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Phoneman rings for H’wood

Communication giants ante up $15 billion on video bet

TIP SHEET
What: TelecomNEXT
When: March 19-23
Where: Mandalay Bay, Las Vegas
CONFERENCE SKED: www.telecom-next.com

Cannes … Sundance … ShoWest … TelecomNEXT?

It won’t have a red carpet or screenings of next year’s Oscar contenders, but with the telephone companies making a massive push into the entertainment-delivery business, the Las Vegas telecom confab is staking its claim as a key event for entertainment execs.

If there are any doubts about the telcos’ seriousness, the companies answer by pointing at the sheer size of their investments.

“This year alone, AT&T and Verizon will spend $15 billion on the next generation of video service,” notes Walter B. McCormick Jr., prexy and CEO of trade org USTelecom.

Even before its Bell South acquisition, AT&T was planning to make its video service, dubbed “U-Verse TV,” available to some 18 million homes by the end of 2008.

Verizon plans to get 3 million homes a year wired for its services over the next seven years. Smaller regional telcos are also getting into the video business.

Driving all this is the new world of broadband video, where movies and programs are sent high speed to viewers, not unlike the way people receive email and the World Wide Web. In this case, it’s called IPTV: Internet protocol television.

Once television turns into a stream of Internet packets, providers must confront some simple questions: How big are your Internet pipes, and how many homes do they flow into?

Nobody has bigger pipes or more homes than the telcos.

“Virtually every room in every American home has a telephone jack,” says McCormick, “So in terms of delivering eyeballs, there’s no one in a better position to do that the telephone companies.”

Even those in charge of their video rollout know, though, that Hollywood has heard the phone companies sing this song before.

Marilyn O’Connell, senior VP of video solutions for Verizon, admits that “in the past there have been efforts for telcos to get into the video space and they didn’t become ongoing businesses.” But, she adds, “I want the content people to take us very seriously because they are our partners, and what we can offer is different from what others can provide.”

The “others,” of course, are cable and satellite companies and even broadcast networks, all of whom are finding themselves facing major new competitors — and a different kind of competitor, at that.

The telcos want to dangle a kind of simplicity for customers that no other kind of company can entirely match. Consumers longing for one-stop shopping for wired telephone, cellular, Internet and video, all on one bill, will be able to get it from their phone companies.

Cable and satellite companies like Comcast and DirecTV can’t yet match that full range of services.

As CEO Colin Binney of Amaru Inc., which offers IPTV channels and service, points out, “Telcos were typically built on the strength of their infrastructure, while cable, satellite and broadcast were measured by the strength of their content offering.

“The new structure will likely be seen as a melding of the two,” says Binney, “with companies looking to acquire, then offer, the content consumers seek over the networks that are most easily accessible and cost-competitive.”

In other words, cable operators and satellite will use must-

see content to convince customers to have a new wire or dish installed and build out their networks that way.

Telcos already have wires serving almost every potential customer in the country. But they’ve made few content deals.

Enter TelecomNEXT.

“Every decisionmaker who’s involved in purchasing programming for the telephone companies is going to be (at the confab),” says McCormick, “and they’ll also have their purchasing officers there.”

And some telcos are starting their marketing engines, like Verizon and its FiOS service.

“Verizon FiOS is helping to change the competitive landscape in the video marketplace, both now and in the future. We’re offering a new technology, a new business model and a new customer experience,” says Verizon Communications chairman and CEO Ivan Seidenberg. “The tremendous capacity on a fiber system gives us all kinds of room for local programming and high-definition content. We can offer HDTV and DVR functionality through the whole house, not just one TV set.

“The upstream speeds on FiOS will let customers create and share their own multimedia experiences. And the software capabilities built into our network mean they’ll be able to control and manage all of that without getting an engineering degree.”

Dan York, exec VP for AT&T’s video endeavors, says: “We would like the creative community to know that we are entering the video distribution business; we’re the No. 1  DSL company; through our interest in Cingular the No. 1 wireless company; and we welcome ways for them to deliver their content to their fans and consumers (in ways that provide) the creative freedom they’re looking for and the experience they’d like to deliver to consumers, without the constraints” found in other distribution methods.

Yet with one major exception, the entertainment congloms and their executives are not rushing to participate in TelecomNEXT.

That exception is chief Mousketeer Robert Iger.

A longtime proponent of new distribution models and technologies, Iger is delivering a keynote speech.

Dealmaking isn’t the only potential lure for showbiz moguls, either. Long-term, IPTV has the potential to alter business models all over broadcasting, not just those of cable and satellite providers.

IPTV can send a nearly infinite number of channels into homes, and those channels can be traditional linear channels, like HBO and Disney-owned ABC, or video-on-demand channels.

The telcos know they’re entering a market where there’s already plenty of competition, and their rivals the cable companies, accustomed to stiff competition, are already rolling out their own VOD services.

What’s more, the phone companies aren’t the only companies with big pipes and wide, wide reach. There are experiments that use electrical wires and even gas lines as Internet connections. So the entertainment space will likely get even more competitive.

But AT&T’s York says his company, for one, is undeterred. “We already participate in competitive markets, including phone, wireless and high-speed Internet. We welcome the opportunity to create choice in the video space for consumers.”