SBC Taps Scientific-Atlanta

SBC Communications (SBC) picked cable equipment maker Scientific-Atlanta (SFA) as its video gear supplier.

In its latest bid to challenge the cable and satellite industry, the San Antonio phone giant says it will spend $195 million with Scientific-Atlanta to build a TV-over-the-Internet system.

SBC's multiyear contract with Scientific calls for a cable TV-like infrastructure with video distribution handled by two super hubs that feed 41 regional hubs. Scientific will provide hardware and network management services to SBC, according to the announcement Thursday.

SBC has vowed to spend $4 billion on a fiber optic network expansion plan that would deliver the so-called triple play of video, phone and Internet access. The IP-TV portion of the project promises to deliver advanced video services like high-definition programming, video-on-demand and video recording features over upgraded telephone lines.

Using Internet protocol and fiber optics, SBC hopes to beat cable and satellite players at their own game by offering users more control over their TV programming. But some observers are skeptical about SBC's ability to pull it off, pointing out that it is much harder for phone companies to add video than it is for video broadcasters to add phone service.

Though dollarwise the deal is only a fraction of SBC's total commitment to network spending, "This is certainly a win for Scientific-Atlanta," says Legg Mason analyst Timm Bechter. Bechter does not have a rating on Scientific-Atlanta.

At midday Thursday, SBC shares were off 4 cents at $23.66, while Scientific was up 81 cents to $28.68. Shares of Scientific rival Harmonic Lightwaves (HLIT) dropped 8% to $9.27, as investors saw the cable infrastructure supplier getting snubbed in the deal.

In January, SBC announced that Microsoft (MSFT) would provide the IP TV operating system for its future set-top boxes.

And in November, SBC said it would trim its fiber spending plan to $4 billion from $6 billion, and also shortened the time frame to three years from five years. The company says that by the end of 2007, 17 million homes will be eligible for the faster network connections.

New York-based Bell Verizon (VZ) has said it plans to spend about $3 billion extending fiber cables directly to homes to offer its own bundle of advanced services including IP TV.

Skeptics point to the seemingly prohibitive costs of the telcos' plans and the poor track record phone companies have had in previous attempts to offer video.

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