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

Investors in

AT&T

(T) - Get Report

and

Verizon

(VZ) - Get Report

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)

,

Comcast

(CMCSA) - Get Report

and

Cablevision

(CVC)

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.

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."