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SBC Looks for a Slice of Cable By Using Microsoft Software for Video Services

Posted on: Wednesday, 17 November 2004, 21:00 CST

Nov. 18--SBC Communications Inc. will buy $400 million in Microsoft Corp. software over the next 10 years to launch television programming over its high-speed data lines, officials said Wednesday.

The San Antonio-based telecommunications giant plans to offer Internet Protocol-based video service in Texas and the 12 other states it serves so it can compete with cable TV companies that are launching phone service inside its territory.

SBC announced in June that it was working with Microsoft to deliver video services. However, at the time it was still testing the software, but committed to using it.

SBC and Microsoft officials said they will test their video service in mid-2005 with select customers and launch it commercially later that year. The companies haven't released pricing information.

The service would likely include features such as video on demand, picture-in-picture viewing and digital video recording. It also would integrate video with phone and Internet services so that users could, for example, see Caller ID data onscreen if someone rings while they're watching TV.

"Customers will be able to watch what they want when they want it," said Lea Ann Champion, an SBC senior executive vice president. "It will be a lot more interactive and customer-controlled than what we see today. It's a better product, a better experience."

SBC last week said it will spend some $4 billion over the next three years to install more fiber-optic connections in the networks across its territory. The new lines are necessary for it to roll out services such as video and speedier Internet access.

The company plans to reach 18 million homes in three years with the initiative, called Project Lightspeed. San Antonio and other major Texas markets will be in the network expansion.

Within five years of its video launch, SBC plans to win about 20 percent of the pay TV market in the areas where it's expanded its fiber network, Champion said.

The SBC deal is important for Microsoft, which has invested billions in cable companies and developed set-top boxes and other video technology. It's the first announcement of a major commercial contract for the company's Internet Protocol-based TV software.

It's important for SBC because the company faces growing competition in its phone markets. Cable companies, including Time Warner in San Antonio, have aggressively rolled out phone service over their fiber-optic networks using Internet-based technology.

SBC and the other regional Bell phone companies dipped their toes into the video business in the '90s, but ultimately abandoned most of those efforts. This time, they appear to be serious about charging headlong into TV, said Jeff Kagan, an independent telecom analyst from Atlanta.

Increasingly, customers are ready to turn to a single provider for their local and long-distance phone, Internet and video services.

"This time video makes sense for SBC," Kagan said. "The cable companies are getting into the phone business, so the phone companies had better get into video. You're going to pick one company -- whether it's the cable company or the phone company -- and that's who's going to get all your business."

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SBC, MSFT, TWX,

Source: San Antonio Express-News

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