Selling Telco TV: You Got $99?

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