Will telcos kill the video store?

After several failed attempts at offering video and interactive television services, some of the biggest telcos are looking at their high-speed Net projects as a way to compete with the VCR.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
4 min read
Your telephone company may be taking aim at the local video store.

After several earlier abortive efforts at offering video and interactive television services, some of the biggest local phone companies are now looking to high-speed Net projects as a way to compete with the trusty VCR.

US West is one of the leaders in experimenting with television services over high-speed phone lines, and is planning to ramp up its video services as soon as within the next few weeks.

But the technology is still in trials, and lacks a few of the critical pieces to move video services from PCs to televisions. And analysts say that the telcos' recent video forays have no more guarantee of success than their earlier attempts.

"Their entrances into video have not been successful," noted Yankee Group analyst Jim Wahl. "I don't think video is a priority for the telcos."

The big local telephone companies have a spotty record of unrealized ambition in the video world. Bell Atlantic's bid to buy Tele-Communications Incorporated, which dissolved in 1994, was part of that company's short-lived attempt to recreate itself in part as an interactive television programmer.

More recently, SBC Communications and Bell Atlantic partnered on a digital TV effort dubbed Tele-TV, which now is winding down.

Other, more traditional cable TV efforts by the Bells have also had mixed results. US West has a single cable network in Omaha, Nebraska, a vestige of earlier attempts to enter the cable business. Only Ameritech still pushes its cable TV service as a continuing company priority.

But as the Bells begin laying out their strategy for broadband Internet service, the idea of video programming--including the "killer app" of video-on-demand--is again taking shape.

US West already has early trials of the service running over ADSL, or asymmetric digital subscriber lines, in Denver and Boulder, Colorado.

The company is also testing another flavor of "video dial tone" over VDSL, or very high data rate digital subscriber line. In this version, the company will provide the equivalent of traditional cable TV programming over copper telephone lines. This trial claims only a few hundred people around Phoenix, Arizona, but the company says it will offer the service to a much larger audience in the area within the next few weeks or months.

The US West video-on-demand services are being provided by a California company called Intertainer, which is funded by US West along with Sony and NBC.

The service offers access to about 200 movies, a long list of music videos, and archived TV programs that can be ordered and watched at any time.

Not quite ready for prime time
The US West video service is only available on PCs today, which sharply limits its appeal. But according to Jonathan Taplin, the co-founder of Intertainer, the service will be moving onto televisions as soon as the Java software for set-top boxes is completed.

US West and Network Computer are jointly working on creating the Java software for the set-top boxes, said Audrey Thompson, US West's director of product development for Internet services. The two companies are also working on a service that would integrate telephone and messaging services into a set-top box system, to be dubbed @TV.

The television version of US West's video on demand service is likely to be completed this fall, and will be rolled out in a new set of trials at that point. The set-top version of the VDSL, which has additional technical hurdles, may not come until next year.

The company is committed to the products despite the ongoing technical hurdles, however.

"This is the Blockbuster killer," said Thompson, referencing the video rental store. The company also is in the process of selecting other functions for the broadband service, such as video games and e-commerce, she said.

Other telcos are following suit. An SBC Communications spokesman said that his company is looking at content partners for its broadband offering, including talks with Intertainer.

Meanwhile, AT&T's purchase of TCI will place the long distance giant in the role of cable TV provider, with its own stable of pay-per-view and traditional video programming.

Analysts are still not bullish on the idea of telcos as video players, however.

"Competing with cable is a tough business," Wahl said. The companies are eventually more likely to stick with their traditional phone services, rather than try to become a front door for video content, he said.

The Bell's ability to create popular broadband services still remains up in the air, too. The last two months have seen Bell Atlantic and SBC Communications strike deals allowing America Online to offer its own DSL service over their lines.

Some analysts say this will help AOL take over the majority of DSL subscribers, edging out the Bell's ability to market their own brand successfully. AOL is also pushing ahead with its own set-top box plans, and could itself become a competitor to the VCR.