Verizon Makes Microsoft Video King

Verizon Communications Inc. (NYSE: VZ) has selected Microsoft Corp. (Nasdaq: MSFT) as the software provider that will power its fiber-based television and video service offering, FiOS TV, both companies are expected to announce later today.

The dollar amount and scope of the deal is not disclosed, but both companies say Microsoft will supply the software for set-top boxes and for all the application, billing, and notification servers running along the path that takes video from the acquisition point to the customer's TV (see Who Makes What: Telco Video).

The deployment is set to begin later this year -- as soon as Verizon completes the process of getting cable franchise agreements approved by the various municipal governments in the areas where it wants to launch TV services (see Your New Cable Company and SBC Sees IPTV Interference).

For Microsoft, this further establishes its dominance in the North American consumer video software market, as it's already scored big wins for commercial deployments with SBC Communications Inc. (NYSE: SBC) and Comcast Corp. (Nasdaq: CMCSA, CMCSK), as well as a system trial at BellSouth Corp. (NYSE: BLS). (See BellSouth Trials Microsoft's IPTV, SBC: 'Let Us Entertain You!', and SBC Awards Microsoft $400M IPTV Deal .)

Other vendors offering all or part of an IPTV software infrastructure solution include Alcatel (NYSE: ALA; Paris: CGEP:PA), Kasenna Inc., Orca Interactive Ltd., and SeaChange International Inc. (Nasdaq: SEAC).

Microsoft says it is building a custom solution for Verizon. The carrier's network, according to Graczyk, includes software that would be used in a Quadrature Amplitude Modulation (QAM) cable network and software that would fit in a pure IP network.

"Verizon has an IP infrastructure, but it will be delivering video on a Motorola-based QAM architecture down to the set-top box, using MPEG4 [video encoding]," says Ed Graczyk, director of marketing for Microsoft TV (see Verizon Says, 'Hello, Moto').

Indeed, Verizon's approach is not a pure IP-based solution. The company intends to provide a competitive choice to cable, and it will be able to add applications using IP technology. But the carrier has never said it will go to a pure IP-based solution down the road.

Right now, most operators providing TV services -- both cable and wireline carriers -- have standard-definition TV, HDTV, video-on-demand, and digital video recorder (DVR) capabilities in the works. Delivering those services over an all-IP network, proponents say, will enable consumers to do things from any location with any IP-connected device. So a consumer could, for example, program a DVR to record a show using a mobile phone.

Those advanced features may be possible on other networks, like Verizon's, but it remains to be seen if the management and deployment of such services will be as easy or economical.

But, at least in Verizon's case, there is something to be said for shooting first and aiming later. In Keller, Texas, where Verizon first debuted its FiOS service, the carrier says it has a 20 percent customer penetration -- and that's before the video service offer was available.

— Phil Harvey, News Editor, Light Reading