HDTV--the clincher in war between cable and phone?

High-definition TV could be the crucial factor in the tussle between phone and cable companies for TV programming subscribers.

High-definition television could tip the balance between phone companies and cable operators as they compete for TV dollars.

After years of hype, HDTV, with its enhanced picture quality and superior sound, is finally becoming a reality. Consumers are starting to buy new HDTV sets in droves. Providing those people with more than one channel of HDTV programming could become a key selling point for the phone and cable providers battling to sign up TV subscribers.

"There's been a lot of talk about integrating all kinds of interactive features into TV," said Rick Thompson, a senior analyst at Heavy Reading, an industry analyst group based in New York City. "But in the short term, the biggest differentiator will be who has the best content package, and part of that will be how much HDTV you have."

Phone and cable companies realize the importance of HDTV. But some providers may be in a better position than others to handle the increased demand for HDTV channels, which will eat up loads of bandwidth.

The cable industry leads the U.S. market in HDTV subscribers, with about 5.5 million of the 7 million households signed up at the end of 2005, according to Leichtman Research Group. Patrick Esser, president of Cox Communications, said the cable company has seen HDTV demand build in the last six months, with 20,000 to 30,000 new customers every month.

Experts say that making sure networks keep up with HDTV demand is important, because it may help sway some consumers' buying decisions in the future.

"People today aren't choosing their TV service provider because of their HDTV offering," said Bruce Leichtman, principal analyst at Leichtman Research Group. "But they probably wouldn't go with a new provider who doesn't at least match or offer more than what they are already getting."

HDTV in the American home
A big reason for the increased demand is that there are more HDTV-capable sets out there. About 16.2 million U.S. homes had at least one at the beginning of 2006, and that tally has likely grown to about 19 million since then, according to Leichtman Research Group.

That rise in popularity is being driven by more affordable models. At Christmastime last year, the average price of an HDTV was $1,600, but people were able to get them for as little as $500. As prices continue to drop and people replace old TVs with newer ones, the number of homes with at least one HDTV set is expected to jump to 65 million by 2010.

In addition, a significant percentage of HDTV households have more than one set. Leichtman said 11 percent of people surveyed at the end of 2005 said they had more than one, and 18 percent said they were planning to buy another within the year.

For phone companies and cable operators, these are signs that subscribers will want to view more than one HDTV channel at once, which could put a strain on some networks.

"People with HDTVs will buy more than one over time," Leichtman said. "So if you are offering an HDTV service at all, you've got to be able to serve multiple TVs."

Poised to provide
Right now, in terms of network architecture, Verizon Communications is best equipped to deliver multiple HDTV streams. The phone company is building a network that extends fiber directly into homes, giving people almost limitless bandwidth capacity. Adding more HDTV streams over this infrastructure shouldn't be an issue.

But Verizon's fiber network is expensive to build and will end up costing the company as much as $20 billion, some analysts have estimated. In addition, it won't be able to reach every home within its range anytime soon. It has said it plans to reach 60 percent, or 18 million customers, within the next five years. Last year, it installed fiber in 3 million homes and expects to reach another 3 million by the end of 2006.

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