Video gamble for the Bells

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networks that include bringing fiber closer to the customer, but still using copper links to actually enter the home.

These hybrid networks will have the ability to run TV services, thanks to newer DSL technologies such as ADSL 2+, a newer version of standard ADSL, and VDSL (very high bit-rate digital subscriber line). ADSL 2+ offers roughly twice the downstream bandwidth of ordinary ADSL, or 16mbps, while VDSL has top speed of 52mbps. While both are limited compared to fiber, these advanced versions of DSL are considered robust enough to deliver video, depending on how far the customer lives from the switch that connects the copper to the fiber-optic Internet backbone.

Almost home
Whether it's through pure fiber or a hybrid network, the Bells are opening their wallets wide as they head toward the TV market.

In addition to last week's $400 million contract with Microsoft, SBC will spend $4 billion to upgrade its network infrastructure with fiber-optic lines. Last month, SBC said it would pay French equipment maker Alcatel $1.7 billion to build its new network.

SBC will not stretch fiber into individual households, but rather will extend the lines from central offices into neighborhood "nodes." From the nodes, the company will upgrade its copper lines with VDSL, a technology that can offer 100mbps to homes within 1,000 feet of a node. SBC-serviced homes, however, will get 20mbps to 25mbps, since VDSL lines will stretch more than a mile.

BellSouth is taking a similar approach by pulling fiber to the curb, which is closer than a node, but still not all the way into the home. To get into the living room, the company will rely on its copper wires to run ADSL 2+ technology to reach the speed needed for TV. The company is still testing the technology and has not deployed video to its general consumers.

Since most video customers use cable or satellite, the Bells will be trying to pluck their customers with more appealing offers.

One company that has deployed a limited trial of these technologies is Qwest. The company has deployed VDSL to about 43,000 customers in Highland Ranch, Colo., and Phoenix, offering video and 1.5mbps broadband. The company will continue to test new forms of ADSL 2+ and VDSL for upgrading other parts of its network.

Once video becomes a common staple for the Bells, the battle will only intensify. Since most video customers use cable or satellite, the Bells will be trying to pluck their customers with more appealing offers.

"It's about churning a customer away from a major cable operator," Strategy Analytics' Penhune said. "The way to do that is through bundling and integrating all sorts of IP services together."

Microsoft came to play
For companies planning to rely on DSL, such as SBC and BellSouth, new video compression technology could make the difference in turning high-speed copper networks into platforms capable of supporting competitive television services--without requiring more costly upgrades to fiber.

		News.commentary TV deal clicks for Microsoft As SBC rolls out fiber to the neighborhoods of millions of new customers, a key component will come from the software giant.

Digital video technology is in flux as technology providers develop potential replacements for the current standard, known as MPEG-2, which would require substantially less bandwidth to transmit video without loss of picture quality. A new standard, known as MPEG-4, would slash bandwidth requirements by about 75 percent, giving TV providers room for additional channels and high-definition transmissions, but it is still largely a work in progress.

Microsoft hopes to step into the gap. The company has been a leading developer of next-generation video through its Windows Media technology, which SBC licensed last week. The company has signed up several other customers for its technology around the world, including Bell Canada. Of these, however, SBC is arguably the most important to date, offering a foot in the door of an industry that has largely rebuffed its advances.

Microsoft has invested a hefty $20 billion over the years to win a berth for its technology in the TV industry. With the SBC deal, its fortunes may be about to change.

SBC and the software giant recently showed off its IPTV technology to CNET News.com in a cushy mock living room at Microsoft's Silicon Valley office in Mountain View, Calif.

The demonstration highlighted multiscreen capabilities and a TiVo-like digital recording feature, enabling viewers to record, rewind and pause a game, even when it's live. Executives also showed off instant channel changing, contrasting it with the 1- or 2-second delays frequently experienced using current digital cable technology.

Video was streamed onto the set through a broadband Internet pipe at 10mbps in pristine high definition using Microsoft's Windows Media 9 codec. Microsoft also created the programming guide and the service's various features, such as instant channel changing.

For Microsoft, adding SBC as a client underscores its attempt to bring its software onto various platforms, such as the set-top box. Earlier this month, Microsoft and Comcast announced a deal to test Microsoft TV software in the cable giant's Seattle systems.

SBC is betting all of its chips--$4 billion worth--on Internet-based television and hopes that Microsoft will help dig itself out of its hole. If the Bells' investments in TV are well-spent, the slow-moving phone industry could give cable a real run for its money.

"2004 is the last year when people consider video an exotic application for broadband," said Peter Barrett, chief technology officer at Microsoft TV.