Prospects for Triple Play: May the Cruelest Month?

The final week of May was not kind to the nation’s two largest telephone companies, SBC Communications Inc. and Verizon Communications,Inc., with regard to their multi-billion dollar quest to complete the vaunted voice, audio and data bundle “triple play.”

As a result, the former Bell companies’ video service rollouts could be scaled back or delayed, according to a Merrill Lynch industry update, which noted that the potential delays were not “necessarily” negative in the short term on the companies’ shares.

The bad news started in late May, when Swisscom announced that the anticipated launch of its Bluewin broadband television service using Microsoft Internet Protocol television software would be delayed until 2006. The Swiss company initially scheduled to release the service in the second half of 2005.

Microsoft, the update notes, is also involved with SBC’s major video deployment.

The delay “calls into question IPTV availability at scale,” the Merrill Lynch update states.

Additionally, the telephone companies’ efforts to break the stranglehold that cable companies have on the video market suffered a major setback on May 30, when the Texas legislature adjourned, allowing a bill to die on the vine that would have provided Verizon and SBC with a video franchise covering the whole state.

Because the bill did not pass, the telephone companies have the unenviable and lengthy task of negotiating franchise agreements with every municipality in the state.

According to the report, obtaining just one franchise agreement takes between six to 18 months.

Verizon has been in negotiations with several municipalities and has won just six franchise agreements.  According to the Chicago Tribune, SBC is taking a “hard-line” position that its video product - scheduled to be launched later this year or in early 2006 - is an unregulated Internet protocol service that is not subject to television franchise agreements.

Verizon, SBC and another telephone giant, BellSouth, are looking into the possibility of lobbying Congress to pass legislation to remove what the carriers believe is an unfair barrier to launching their IPTV services.

Federal legislation, the argument goes, would level the playing field, increase competition and, ultimately, lead to lower prices for consumers. 

Finally, on June 1, SBC cut DSL prices to $14.95/month for new subscribers who sign up on line with a 12-month contract.  The price cut, according to the update, is a means to maintain market share, a move that “seems compatible with our review of potential telco video delay. “

Even with the setbacks, the Merrill Lynch update states “[w]e believe that deployment activities remain on pace, but it appears . . . that the timing of commercially available, scale video services on a broad basis could be pressured by recent developments.”