BellSouth Expected to Expand IPTV with AT&T Takeover
BellSouth, lagging in video deployment, likely will move faster on its IPTV plans if AT&T’s takeover gets approval from the FCC and other regulators, said industry observers. The firm largely has sat out the pay TV wars, but it has spent extensively on fiber that would allow it to scale up quickly, said executives from both Bells Mon.
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Expanded IPTV efforts would be in cable’s cross hairs -- in the corridors of regulatory power and in the video market, said analysts, investors, lawyers and industry. “It probably is likely to turn its sights on head-to-head competition with the cable companies all the more exclusively,” said lawyer Owen Kurtin of Brown Raysman. Cable firms are likely to “make as much noise as they can, if for nothing else [than] to force as many conditions on the merger as possible and chip away at the postmerger company,” he said. Analysts agreed.
“I would expect AT&T to transplant its strategy to the BellSouth footprint,” said Christopher Marangi, a Gabelli & Co. analyst: “For the longer term it creates a more formidable competitor to cable, one with more scale, perhaps better leverage to negotiate with programmers.” It may take years for stiffer competition from AT&T to take root, said analysts including Kagan Research’s Ian Olgeirson. He cited “the complexity of the merger and all the regulatory requirements and the operating requirements.” Competition will rise in 2-3 years, Olgeirson said: “That may result in a deeper commitment to the deployment.”
Cable may argue the telecom deal offers further evidence that Bells don’t need franchise relief, said an industry official. Boasting a market capitalization about twice Comcast’s would give AT&T/BellSouth deep pockets and big market presence, letting it spend the time and money to get franchises, said the person. Telecom firms generally support Hill action to streamline franchising. The firms are unlikely to use IPTV as a selling point for the merger because they already were starting to deploy the technology, said an industry insider.
Several cable groups said they were concerned about the deal. NCTA Pres. Kyle McSlarrow told members of the House and Senate Commerce Committees that AT&T was asking for a free pass (see separate story). The American Cable Assn. is also concerned, said Pres. Matthew Polka: “We're obviously concerned as the big get bigger. ‘Formidable’ would be putting it mildly.” While it’s too early for the group to have a stance on whether it will oppose the deal, it’s concerned it could spark further consolidation, Polka told us. Spurring IPTV deployment could be one upside, he said: “A big company like that will figure out how to provide those services more effectively… Maybe some of our members will be able to use some of those technologies.”
RCN echoed some of NCTA’s concerns on franchising. “There is no need to give the RBOCs a free franchising pass” with federal legislation, said Richard Ramlall, senior vp- strategic & external affairs. “This makes their claims of undue burden even less credible,” he added.
“What BellSouth is doing today is very complementary” to AT&T’s Project Lightspeed network upgrade, said AT&T COO Randall Stephenson in a conference call. The $89.4 billion deal comes on the heels of SBC’s takeover of the former Ma Bell.
“They have been very aggressive with pushing fiber deep into their territory,” said Stephenson. “If we want to push that into the BellSouth region, it’s just a perfect opportunity to do that,” he said referring to AT&T’s Project Lightspeed network upgrade. Whitacre and other executives offered few details on the combined companies’ IPTV strategy despite pressure from analysts during the hour-plus teleconference. AT&T had no further comment on the matter.
BellSouth was “studying the use of IPTV” before the AT&T deal was unveiled, with a trial set for sometime this year, said an FCC report on video competition (CD March 6 p5). The report said the firm has 40,000 video customers -- far more than AT&T, which has an advanced trial of Project Lightspeed in San Antonio. BellSouth’s fiber upgrade, which analysts said is among the Bells’ most ambitious, will boost broadband download speeds to as high as 24 Mbps, executives said. The combined company may sell high-speed Web access in areas where they don’t provide phone service, Whitacre said: “We're just trying to evaluate how do you get a broadband product when you're outside your footprint.”
In the merger, DirecTV is the likely loser, analysts said. The firm’s relationship with BellSouth, which resells the DBS service, may change, said executives of the merging firms. EchoStar, which has a deal with AT&T, is less likely to be affected, said observers. “DirecTV basically loses an RBOC, which goes into the Dish column,” said Marangi. EchoStar declined to comment. “It’s far too early to assess the impact of this deal on DirecTV,” said a spokesman, citing a “strong relationship” with BellSouth: “We will continue to work with them as we pursue our own options in the broadband arena.”