SBC Awards Microsoft $400M IPTV Deal
The deal is part of SBC's $4 billion fiber buildout program, called Project Lightspeed, that will see the carrier build high-speed connections to as many as 18 million U.S. households by the end of 2007 (see SBC Sheds Light on 'Lightspeed'). Construction will start in the first quarter of 2005, with Alcatel SA (NYSE: ALA; Paris: CGEP:PA) as chief contractor (see Mais Alors! Alcatel Bags $1.7B SBC Deal and SBC's IPTV Still up for Grabs).
The aim of Lightspeed is to deliver a range of high-speed IP services, including VOIP, super-fast Internet access, and a range of TV and video services across a single connection.
"Our service will change the way people experience TV," said SBC's CEO Edward Whitacre in a prepared statement released this morning. "Finally, customers will watch what they want, when they want, from a virtually unlimited and interactive content selection. We will deliver integrated communications and entertainment services to enhance the digital lifestyle of our customers."
According to SBC, the IPTV service is planned to include "instant channel changing, customizable channel lineups, video on demand, digital video recording, multimedia interactive program guides, event notifications, content protection features and more."
The carrier, which has been testing Microsoft TV's IPTV Edition system since June (see SBC's $6 Billion Banquet), will start field trials in mid-2005, and plans to launch a commercial service before the end of next year.
But while the deal is said to be worth a whopping $400 million, is it really that great a deal for Microsoft? And has SBC jumped too soon with its choice?
It seems the announcement will come as a surprise to many, at least in its timing. Huw Price-Stephens, an independent consultant in the TV and video-over-DSL market, is at the TelcoTV event in Orlando, Fla., and says there was no indication or talk among those at the show that any announcement by SBC was imminent. "I talked to a number of people about SBC and the general view was they were still evaluating. I'm quite surprised -- I didn't expect this announcement just yet."
Price-Stephens adds that while it was generally acknowledged that Alcatel, even though it is the lead Lightspeed integrator, was not in the running to win this contract, it was still too early to give Microsoft an edge. Experts say the Microsoft TV platform is still early in its development, and it has lacked a major commercial reference client.
Of course, now it's got one with SBC, and that's a great validation for Microsoft, says Price-Stephens, but he's surprised SBC "has gone down that route," and so quickly.
Although there's a big number attached to the deal, such long-term contracts often change terms over time and leave major room for negotiation. "It sounds a lot," notes Price-Stephens, "$400 million. But if this is a contract to cover up to 18 million homes with the platform, and provide support and maintenance, it doesn't add up to a lot per household."
To be precise, it adds up to about $22.22 per household if all 18 million homes took the service. This could be a classic case of Microsoft sacrificing margins to get into a huge potential growth market. And for SBC, it could be operating under the "You don't get fired for using Microsoft" logic.
But Microsoft TV's marketing chief, Ed Graczyk, says the $400 million doesn't presume all 18 million households will take the IPTV service, but instead covers the number of IPTV subscribers SBC expects to sign up during the next 10 years.
He says the IPTV platform is licensed on a per unit (household) basis, and includes the software, support, maintenance, and initial custom integration work that'll be needed to get the platform up and running. It doesn't, however, include any Windows servers or customer premises equipment (CPE).
"I can't reveal the number of units the contract covers, other than to say it's in the millions. We've priced it competitively, but I wouldn't say it's a low-ball deal. We're pleased with the value per unit we're getting."
Graczyk adds that this is a binding contract, but that there are "get-out clauses" for both parties should any terms or conditions not be fulfilled. SBC isn't specifying the number of households covered by the initial contract.
The 10-year deal gives Microsoft, which has encountered some problems with its main trial in Europe at Swisscom AG (NYSE: SCM), the credibility it craves in an increasingly competitive market (see Alcatel Wins NGN Deal in China, Swiss IPTV Trial Hits 'Glitches', Video Smokes in Amsterdam, and BT Puts IPTV to the Test).
It also means that Alcatel, one of Microsoft's major rivals in this sector, will now have to integrate Microsoft's software into its access infrastructure at SBC. The French carrier says it was selected because it has a flexible and open access platform. The deal has to disappoint members of Alcatel's IP video team, which has been working for nearly two years to develop its own product, the Open Media Suite (see Alcatel Unveils Open Media Suite, Skystream, Alcatel Team for IPTV, Alcatel Denies iMagic Fadeout, and Alcatel, Concurrent Partner on Video).
Another vendor that had bid for the deal is Siemens Communications Group, which has built a broad IP TV system based on its own technology and a series of partnerships, particularly with experienced IP TV middleware player Myrio Corp. (see Siemens Gears Up for IPTV).
And although the company wouldn't comment on its involvement, UTStarcom Inc. (Nasdaq: UTSI) is believed to have had its mVision system in SBC's labs (see UTStarcom Launches IP TV System). Again, SBC isn't commenting on which companies were involved in its lab trials or in the competitive bid process.
The next big IPTV account that's up for grabs is likely BellSouth Corp. (NYSE: BLS). (See Analyst: Copper Is BellSouth's Gold.) Verizon Communications Inc. (NYSE: VZ) has already chosen Motorola Inc. (NYSE: MOT) to provide its TV and video services network infrastructure, though it is taking an altogether different approach to SBC's (see Verizon Says, 'Hello, Moto').
Graczyk won't say whether Microsoft TV has seen or responded to an RFP from BellSouth, noting only that "we're engaged in one way or another with every major operator that's looking to offer these sorts of services."
Other carriers currently testing Microsoft's IPTV platform, in addition to Swisscom, include Telecom Italia SpA (NYSE: TI), BCE Inc. (NYSE/Toronto: BCE), and India's Reliance Infocomm Ltd. (see Microsoft IPTV: Now That's Italian!).
To cast your vote in this month's Next-Generation Services poll -- "IP TV: Will It Work?" -- click here.
— Ray Le Maistre, International News Editor, Light Reading
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