Lucent Technologies Inc. (NYSE: LU) today announced that Canadian service provider SaskTel will deploy Lucent's equipment in a new IP video-over-DSL service in Saskatoon, Saskatchewan (see Lucent Intros Video Over DSL).

Crazy idea, you say? Possibly. But it just might work. Indeed, sources say service providers worldwide are looking at the idea of creating commercial video services for DSL. There are also a slew of RFPs (requests for proposal) for video-over-DSL in the field right now. And ironically, some say the upshot could be renewed strength in the optical market, if DSL networks can be put to new uses.

So where's the logic? The carriers are being driven by the fear that if they don't find new services for DSL fast, they will be usurped by the cable industry distributing its own broadband services. And that fear seems legitimate.

Here's the scoop: Lucent's offering a new version of its Stinger DSL access concentrator, which will give high-speed video capabilities to the device. Right now, customers use Stinger over asymmetrical DSL (ADSL) lines, making it tough to support high-definition television or nascent video-on-demand. The new Stinger will support offerings like these via very-high-bit-rate DSL (VDSL).

Lucent has integrated this new product, which is slated for general availability at the end of June, with video billing and administrative software from iMagicTV Inc. of New Brunswick; video headend equipment from Harmonic Inc. (Nasdaq: HLIT); and set-top boxes from Pace Micro Technology PLC (LSE: PIC).

Lucent says it's not working on any similar IP video product for use with optical services. And SaskTel says it's not interested in running fiber to homes for video use.

But analysts say the trend toward running digital, IP-based video over VDSL is just a stop along the way to fiber to the home. Rollouts of video over DSL will encourage more fiber installations, particularly among multiple system operators (MSOs), the next evolution of today's cable TV providers, who are generally thought to be best positioned to take a large slice of the upcoming packet video market (see Cable MSOs Set to Win?).

"The only way cable providers will be able to offer video services over DSL is by extending fiber to remote DSLAMs," says Alan Bezoza, broadband access analyst at CIBC World Markets. To extend the fiber as needed and overcome distance limitations, he says, carriers are starting to use PONs (passive optical networks) and new fiber installations.

"Video over DSL doesn't compete with optical access -- it encourages it," Bezoza asserts. And he says fiber will replace copper as IP becomes a medium for TV stations. Today, he notes, video over IP is strictly relegated to surfing the Internet with a TV screen.

So far, SaskTel's the only Stinger video taker willing to go on record. But it's a serious one, even though it's not revealing the value of its deal with Lucent. "We've found in our research there's a significant demand for services like these," says a spokesperson. The carrier has gotten the required licensing for nine cities from the Canadian Radio-television and Telecommunications Commission(CRTC) and plans to roll out an IP-based video service commercially in the cities of Regina and Saskatoon in May or June, with the other locations to follow.

Lucent's already got competition for other regional Canadian telco contracts. Aliant Telecom of Maritime Canada is using equipment from Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and Harmonic along with iMagicTV software in an IP video service called VibeVision.

Analysts say there are many other pending contracts in North America from carriers eager to get a slice of the video services pie -- a market that Morgan Stanley Dean Witter & Co. says is worth $40 billion annually.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com