Mixing satellite TV into the wireline triple-play

For DirecTV to enter into this kind of arrangement, it would not have to be a two-box solution. Rather, it would simply be a matter of switching out its existing legacy STBs or waiting until new boxes take hold in the home. Telcos have no particular advantage in deploying this type of system, Leichtman said, and he’s not convinced more implementations of this sort will even come to market in the next three to five years, or ever for that matter.

“Coming from the telco end, they’d have to figure out ‘how do we do this’,” Leichtman said. “Their advantage is that they are starting from scratch. You can do a lot of different things. Their disadvantage is they are starting from scratch in a business that is 85% penetrated. It is now next to impossible for a new entrant to make money off of video. The only way you’d be doing video is to protect other services.”

That being said, telecom service providers do enter the game with several significant advantages. For one, since they are starting from scratch with deploying video systems in mass, they don’t have any significantly embedded infrastructure that they have to go out and replace. According to Symonds, 2Wire’s telco relationship gives them the ability to scale well beyond Comcast’s library of 1,800 titles within this year. While Comcast was considered the pioneer of large on-demand video libraries back when on-demand first gained steam, the delivery of Internet content coupled with backend systems that can accommodate multiple content partners has dwarfed the size of Comcast’s offerings, he said.

“If you look at AT&T as a model for this or you look at Verizon, for example, both of those companies have been able to rapidly grow video services in way that I don’t think the cable industry really anticipated they’d be able to do,” Symonds said. “The speed with which they’ve grown their effectively all-digital subscriber base is pretty remarkable. If you look at FiOS, it is probably the fourth largest digital cable company in digital cable subscribers in the U.S., and they started three or four years ago. AT&T has almost one million video subs across the EchoStar relationship and U-Verse platform, so those guys are getting very big very fast.”

With the right investment and network in place, telcos have the ability to make these numbers grow even more. However, as Leichtman pointed out, video is not something a company can just dabble in. The challenges of video deployment, namely seamless integration and achieving the scale to be competitive, remain, and the journey may be a long one.

“I really think there are three challenges,” Leichtman said. “One, the marketplace in general. Two is making its seamless for consumers, and three is the economies of scale. All of those come together to create a very challenging situation for anybody who doesn’t have the ability to grow scale or the commitment to do so.”