Copyright 2005 Gannett Company, Inc.
February 16, 2005, Wednesday, FIRST EDITION
New York — Verizon and SBC terrified many cable and satellite executives last year when the two phone companies said they’d spend billions to compete for television customers. Each promised a full array of TV channels and state-of-the-art services, including video-on-demand.
But the entrenched providers may get at least a temporary reprieve now that Verizon announced plans to buy MCI, after SBC’s agreement to acquire AT&T.
Several analysts say the mergers will make it hard for the two telecom companies’ managements to devote the attention, and possibly the resources, needed to quickly turn themselves into video powers.
“SBC is in the early stages of digesting the biggest wireless acquisition in history, and Verizon’s deal with MCI will skew their wire lines from residential to commercial,” says Bernstein Research analyst Craig Moffett. “Where on the priority list will entry into video fall?”
Verizon, for one, says it’s keeping its eye on the television market.
“We look at (the MCI deal) as a step toward our goal of being a national broadband provider,” says spokeswoman Sharon Cohen-Hagan.
The company spent $1 billion last year to string fiber-optic lines passing 1 million homes in 12 states. Cohen-Hagan says Verizon is on track to begin offering video commercially later this year.
Still, some analysts say Verizon and SBC will have their hands full as they try to persuade regulators to approve their deals and then, if successful, to meld their corporate cultures.
And they face huge hurdles in TV services. The telecom companies must cut deals with cable channels, local TV stations and the studios that supply movies and other shows for video-on-demand. In addition, the phone companies may need licenses from thousands of local franchise boards.
Verizon and SBC want lawmakers to streamline the process. But the mergers could hurt that effort.
“The argument that they should be exempt from local franchising becomes politically more difficult because of their size,” says Legg Mason analyst Blair Levin.
He and others wonder whether, in the end, the two companies will decide to stick to the corporate telecom market — which they dominate.
“They’re going to cannibalize their income statements” to get into TV, a mature business, says Stifel Nicolaus analyst Ted Henderson. “I find it hard to believe they are laser-focused on video when they make a right turn and go after long-distance.”