October 20, 1999 1:45 PM PDT

Bells take another stab at TV services

After rejecting the business once, some of the biggest local telephone companies are turning their attention back to the television.

Stung by cable companies' move into the phone business, a few of the biggest local phone companies are planning to provide on-demand videos and other TV services over their telephone lines. It's a plan that has surfaced briefly several times over the last decade, but this time telephone company executives say they'll have the networks to back up their ambitions.

If successful, the move could help erase the lines between cable and telephone companies once and for all. These telecommunications firms are trying to offer one-stop packages of voice, video, and high-speed Internet services, but so far only AT&T has been able to introduce such complete packages nationwide.

Executives at SBC Communications are the latest to jump into the fray, saying they'll start on-demand video trials early next year as a part of a $6 billion upgrade to their high-speed Internet network.

"This is going to make streaming video real," said Steve Dimmett, vice president of marketing for SBC. "This is going to be video on demand."

Same song, different tune
This is familiar rhetoric, however. Telephone companies have dabbled with TV several times over the last decade, and been burned almost every time--leaving some analysts skeptical that this latest push will be any different.

Bell Atlantic, one of the first to experiment with sending video over high-speed digital subscriber lines (DSL) service--now the telephone companies' high-speed technology of choice--even tried to transform itself into an interactive TV company in the early 1990s.

The Baby Bell went as far as to propose a merger with cable giant Tele-Communications Incorporated. But when those plans collapsed in early 1994, as did Bell Atlantic's video strategy.

A few vestiges of the telephone companies' original cable ambitions still remain. SBC's Pacific Bell arm sold off its wireless cable TV division in California just last year. Ameritech still runs a traditional cable TV operation in many of its states. Executives at SBC, which just completed its merger with Ameritech, haven't yet said that they will discontinue the cable division, but indicated they won't use the networks for a high-speed cable Internet service.

US West, the smallest of the Baby Bells, has been the most aggressive of its peers in experimenting with the modern telephone line video systems.

It has run trials of video-on-demand services in Denver and Boulder, Colorado, using ordinary DSL lines to send video signals. It's also invested in Intertainer, the interactive entertainment company that provides on-demand video service, and started to provide cable TV-like services in Phoenix, Arizona.

US West hasn't had the capital or the scale to introduce these services on a wide scale--a problem its executives hope will be remedied by the company's merger with Qwest Communications International.

Baby Bell as couch potato
SBC Communications, however, with a footprint that covers a third of the country's local phone lines following its merger with Ameritech, isn't strapped for cash.

According to Dimmitt, 80 percent of SBC's customers by 2002 will have access to high-speed DSL connections that can provide downloads at speeds close to 1.5 megabits per second (mbps). That's enough to send a high-quality video signal, he said.

see related story: FCC decision could pit Bells against AT&T The company is currently in talks with potential partners in Hollywood to provide movies and other content, and is planning to begin trials during the first half of next year, Dimmett added.

But analysts are looking at these plans with a skeptical eye, pointing to the local telephone companies' history with the technology as an example.

SBC Communications and Bell Atlantic already offer cable television service to their customers through DirecTV, a satellite service that competes with traditional cable companies. That may be enough for now, analysts note.

The problem is, video over DSL is still expensive. Even once the network is built, the costs of handling huge amounts of video traffic will be high. And the telephone companies will be competing with the average $3.00 price of a video rental, a difficult bar to clear.

"It's not that video on demand isn't a good idea. I think the market will love it," said Rex Mitchell, a Banc of America financial analyst. "But it's a real challenge to bring it down to the price point of a videotape."

 

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