The company, one of the nation's largest local phone companies, is in the early stages of testing a technology that will change the way its high-speed customers connect to the Internet.
Traditionally, a DSL (digital subscriber line) customer has linked directly to an ISP, through which Net content flows. But with new software, which will be installed sometime next year, SBC will allow surfers to access services directly from SBC's network in addition to their own ISPs. SBC hopes the new option will push people toward subscribing to a new range of entertainment services over the phone lines.
It's a relatively small change, almost invisible from the customer's perspective. But when added to the company's new investments in Web hosting facilities and a drive to bring movies, music and games into its network, it serves as one of the final pieces in a strategy with which SBC hopes to push far beyond its traditional role as a network provider.
Like the other big local phone companies, SBC has for years looked for a way to expand beyond phone service into video and entertainment, hoping to move into cable companies' territory and even beyond. Previous flirtations with interactive TV, wireless cable TV services and Net-based projects have gained little traction.
Analysts say that by bringing all the pieces into its network, SBC is finally getting to a point where customers and content providers might be equally attracted to its services--as long as the company can avoid the network glitches that have plagued ordinary DSL service. That could create a profitable new role as middleman, if SBC is able to take a cut of video, music and other subscription revenues.
"What they've recognized is that they have to create an end-to-end service to do this kind of thing," said Kathie Hackler, an analyst at Gartner, a consulting and market research firm. "This game is going to be won by quality of service."
Pieces falling into place
The Bells have tried unsuccessfully for a decade to reach a point where they could provide voice, video and data over a network connection that they control themselves. DSL itself was originally conceived in the early 1990s as a way to carry video signals in competition with cable TV networks, although the technology quickly moved away from this once the Internet took off.
Most of the big local phone services have flirted with cable services, either with their own cable wires or wireless connections. None has been successful, and most now simply resell a DirecTV satellite connection.
But increasingly they've looked for ways to offer video on demand and other subscription services that can earn them a new role in the entertainment subscriptions world. Qwest Communications International has experimented with so-called VDSL service, which can provide a full cable video stream, as well as some video-on-demand services. Verizon Communications has tried several tacks, most recently partnering with Enron Broadband Services and Blockbuster to test a video-on-demand service. That disappeared when Enron and Blockbuster dissolved their partnership, however.
SBC's new plans are part of its Project Pronto, an ongoing $6 billion effort to upgrade its network infrastructure to the point where 80 percent of people in its service territory will be able to get DSL service of at least 1.5Mbps (megabits per second) by the end of 2003.
Alongside that, the company has been boosting its Web hosting data center efforts, although these have not been nearly as ambitious as some of the long-distance or more focused hosting companies.
Into this mix, the company will now throw software from BroadJump called the "Service Navigator" that will allow DSL customers on SBC's network, no matter what ISP they use, to make a high-speed connection directly to other points. This could be SBC's own facilities, or a corporate network similar to the direct dial-up points that many companies use for telecommuters.
This software will have several uses, the company says. Corporations that want to set up secure networks with people working remotely can allow their employees to point their DSL connections directly at the company's intranet, creating a high-speed connection that might be more secure or stable than one going over the public Internet.
But it also allows SBC to make the case to movie studios, music companies, gaming companies and other broadband content providers that it's the best place to store and distribute their services. Since it owns the network and hosting facilities, it will be able to guarantee the fast connections needed to give video service using ordinary DSL the same quality as a VCR, for example.
The company says it plans to create co-branded services along these lines, bringing as many content companies on board as possible. An early version of the content services that simply provides links to other online content will be released for SBC's Prodigy customers later this year. The full broadband content subscription services delivered from inside the network will come only after the new software has finished its tests and is released.
"There will be a specific destination that will be branded SBC," said company vice president of strategy Abha Divine. "But there will be a lot of familiar brands there."
In recent demonstrations of the various services, the company has shown video-on-demand services, music storage-locker services, peer-to-peer file-swapping functions, and online gaming services. While the final forms of the services are still under development, the effect is similar to what is often seen in hotels, with a menu of available movies or games available for a one-time charge.
Bandwidth obstacles, ISP complaints
The video services in particular will require considerable bandwidth. The company says it will need 700 kbps (kilobits per second) to 800 kbps per second to guarantee a constant stream with a full-screen picture of VHS quality--and that means the subscriber will need a connection of about 1.5Mbps. Currently SBC's basic service starts at less than a third of that speed.
This bandwidth requirement is keeping some analysts skeptical about how far into the market SBC and other phone companies will actually be able to push. Jupiter Research estimates that only about 10 percent to 25 percent of people at most will subscribe to the high-end data connections that will allow video and other similar services. That will keep the potential subscriber base low for the foreseeable future, according to Jupiter.
"I'm a little skeptical of what kinds of entertainment will work for them," said Jupiter analyst Joe Laszlo, adding that video that competes with cable TV or VCRs will be the hardest thing for the phone companies to accomplish. "I think that some of the things like music or gaming have more potential."
If the planned new services--which won't emerge until at least the middle of next year at the earliest--do provide customers some new flexibility with their DSL connections, it's rubbing ordinary ISPs the wrong way.
To set up the legal framework for the new services, SBC is asking ISPs that resell its DSL service to sign new contracts which will allow DSL lines to point to multiple places, instead of solely to the ISP. The idea is worrying ISPs, who see themselves being cut out of broadband's most potentially profitable services.
ISPs are traditionally used to buying a DSL line and not having to share it with any other service provider. They say the new contracts, which explicitly say that the bandwidth available to them will fluctuate as their customers try out these new services, are like buying a phone line and then unexpectedly having to share it with someone else during peak hours. Some are rebelling.
"It's an outrage," said David Simpson, an attorney who helped found the California ISP Association. Many of the ISPs in that group are refusing to sign the new contracts, and are protesting to SBC and to state and federal regulators.
For its part, SBC says it's just trying to introduce more flexibility into its network.
"We're not trying to supersede or interfere with the relationship that an ISP has with its customers," Divine said. "This is really about opening up the network and delivering new services."