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Service Bundles Need Some Integration Value

According to a Current Analysis market assessment, under the banner of FiOS for Verizon and U-verse for AT&T, the two largest ILECs in the U.S. have ambitious projects underway to roll out residential fiber that reaches, or at least passes close to, millions of homes they serve.

The point of this exercise is two-fold. First, it helps to counter the voice/video/Internet bundles the cable TV industry is increasingly able to muster over a single, converged pipe; second, it helps to take advantage of a regulatory windfall that allows telcos to lock resale-based competitors out of incumbents' fiber-based access.

For example, the FCC has exempted fiber-to-the-home and fiber-to-the-curb networks from competitive access. In late June 2006, AT&T launched its U-verse line of IPTV and broadband access services powered by its fiber-to-the-node network in 6,200 homes in San Antonio, TX.

At the end of Q2 2006, FiOS TV passed 1.5 million Verizon households in 60 markets in seven states: California, Florida, Maryland, Massachusetts, New York, Virginia, and Texas. The carrier has achieved 10 percent penetration of FiOS TV in markets where it has been offered for at least six months.

No matter how fast they aim to build it out, it will take incumbent local carriers years to reach most of their customers with residential fiber infrastructure and fiber-fed services. For the interim, virtually all of them have teamed with one of the two prevailing satellite TV providers, DIRECTV and EchoStar (combined, the two satellite TV companies have about a quarter of U.S. households with televisions as customers).

The actual coordinated cohesiveness of these bundles is fairly low; the telephone company typically takes the order and rewards the customer with special pricing discounts for bundling satellite TV. However, for the time being, it is the best mass-market countermeasure the telcos have against bundled video services from the cable TV provider.

EchoStar shows signs of staying power with its partner AT&T, since it is part of a new integrated digital home solution called Homezone and AT&T has 533,000 DISH Network satellite TV bundled subscribers. DIRECTV has also locked up successful alliances with the telcos, with 691,000 customers who are BellSouth bundle subscribers, 485,000 customers with Verizon, and 213,000 customers with Qwest.

In summary, Current Analysis believes that the next step is to link these services together in applications consumers will find useful. "Most carriers continue to give a tepid response to opportunities to combine wireless with wireline voice, as an example. AT&T has a unified messaging service, and Verizon has its iobi unified communications tool, but neither is truly priced to move and they lack a clear and compelling value for mass-market consumers."

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