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Video Slowdown Vexes Verizon

A shortfall in fiber optic TV user gains raises eyebrows.

Verizon's

(VZ) - Get Report

low-definition video performance is putting its costly fiber optic TV project back under scrutiny.

The New York phone giant

posted solid third-quarter numbers Monday, led by continued growth at Verizon Wireless -- the joint venture between Verizon and

Vodafone

(VZ) - Get Report

. But a lower-than-expected gain in TV subscribers did not provide enough cushion to ease the pain of a 9% drop in its retail phone lines.

Verizon has staked its future on a fiber optic network upgrade effort called FiOS, in a bid to add hundreds of channels of TV to its calling and Internet service offering. The so-called triple play is Verizon's weapon against

Cablevision

(CVC)

and

Comcast

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(CMCSA) - Get Report

as the cable companies add phone service to their bundle.

For the third quarter, Verizon added 202,000 new FiOS TV customers for a total of 717,000. That number was well below the 220,000 or so analysts were looking for.

"It was a little disappointing. They were being aggressive with video, so I thought it would show up in the numbers," says Telecom Pragmatics analyst Sam Greenholtz.

One issue that seems to be looming larger for Verizon is video programming, say industry observers.

Now that Verizon has thrust itself into the TV broadcasting business, the company has entered an entirely new battlefield where customers are won and lost over programming packages.

"One of the biggest problems Verizon has to overcome is differentiating themselves from cable and satellite," says Greenholtz. The company needs to have better content to get customers to change their service, Greenholtz continued.

Given the sweeping popularity of flat panel high-definition TVs, it is clear that video is becoming a bigger priority among consumers.

People want more control over what they watch and they want to watch more high-definition video, say industry observers.

This trend may become more obvious when

DirecTV

(DTV)

reports its quarterly numbers. The satellite TV shop has a strong programming lineup and exclusive packages like all MLB and NFL games, as well as 80 high-definition channels.

It's little wonder, perhaps, that Comcast said it was feeling competitive pressure last week and now Verizon produced anemic video numbers.