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BellSouth's IPTV strategy may pay off

Company's execs may not thump their chests about it, but analysts say the local phone carrier is well-positioned.

CHICAGO--A decade-old bet on fiber-optic cables could end up paying big dividends for BellSouth.

While other local telephone carriers waited until regulatory issues were ironed out before deploying fiber into homes, BellSouth plowed ahead and deployed more than 5.2 million miles of fiber. It was considered a big risk at the time, because regulators could have forced the company to share the network it was building.

Now that risky deployment is paying off. Today, BellSouth serves more than 1 million homes with fiber technology, which can carry far larger volumes of data than traditional copper lines, and expects to increase the number of customers it can reach with fiber by another 10 percent this year.

"The fact that they've been deploying fiber for several years could make them winners."
--Qaisar Hasan, analyst, Buckingham Research

That means that BellSouth, as it and all the other Bells fight for consumer dollars with an ever-growing list of competitors, is nearly ready to deliver data-intensive services such as Internet Protocol Television, or IPTV, to consumers. And with local customers dropping phone service for cellular phones and Voice over IP, or VoIP, the ability to deliver IPTV into the home could be a key to survival in years to come.

"BellSouth is in a very good position," said Qaisar Hasan, an analyst with Buckingham Research. "The fact that they've been deploying fiber for several years--and their choice of technology--could make them winners."

As the Supercomm telecommunications trade show wrapped up here at the giant McCormick Place convention center, it was clear that IPTV was getting plenty of attention from phone company executives. Many consider getting into the TV business a logical way to fight back against cable TV carriers invading their local-phone-service turf. But it won't be an easy transition, as BellSouth's success and challenges reflect.

The local carrier's future in IPTV hinges on two major factors: Its technology and the regulatory environment.

The local carrier's future in IPTV hinges on two major factors: Its technology and the regulatory environment.

For that elusive final connection into the home, BellSouth has committed to using Asynchronous Digital Subscriber Line and similar ADSL2+ technologies, which will allow the carrier to offer about 12mbps of capacity on a single copper strand. Using a technique called bonding, which uses two copper strands instead of one, BellSouth says it can boost capacity to up to 24mbps. It is also considering working with very-high-bit-rate DSL (VDSL), which can deliver data as fast as 100mbps.

"The magic number for broadband bandwidth is between 20mbps to 25mbps," said Buckingham Research's Hasan. "If BellSouth can't get bonding to deliver these data rates, they won't be able to compete as effectively."

To its credit, that early start on fiber optics has allowed BellSouth to avoid a costly, speedy upgrade of its network. By comparison, SBC and Verizon have announced multibillion-dollar initiatives to upgrade their networks with fiber-optic cables, which they also plan to use to deliver TV service. With optical transmission technologies, a single strand of fiber can provide nearly infinite amounts of bandwidth.

"We want to make sure that the IPTV technology really works, and we need to make sure the business model works too."
--Michael Bowling, vp of broadband services, BellSouth

In January, BellSouth announced plans to test Microsoft's IPTV software, which is also being tested by Verizon and SBC. BellSouth execs said that so far testing is going well. A preliminary trial of the service will be launched later this year, said Michael Bowling, vice president of broadband services for BellSouth. BellSouth also has a partnership with DirecTV.

"We want to make sure that the IPTV technology really works," Bowling said. "And we need to make sure the business model works too."

Duane Ackerman, BellSouth's chairman and CEO, said he isn't worried about pulling all the pieces together.

"Historically, BellSouth has maintained a low profile, but we've never been absent from the competitive landscape," Ackerman told reporters after his Supercomm keynote speech Wednesday. "We are currently evaluating all these different technologies. And then we'll decide what to do."

Regulatory issues could be far more vexing. BellSouth's success also hinges on revamping the TV franchising system.

Under current law, new entrants in the television market must negotiate separate franchise agreements with cities and municipalities. Obtaining agreements is not impossible, but phone companies complain that it is a slow and laborious process.

Verizon, which has been lobbying state and federal officials on this topic, has begun filing franchise applications throughout the country. So far, it has successfully negotiated six contracts. SBC hasn't yet begun filing for franchises, because the company has taken the stance that its service, which will be based on IP, does not need a franchise agreement.

BellSouth also has not begun filing for franchise agreements. If new laws either at the state level or in Congress are not passed, the company could find itself years behind competitors.

"BellSouth is in a good position," said Hasan. "But these other factors really need to fall into place for the strategy to pan out."