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Selling Telco TV: You Got $99?

Light Reading
News Analysis
Light Reading
10/5/2006
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FOSTER CITY, Calif. – Telco TV’s moment of truth is just around the corner in the U.S., and some of the biggest players in the movement still have divergent ideas on how to sell the new service to American consumers.

Some believe the market will be won with fancy features and capabilities. But at least for now -- many realists point out -- it's just being sold on price, with the cheapest triple-play bundle winning.

So debated executives from Microsoft Corp. (Nasdaq: MSFT), Verizon Communications Inc. (NYSE: VZ), Alcatel (NYSE: ALA; Paris: CGEP:PA), and others speaking here at iHollywood Forum IPTV World on a panel clumsily called “I Want My IPTV Maybe... If I Knew What It Was: Will Consumer Demand Live Up to Expectations?”

Microsoft's director of media services, Shari Barnett, believes the bells and whistles of IPTV really matter to subscribers. She says that has proven out with customers of Microsoft TV's largest North American customer, AT&T Inc. (NYSE: T). AT&T video subscribers in San Antonio, Barnett says, were won over by features like picture-in-picture, instant channel change, and the Microsoft TV programming guide. (See Microsoft Says Middleware Not a Problem.)

”The content is virtually the same -- you're getting the same set of channels,” Barnett says. “We all only watch a handful of channels anyway, so what you want is a good experience watching TV, and that's what AT&T really focused on in San Antonio.” (See IPTV's High-Def Holdup.)

One of the panelists, Peter Meister of the IP video delivery company, WhiteBlox, says new IPTV services will mean much more to consumers than just a new way to watch TV. "Entertainment is a lifestyle expression of who we are... It's personal," he rhapsodized. Meister believes subscribers will get creative with new IP features and interfaces, personalizing their video content and the way they watch it.

"We have learned a lot from subscribers about why they buy a video service -- less than 10 percent for the 'cool' factor," rejoined Verizon's director of interactive services, Joseph Ambeault.

Several agreed with Ambeault that the vast majority of Americans don't even know what the term "IPTV" refers to. And Ambeault and Microsoft's Barnett say consumers don't really care. "Why the industry is so focused on that four-letter acronym is a mystery to me," says Ambeault.

"Microsoft and AT&T didn't use the term IPTV anywhere in San Antonio," Barnett says. "We used the name U-verse everywhere and just put it side by side with cable and let the people decide."

Verizon recently hit the 100,000 subscriber mark with its FiOS video service, and it has come away feeling that consumers care more about the basics -- like reliability and QOS -- than about fancy IP-based features. (See Stalking Verizon FiOS in the Jersey Jungle.)

"Consumers are looking for something much more simple -- picture, quality, reliability," says Ambeault. “They want the picture to be there every time they turn it on.” (See New Fiber, Plain Old Services.)

But, regardless of whether it's the fancy new technology or reliability of the service that helps people switch to telco TV, cost, at least for now, remains a big issue. In general, industry executives see the $99 triple-play bundle becoming the industry norm.

"Everybody's headed toward a $99 triple play," says National Rural Telecommunications Cooperative (NRTC) VP of business affairs Mark Ellison. "I think that's the target; it’s to keep the number down below $100.”

"The pain point is somewhere between $100 and $120 on one bill," Verizon's Ambeault offers. If the bill for voice, video, and data adds up to much more than $100 a month, some consumers may balk, he says. If the combined bill is kept under $100, people appreciate having all their IP services on one bill. "It's a proven churn reducer."

Verizon now offers a $97 voice, video, and data bundle in New York, for instance. AT&T’s U-verse data and video bundles (VOIP hasn’t been added yet) start at $75 for customers in San Antonio.

Hitting that $99 price point may be the cost of breaking into a video market dominated by cable and satellite. "I know Verizon must be selling pretty much at cost right now," NRTC's Ellison said.

Verizon says it will have invested more than $18 billion on its FiOS network upgrade by 2010. The company recently confirmed that it paid $875 in capex to pass a home with fiber during August, and another $933 to roll the trucks and actually connect the wires to the home. (See Figuring FiOS.)

Verizon believes its FiOS network will begin generating real returns starting in 2009.

Others say price will become less important as people come to understand IPTV a little better. “I think you only see that competition on price when the service is the same as what's already out there," says Alcatel VP of marketing Benoit Mercier. "Look at Verizon and AT&T -- they haven't had to drop their pants on pricing," Mercier colorfully opines. "I think Verizon and AT&T have been able to show that the experience is substantially different. The IP pipe opens up all sorts of interactive features, quite frankly, that cable can't duplicate that quickly."

Today Verizon's broadcast video channels are delivered using a cable-like RF system, not IP, but Ambeault says his company is very aware of the advantages of IP's bi-directional nature. "As we go forward we have every intention of turning down that RF and doing more IPTV.” (See Verizon's Elby: IPTV Could Take Years.) FiOS VOD is currently delivered using an IP connection.

NRTC’s Ellison later pointed out that he is a FiOS customer and loves it: "I don't know how long it will last, but so far it's just been amazing."

— Mark Sullivan, Reporter, Light Reading

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optodoofus
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optodoofus,
User Rank: Light Beer
12/5/2012 | 3:38:33 AM
re: Selling Telco TV: You Got $99?
I never thought I would say this, but apparently Verizon gets it. There is no advantage to IPTV that will induce people to switch unless either 1) they hate the cable company and are just looking for another option or 2) it is less expensive. Fast channel change? Get real.

Unfortunately, we have already blown through the $99 price point, and Cablevision is offering triple play for $89/month, at least for the first year. And when you call them up after 12 months and tell them you are switching, you can bet that you will get the deal extended.

Prices spiralling down is great for consumers, but not too pleasant for people who sell telecom gear for a living. The next few years will not be fun.

optodoofus
materialgirl
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materialgirl,
User Rank: Light Beer
12/5/2012 | 3:38:31 AM
re: Selling Telco TV: You Got $99?
Forget it, folks. This is no surprise, just the beginning of the end. Users have already voted with their feet. They are running to GOOG and to YouTube. The couch potato thing is over. No wonder prices are falling. You have not seen anything yet.

The service providers are getting disintermediated. That is why they are so anxious to block GOOG. Unless our regulators hand them a comlete monopoly and they totally kill off that irritating Internet, they will fail. They are out of touch with users and are spending billions of dollars on something it is clear no one wants. They dont even know what features to offer. How pathetic is that: a multi-billion dollar budget with zero justification other than fear and panic.
Mark Sullivan
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Mark Sullivan,
User Rank: Light Beer
12/5/2012 | 3:38:31 AM
re: Selling Telco TV: You Got $99?
I like VZ's no-BS approach too, but I still think that IP will make TV so much more interactive that people will eventually value SOME, not all, of the bells and whistles. Hopefully, video players will begin to compete on the coolness and utility of the new bells and whistles they come up with, and not forever on price.
Scott Raynovich
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Scott Raynovich,
User Rank: Light Sabre
12/5/2012 | 3:38:30 AM
re: Selling Telco TV: You Got $99?
That is absurb. I guess it's the new economy again? Didn't exactly work out last time, did it.

Personally, what I look forward to over the weekend is watching a giant HD screen with broadcast quality football... not sitting and watching a bunch of grainy moronic YouTube videos.

The reason YouTube is so popular is that folks can watch it at work, and it's better than working.

The Internet companies will have no means of delivering high-quality content to the home until they have 1) the pipes into the home 2) the content. They own neither.
Michael Harris
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Michael Harris,
User Rank: Light Beer
12/5/2012 | 3:38:28 AM
re: Selling Telco TV: You Got $99?
Amen Scott. Enough with the YouTube taking down broadcast-quality TV B.S.
falsecut
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falsecut,
User Rank: Light Beer
12/5/2012 | 3:37:59 AM
re: Selling Telco TV: You Got $99?
What nonsense. People are going to youtube so they can watch mentos and coke experiments. People are not going to watch their TV on a three inch screen in a web page.
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