Telcos dial up TV service

Video gains help keep wired world afloat

Gains in TV services combined with cost-cutting measures will keep land-line phone company revenues stable despite the loss of traditional voice-service customers. That’s the conclusion of a recent report from bond rating agency Moody’s Investors Service.

As an increasing number of Americans replace the traditional home phone with cell service, wireless revenues have soared and fixed-phone operations stagnated. But one bright spot for the telcos’ wired operations has been a gain in providing video service.

Moody’s notes that AT&T and Verizon posted 5% growth in video subscribers this year through the second quarter. That could be the same or slightly lower next year as AT&T and Verizon slow the growth of their U-verse expansion and FiOS build-outs, respectively.

Two years ago, voice services accounted for 44% of wire-line industry revenues. This year, voice is 37% and, by 2014, the traditional business will be only 30% of wireline industry revenues, Moody’s estimates.

The problem for the phone companies is that TV service doesn’t carry the same margins as voice. As a result, the ratings agency expects both AT&T and Verizon to attempt to control costs through labor negotiations.

Moody’s says that because of labor expenditures and the high cost of acquiring TV content and attracting customers, AT&T and Verizon will continue to struggle to achieve the same margins as cable companies.

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