Telcos Are Facing Static on Their TV Push

An expensive bet on TV service continues to generate static for the big telcos.

Investors in AT&T (T Quote) and Verizon (VZ Quote) are hoping the companies' costly TV service rollouts will put a serious dent in cable's golden video franchise. Cable stocks like Time Warner (TWX Quote), Comcast (CMCSA Quote) and Cablevision (CVC Quote) have been hit hard by the prospect of increased competition.

But some skeptics say the telco TV threat is years off, due in no small part to technical hiccups.

"The Internet as a delivery mechanism for TV is a joke," HDNet founder Mark Cuban said on the sidelines of the national cable conference in Atlanta last week. Cuban sees major capacity issues for telcos seeking to send TV signals over the Net.

Cable-industry execs were quick to pick up on that theme. Comcast co-finance chief John Alchin, for one, sees severe "capacity constraints" ahead for telcos. He says that right now, sending just one high-definition channel can saturate an Internet protocol channel. "It doesn't look like in 2006 or 2007 that they can scale," Alchin said of the telcos last week in Atlanta.

To be sure, the telcos believe in their product. AT&T is doing tests in its home city of San Antonio and says it plans to offer video service in 15 to 20 markets by the end of 2006. The company expects to be in 18 million U.S. homes by the end of 2008.

Meanwhile, Verizon says that it is in parts of seven states. In Keller, Texas, its primary test market, the company says it has hit 30% penetration. Verizon also says it will pass 6 million homes with fiber by the end of this year and 3 million homes each year thereafter.

"We've been pretty good about getting customers on our network," says Shawn Strickland, vice president of product management for Verizon's FiOS TV. "We're confident in our ability to build our network and customers quickly." Strickland says Verizon is doing what it calls "once in a century" network upgrades.