VIDEO for the rest of us

No longer limited to the offerings of a select few service providers, video technology is poised to create a significant customer footprint through traditional telco deployments

Video is taking on a life of its own in the world of service providers. The RBOCs already have strategies in place, working with one technology - if not several - to deliver video to customers.

As consumers look to their telephony providers for a full suite of bundled services, those telcos are realizing the importance of adding video to their capabilities. And when it comes to choosing a service provider, customers often base their decision on communication services as well as entertainment.

By lending itself to many applications such as interactive TV, high-speed data and e-mail to the television, video represents a significant revenue stream for telcos. Its applications double as value-added features that will help "stick" customers to a particular company.

Therefore, telcos increasingly are turning to video to complete the bundle, hoping that it will lead to reduced churn and increased customer satisfaction.

The video-agnostic

Realizing the importance of making video available quickly in their coverage areas, the large telcos aren't limiting themselves to one technology. BellSouth and U S West, for example, are keeping their options open where video is concerned.

"We use a mosaic strategy in delivering video service to customers," says Don Granger, vice president of operations for BellSouth Entertainment, the carrier's video division.

BellSouth started with hybrid fiber/coax (HFC) when that was the standard, moved into digital multichannel multipoint distribution service (MMDS) as that technology evolved, and then looked at the broadband network and decided it could deploy fiber deeper using an integrated fiber-in-the-loop approach, Granger says.

"The basic philosophy is however we can get to customers in the most effective way that will provide a quality service," Granger says. And the basic goal is to provide a full complement to deliver voice, video and data using whatever technology is available in a particular market.

"At the end of the day, it's the customer needs we're trying to deliver," he adds. "The customer doesn't care how we deliver. They just want a high-quality, highly reliable, good value entertainment product. We keep our back office out of the customer's front porch, and it works."

U S West started in video four years ago with an HFC system in Omaha, says Vickey Callen, vice president and general manager of broadband services for U S West.

Although the traditional cable approach received a great response - capturing 64% of shared cable households in Omaha - the RBOC quickly learned that the cost and time associated with marketing and installing HFC was prohibitive, Callen says.

U S West explored other platforms and chose very high bit-rate DSL (VDSL), launching its initial project in Phoenix. "It was a natural migration because we're very active in DSL," Callen says.

The RBOC already has captured 30,000 customers in Phoenix with the system and is starting to deploy a VDSL platform in Denver. As U S West awaits approval for its merger with Qwest Communications, further deployment plans are on hold.

Two other RBOCs have set their sights higher when it comes to video, although they are not opposed to other technologies.

After sensing customer dissatisfaction with cable providers, services and program choices, Bell Atlantic partnered with DirecTV in 1998. Customers already were getting local telephone, high-speed Internet and wireless communication services from the carrier, says Phoebe Dixon, vice president of marketing for Bell Atlantic Video. "Video was basically a logical next step, and customers wanted to have a choice," she says.

Bell Atlantic became a full-service provider of satellite service via DirecTV, launching in New Jersey and the Washington metropolitan areas in September 1998. The service soon expanded to include Philadelphia, Baltimore, Boston, Pittsburgh and New York.

Consumers can choose from about 200 channels, with packages starting at $29.99 per month, plus a $5.99 fee for equipment rental. Viewers also can purchase local channels for an additional $5.99 per month.

While Bell Atlantic plans to continue its partnership with DirecTV in the future, it's not blocking itself off from other video-related technologies.

"We really don't know what future technology will drive us in a different direction," Dixon says. "We will look at what's available when it's appropriate." The carrier is testing various technologies today, but Dixon would not reveal details.

SBC Communications is also a reseller of DirecTV in its coverage areas served by Southwestern Bell, Nevada Bell and Pacific Bell, signing a pact with the company last fall. The RBOC also inherited an HFC structure with its recent acquisition of Ameritech, which serves the Midwest.

The perfect package

One thing all the RBOCs can agree on is bundling. Putting together a strong package and offering one bill to consumers will undoubtedly be key to future success.

"These days our customers more and more want a complete package from their telecom provider," says an SBC spokesman. Adding satellite TV capabilities to its wireless, ISP, broadband, local and long-distance service was essential to fulfilling that request, he adds.

To that end, SBC started bundling in some areas several months ago and is following a phased rollout plan. "We're seeing success with the bundles," says the spokesman. "It's going to be a huge draw for our customers. They get all these services that work well together and get them with a nice price break."

Bell Atlantic also is making a move toward bundling. The carrier has yet to assemble a generally available package that includes DirecTV, but it is testing bundling on a smaller scale by offering its TV Messenger service, which displays caller ID on the TV, alongside its DirecTV offering. The carrier offers bundles in multidwelling units, particularly targeting new residents.

"If you're moving in and you want telephone and television, it makes sense to package those together," Dixon says.

BellSouth and U S West have seen first-hand the difference bundling can make.

BellSouth offers a high-speed data, video and basic telephony package rolled into one bill in Atlanta and South Florida. "The response has been incredible," Granger says. "The challenges of competition really pushed us to try to provide a full-service complement to our customers. They've been very receptive to it."

In fact, BellSouth has as much as a 50% market share in areas where it offers a bundle and competes head-to-head with cable operators, Granger adds. The carrier is working to bundle services in every market, with tentative plans to roll out under a migration strategy.

U S West executives say its ability to install video and data at once is a big draw in Phoenix.

To date, using only door-to-door and targeted direct mail marketing tactics, the carrier is getting a 20% to 30% take rate on its first pass through neighborhoods with the video offer.

"We've marketed to about 100,000, and we have close to 33,000 customers today," Callen says. What's more, 15% to 20% of those customers are adding data on top, she says.

Comparatively, after two years of marketing in Omaha, the company's cable modem penetration rate is 13%, she adds. One possible reason: In Omaha U S West offered video services first and later followed with a data offering, Callen says.

The enablers

Behind the scenes, making all these efforts possible, are the vendors. These developers of set-top boxes, digital solutions and other video technology have big plans for the future.

"We'll see basically a single network that's providing global information to people regardless of where they are, independent of media," says Paul Connolly, vice president of marketing and network architecture for Scientific-Atlanta. "We will move toward a personalization of the whole network."

Today, people watch TV programs at certain times or hear news stories in a certain order because that's how they are broadcast. In the future, everyone will use the network in a unique manner, Connolly says.

"People will have the ability to extract what they want, when they want it, in the format they want it," he adds. Friends in different cities would be able to link their TVs during their favorite show, for example, exchanging comments during the broadcast.

"The concept of a channel is going to be redefined," says Marcel LeBrun, president and CEO of iMagicTV. "TV will still be a sit-back, lean-back, feed-me experience," he says, but customers will be in control of what they watch, when they watch it.

People will want the ability to view ads, launch from a program onto a Web site, call their friends and enter chat rooms, adds Aidan O'Rourke, marketing director of DSL products for Broadcom. "The whole interactive viewing experience - it will not be a passive viewing experience - will demand two-way interactivity in terms of content and multiple viewing angles. That's what's going to drive the market forward," he says. "The future of the telcos would have to be in question if they don't seize this technology."

To accomplish these things, the cable and telecom industries will likely have to come to some sort of agreement, Connolly says. "Think about the cable and telecom industries," he says. "They speak completely different languages. Those kind of limitations have to go away."

Companies will continue to have individual, core capabilities, he says, but flexibility will become more important. "Good companies change pretty regularly," Connolly adds. "Companies will keep evolving and adapting as needs identified by the network keep emerging."

The awaiting RBOCs

Whatever the future brings, the telcos are ready and waiting.

"Video is going to play a significant role in the future of BellSouth," Granger says. "It's a great complement to our telephone service and our data service." BellSouth Entertainment plans to continue down the same road it has followed until now.

"We have always looked at different means to deliver a video product to our communities," he says. "We don't ignore any opportunity to expand our offering."

U S West also will continue to take the non-conformist approach but likely with a strong focus on VDSL, Callen says. "Our overall strategy will be to drive fiber as deep as possible. VDSL is going to be the horse we ride for fastest deployment," she says.

Plans for expansion, however, hinge on the outcome of the RBOC's merger with Qwest, she adds.

As proof that it is keeping its options open, U S West has also looked at digital broadcast satellite, Callen says. The company has deployed the technology in some of its multidwelling unit locations and will keep it in mind for hard-to-reach areas. "For us, it's going to be about speed to market," she adds.

SBC has no plans in the works for VDSL deployment, but the RBOC will work to enhance its video capabilities through its Project Pronto DSL promotion, a spokesman says. "Through Project Pronto, 80% of our customers will be within 12,000 feet of the CO, guaranteeing 1.5 Mb/s. You can do nice video things with that," the spokesman says. SBC will take advantage of the setup to offer features such as video-on-demand and personal video conferencing, he adds.

"We will see the broadband market explode over the next few years and more applications taking advantage of all these broadband access line running into homes and businesses. Video is just a natural for that," he says.

With research labs in Texas and California, SBC will continue to keep an eye on new technology coming down the pipe, he adds. "Whatever it takes to get to the customers. [SBC is working to] deliver the products and services they need when they need them."

Overall, no telco can avoid the fact that video - and bundling - will have to become a primary part of its strategy if it is to remain competitive with comprehensive service providers and traditional telcos.