Telcos Are Facing Static on Their TV Push

But where the Bells see a smart long-term investment, others see desperation.

For one thing, the telcos remain in the testing stage on video, while the cable industry is nabbing voice customers through cheap voice over Internet protocol service. Cablevision is growing voice subs by 1% a month, it says.

"I think in some ways the phone companies, after years of being kings of their domains, are really challenged right now," says Joe Laszlo, research director at Jupiter Research. "It's easier for the cable companies to add voice than it is for them to add video."

Asked when he thought the telcos would achieve widespread distribution of television-quality video, Jupiter's Laszlo pointed to a recent Kagan study that he says is properly conservative in its forecast of 4 million to 5 million subscribers by 2010. Kagan and Jupiter Research recently announced their merger.

Greg Verdino, a sales and marketing exec at online broadcaster Roo, acknowledges that there are "significant technology hurdles," starting with the fact that telcos "need fiber to the home to deploy IPTV services." Roo does business with Verizon and other media companies.

That wiring won't come cheap. Verizon's multibillion-dollar FiOS fiber-optic expansion plan calls for superfast data lines to be strung to homes to deliver the triple play of telephone, video and broadband Internet service. Analysts say Verizon spent $3.2 billion on FiOS over the past two years.

Still, AT&T's Michael Coe says consumers who have the test service in San Antonio are telling AT&T that their video quality is "noticeably better" than cable. And if cable companies want to continue to underestimate AT&T's video chops, Coe adds, "We're happy for them to do so."