What the AT&T/Dish breakup says about the telco video market

Rago always saw AT&T’s HomeZone as a stepping stone for the carrier. He anticipates it will eventually disappear entirely as they offer more and more video services. As an unhappy Qwest user, he said that telcos like Qwest and Embarq, which are looking for ways to partner for TV, are short-sighted and behind the ball technology wise. The issues at stake in a model like this include subscriber erosion, challenges in raising ARPU with existing subscribers and year-on-year flattening revenue streams. These two telcos aren’t the model that others should follow, he said. Rather, video is the only path to take – and that goes for IPTV providers, satellite and cable as well.

“There is going to be a major paradigm shift in the way that consumers view video, and its going to be enabled by IPTV,” Rago said. “The first people to make it available to you are the telephone companies and it will be pervasive – regardless of the transport medium. On top of that will be the protocol called IPTV, and it will revolutionize video.”

As companies like Dish absolve their partnerships with the IPTV providers, they are finding that a significant portion of their subscriber base of television customer is already owned by the telcos. Moffett predicted the AT&T deal contributes as much as 15% of Dish’s gross subscriber adds, meaning that losing the relationship could lead to negative subscriber growth in 2009. Rago anticipates that the satellite players will begin to make some interesting strategic moves to compete with IPTV providers, as well as multi-systems operators (MSOs), both of which he thinks will take off.

“I think they’ll start really deploying more and more video customers,” Rago said. “As soon as the value proposition is understood in the eyes of consumer, they’ll start seeing what can be done and the broad spectrum of programming they can get; time shifting can become the norm. Consumers will start demanding more and more of this. The only people who can meet the need are cable or telephone companies. Satellite companies will not be able to meet that need if they stay as a satellite company.”