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High Cost of Gaining Each IPTV Subscriber

Broadcasting & Cable reports that the best place to get a snapshot of the costs of the cable-TV vs. telco war is New York. To launch video and fast Internet services on suburban Long Island, Verizon spent heavily on an extensive overhaul of its telephone plant. Some estimates put the cost at up to $1,100 in capital for each home 'passed' in its new FiOS TV optical-fiber systems, and it will take an average of an additional $700 or so to actually connect a new subscriber.

Preparing to defend itself, local cable operator Cablevision Systems tweaked its own plant. It boosted its Internet service to even higher speeds than Verizon's and stepped up its sales of cable telephone service, to steal Verizon's residential customers before the telco's system was ready. Cablevision's capital expenditure was lower. The Internet boost cost it just $15 per home passed; each new phone customer cost around $200.

The huge capital-spending gap shows just how much of a disadvantage telephone companies are at as they push into the video business. Cable operators have largely been finished with their gigantic rebuild for several years and have a big video and Internet customer base already giving them a return on that investment.

So, is the telco investment wise? Verizon and AT&T aren't just calculating the revenues from new businesses; they're also taking into account the value of protecting existing ones, according to UBS media analyst Aryeh Bourkoff and telecom specialist John Hodulik. The two analysts have made telco video a special franchise and write about it extensively. �The whole strategy is a defensive strategy,� Bourkoff says. �They're going to continue to build. They don't really need it financially.�

How badly might cable MSOs be hurt? Not a lot � at first. UBS analysts believe it will take the telcos a while to get going, predicting they'll secure fewer than 3 million subscribers each by the end of 2010.

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