable ops cleaned up their service rep, they've significantly reduced churn.)

In allowing cable to compete on telco turf, the regulatory scheme was also supposed to encourage the proverbial level playing field. For the past 10 years, though, the regional phone companies have been hors de combat. Other than some marginally successful alliances pairing DSL with satellite, they hemmed and hawed about fiber-to-the-home (FTH) and other solutions as being too costly, the regulatory environment too cloudy and (implicitly) the competition too commanding. While they frittered, cable operators began launching telephony, and absurdly low-cost IP-based phone service became a reality.

Telco inaction is about to change, beginning this year.

ENTER U-VERSE

SBC Communications fired the first salvo in January, when it announced it would launch an Internet-based TV service later this year. Dubbed U-verse, the $4 billion initiative will deliver VDSL (very high bit-rate digital subscriber line) access of 20-25 Mbps, voice calls and, for the first time, hundreds of digital TV channels--the first true telco "triple play."

SBC is benefiting from its $6 billion Project Pronto initiative of five years ago that involved laying down the fiber plant (how much of that $6 billion is now part of this $4 billion is cloudy, but billions are still billions). SBC is also spending $400 million on Microsoft's IPTV software to fuel U-verse, allowing customers to watch the shows through their PCs, cell phones and handhelds, as well as program their DVRs with cell phones.

SBC has set ambitious goals--18 million homes reached in three years. Pricing is still not public, but many analysts say it will have to be competitive with cable and satellite offerings.

Hard on SBC's heels is Verizon, which is leapfrogging the SBC technology by running fiber-optic lines into neighborhood nodes and then trucking those signals to the home over the old copper wire network. Verizon will run fiber directly to the home at a hefty price tag of $800 million this year to support its pure fiber-optic network service, Fios. It aims to reach 2 million homes with a triple play of voice, video and high-speed data, with base speeds of 5 Mbps.

Qwest and Bellsouth are also in the hunt, ensuring that the wall between the cable and phone industries is on the verge of collapse.

The telcos are benefiting from a number of technology advances, particularly new video compression schemes and Windows Media. That Microsoft itself has invested $20 billion in its video business in recent years only gives the telcos another resource to tap.

COMPETITIVE FALLOUT

This will have visible repercussions on the cable side of the equation. Expect to see faster rollouts of IP telephony service. And numerous operators, including Comcast and Cox, have been increasing the speed of their basic cable modem packages, as well as bundling digital cable, telephony and cable modem offerings with lower overall pricing.

Competition will also inject new life into the development of digital media control within the home, as well as the content coming in. Already the evolution of the old set-top box has been accelerating with the inclusion of DVR functionality, HDTV and home theater support, and interconnectivity with other digital devices. Expect a barrage of hype, not all of it unfounded, about cheap phone service, interactive gaming, video file-swapping and wireless wizardry.

For consumers all this competition could very well add up to a wider array of attractively priced options, plus the relief of paying just one bill--a personal kvetch of mine for years.

There are still some speed bumps ahead for the new juggernauts. With all that digital video flowing over IP in the home, Hollywood's bound to get jittery. And any number of technological bottlenecks could choke the telcos' broadband flow predictions.

In the meantime, brace yourself for a nonstop onslaught of consumer ads. If you thought cable versus satellite was clogging the airwaves, the telco pitch will add nauseam.

At least we'll all have more channels to watch them on.

You can reach Will at wworkman@aol.com.