When AT&T announced it would buy BellSouth last month, the prospect of the former SBC Communications gaining an even bigger footprint didn’t exactly rankle the cable industry. So it’s not a surprise that AT&T’s hype machine surrounding IPTV, a next-generation architecture that uses Internet protocol technology to mix voice, video and data streams into a seamless switched network, has also failed to create any real panic. At the moment, the cable industry has reason to remain calm. AT&T’s Lightspeed IPTV product will be limited to a few markets and won’t differ much from a traditional cable system. And while AT&T’s marketing push certainly will shake up cable markets, it’s unclear whether its product will stand out enough to win large numbers of converts. AT&T also faces scalability challenges as it rolls out IPTV across the country. Cable can’t dismiss AT&T outright, but it has plenty of time to assess the marketplace and formulate a defensive strategy. "I think there’s a lot of mythology out there about IPTV," says Glenn Britt, president and CEO of Time Warner Cable, which is actually running an IPTV trial of its own in San Diego. "It’s not a magical thing." BURKE’S LAW: CABLE CAN DO THINGS BETTER THAN THE TELCOS MSO executives also point out that they can offer many of the same features—increased interactivity, seamless integration, mobility and other bells and whistles—simply by tweaking current infrastructure. "Anything they can do I can do better," Comcast Cable president Steve Burke says. Michael Willner, president and CEO of Insight Communications and a veteran of the telco wars, says IPTV is just the latest Ma Bell-sprinkled flavor of the month. "I’ll believe it when I see it," he says. "I don’t understand the economics at all of what they’re doing. They’ve said this before, and they’ll probably say it again someday." Cable’s confidence isn’t altogether misplaced. Many MSOs already use IP technology for everything from cable modem provisioning to transmitting video between clustered head-ends. And IP Multimedia Subsystems (IMS) technology, which has its roots in the wireless industry, could help cable operators match IPTV features without breaking too much of a sweat. "Cable is working on enhancements to its networks that will make them function like an IPTV system," says Tony Kern, deputy managing partner of Deloitte’s national technology and communications practice. "It doesn’t require an entire rebuild of the network. It’s an investment, but it doesn’t destroy your ROI." AT&T’S DESPERATION A CONCERN On the other hand, the go-for-broke nature of AT&T’s IPTV push, combined with backing from Microsoft’s long-rebuffed TV platform (now tailored for IPTV), is sure to put up a significant fight for market share. The AT&T-BellSouth deal only increases the number of markets susceptible to IPTV competition and "will make AT&T more of a threat," says Enda Flynn, leader of Business Edge Solutions’ broadband practice. "We fully expect that BellSouth’s fiber and IPTV offerings will quickly evolve to mirror AT&T’s Lightspeed deployment plans." With BellSouth in its grasp, AT&T’s 13-state territory in the Western and Midwestern U.S. would link up with BellSouth’s nine-state region at the Texas-Louisiana border and extend contiguously throughout the southern portion of the East Coast. A consummated deal would also give AT&T full control of Cingular Wireless, a leading cellular service provider it now co-owns with BellSouth. That could enable the new AT&T to more easily integrate and market mobile devices as part of its IPTV product. AT&T has promised Wall Street roughly $18 billion in synergies coming out of the merger. If realized, such savings could free up more capital for AT&T to spend on IPTV deployments. Even before announcing the merger, AT&T had already indicated that its IPTV product would pass 18 million homes by the first half of 2008. SLUGGISH AT&T In the near term, however, the pace of AT&T’s rollout isn’t exactly moving at "Lightspeed." It will be limited to one market—San Antonio, Texas—until at least mid-2006 when the company will start tiptoeing into other cities. "At that point, we’ll be much more aggressive in our marketing approach," says Jeff Weber, AT&T’s VP of product and strategy. It could be an onslaught. "Don’t underestimate the power of that marketing machine over there," warns Flynn. "It’s going to create a lot of hype in the marketplace. They’re going to take customers away from cable." Then again, AT&T’s IPTV product won’t be a radical departure from a typical cable system at the outset and, without a reason to switch, many cable customers may not bother. "Quality of service is way up at cable," says Kern. "There’s much more trust in the cable company and the product." But IPTV backers think it’s those little enhancements that will lure cable customers. "The first version of the product is everything you love about your TV provider today, but it’s got little improvements in those areas that make it a better TV experience," says Ed Graczyk, Microsoft TV’s director of marketing and communications. "It’s the Coke-Pepsi test." AT&T’s initial enhancements include fancier navigation screens and picture-in-picture capability that displays the video playing on each channel as the user explores the menu. And Graczyk says other little things—such as quick 300-millisecond channel changes without the latency of many cable systems—will create a better user experience. "That’s a huge thing, and people don’t realize it’s an issue," he says. Graczyk also touts more robust video-on-demand integration. "With IPTV, VOD isn’t a second-class citizen like it is in cable," he says. BACK-OFFICE BOTTLENECK Still, it’s unclear whether such features will enable AT&T to take significant market share. Furthermore, AT&T faces major challenges as it tries to scale the IPTV architecture to reach millions of homes. "There’s going to be a significant issue in the back office," says Bill Opet, principal and VP of cable and broadband services at TMNG, a consulting company. "It’s very difficult to figure out how such an end-to-end solution is going to scale. There’s a lot that has to get worked out over the next two years." Nonetheless, Opet calls IPTV a "superior platform" that will eventually surmount such hurdles. Vendors are also working hard to perfect the IPTV architecture. "There’s a lot of opportunity to make these networks superb," says Nav Chander, director of product management at Psytechnics, a U.K.-based firm that conducts network quality assessments for IPTV and other architectures. "But there’s still a lot of work to do." IPTV’S FOR REAL Brian O’Connor, a principal consultant at PA Consulting’s IT infrastructure practice, agrees that "like any new technology, there are integration and scalability hurdles" with IPTV, but he says wholly IP-based networks appear to offer certain advantages over the traditional cable architecture. "I have spent time in [cable and telco] camps, and I think IPTV is for real," he says. Further, he says that while the telcos face technical challenges, "the biggest hurdle is the franchising. The cable industry is doing the right thing fighting that tooth and nail." Indeed, AT&T’s push for statewide or federal franchising could, if successful, remove a significant barrier to entry into video markets. "The battle will be everywhere for these guys," says Rick Cimerman, NCTA’s VP of state government affairs. "If they don’t get satisfaction in one place, they’ll go elsewhere." Whatever the regulatory or competitive landscape, AT&T appears ready to rumble. But it also doesn’t underestimate the cable industry’s ability to match IPTV features as the platform evolves. "In most cases, there’s not much that cable won’t be able to do," says AT&T’s Weber. "But the IP platform makes it cheaper and easier to do it." Cable executives may quibble with that sentiment, but one thing remains true. "The customer doesn’t really care about the technology," Kern says. "It’s about what services you’re offering."

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