Telco drops cable for broader view

Telefonica follows trend to Internet

MADRID — It’s a case of geeks bearing gifts.

Telefonica, Spain’s biggest telco, has received government permission to switch from rolling out cable TV in Spain. Instead it has pledged to create a nationwide ADSL network.

Asymmetric Digital Subscriber Line is a long phrase for what, in a very short time, has become the hip tech biz in Spain: broadband Internet that permits a huge amount of visual information and data to reach homes over a standard copper telephone line.

Telefonica sources claim 90% of its established fixed-telephone lines can take ADSL, and it’s offering the basic service at a song: 42 pesetas ($37) a month. In Western Europe, only ADSL in Belgium and Sweden comes cheaper.

No telco in Europe has plowed so aggressively into film and TV as Telefonica, whose subsid Admira owns Endemol, satcaster Via Digital and broadcasters Antena 3 and Telefe. Telefonica’s justification for this media sally is that one day, it will be able to pump these companies’ content to PCs, cell phones and TV sets.

Some analysts are skeptical about ADSL’s capacity to deliver, however. A December report by the Forrester European Research Group says supplying video to TVs over ADSL is not a killer application — it’s costly suicide.

Money pit

“To provide a large number of parallel video streams to single users, telcos must invest several times more than broadcast TV services that can be multicasted to many users simultaneously,” the report claims. So has Telefonica given up on full-blooded convergence? Not at all. “Telefonica is betting that ADSL can surpass cable in terms of services,” says a Telefonica source. While cable operators, particularly Ono, are making some headway in Spain, ADSL is a hotter immediate prospect than cable for Telefonica.

On target to pass 1 million PC clients by year-end 2002, and with its ADSL network paid for, Telefonica is reportedly already turning profits on the technology.

Moreover, the ADSL drive leaves Telefonica’s rivals with the onerous task of rolling out their own fiber optic infrastructures, rather than piggy-backing off Telefonica’s lines.

Telefonica already has 900,000 miles of fiber optic in Spain, passing 300,000 homes. It plans to invest $2.6 billion in building its network up to 2005.

While it muscles into ADSL, Telefonica will also gain breathing space to work out how to connect its fiber-optic highway with into-home copper wire lines at a reasonable price.

If that fails, Telefonica can reconsider driving fiber network to homes and delivering triple-play Internet, telephony and TV by more traditional methods.

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