Steve Rago, principal analyst for networking and optical communications for iSuppli, said telecommunications firms worldwide are planning or have deployed video services, which may help them eclipse cable operators by 2010.
The new video services show how telecom service providers are trying to become multiple service operators (MSOs) in their own right. Telecom providers have widespread deployment of all-fiber or deep-fiber technology, which will help proliferate high-speed broadband capable of supporting rich video services like IPTV, Rago said.
Globally, many telcos are deploying or planning to deploy fiber to the home (FTTH), which can often offer subscribers almost infinite bandwidth, allowing for thousands of high-definition television programs. In the U.S., Verizon is leading the charge, while in Japan and Europe, NTT and France Telecom, respectively, are pushing FTTH.
"FTTH poses a real threat to the MSOs, potentially rendering today's cable television infrastructure obsolete," Rago said in the report. "This is the same infrastructure that cable operators in the United States just finished upgrading at a cost that iSuppli estimates at $60 billion."
The renewed focus on video on the part of telcos was spurred by major threats to their existence a few years back.
"They were going the way of the dinosaur," Rago said. "They were going to be extinct."
But the focus on fiber and new strategies prevailed, he said, and telcos upped the ante with value-added services like video; and they began to build out new infrastructures and architectures to support them.
"The need [for telcos] is survival, and I think that's a hell of a need," Rago said, adding that telcos now are not focusing on payback from these new services but on whether they can make a business case for them and move forward. Eventually, if all goes as planned, a return could be achieved.
Also in 2009, 71 million telco broadband subscribers will have very high-speed fiber connections that can support a video service equivalent and potentially superior to that of MSOs.
Along with FTTH, deep-fiber penetration, known also as fiber to the curb (FTTC) and VDSL to the home, will butt heads with cable. Not replacing the copper on the last stretch to the home could save telcos between 50% and 65% of the cost of provisioning broadband to subscribers. AT&T currently takes this approach in the U.S. According to Rago, FTTC plus VDSL can match cable television networks in delivering TV service to the home and could offer advantages in upcoming applications such as peer-to-peer video.
"MSOs need to start planning now if they hope to counter the threat of telcos, starting in 2009," Rago said. "If MSOs do not upgrade their capabilities, they may see the war for the triple/quadruple play swing in favor of the telcos."
Rago warned that before telcos will be considered competitive enough to truly threaten incumbent MSOs, they need to jump several hurdles, such as subscribers' perceptions of the quality of telcos' TV and video offerings and the success of their high-speed services. Nevertheless, he said, MSOs can't sit and wait for telcos to play catch-up.
"This is the largest paradigm shift in content to the home in at least the last 50 years," Rago said. "At least, the potential is there for it to be."