What can telcos really get out of satellite TV?

RBOCs are now into their second round of deals with satellite TV providers (the first round, back in the late 90s, pretty much faded away with considerably less fanfare than it came in with). Will this new set of offers succeed?

RBOCs are now into their second round of deals with satellite TV providers (the first round, back in the late 90s, pretty much faded away with considerably less fanfare than it came in with). Will this new set of offers succeed? Perhaps – satellite TV continues to gain some market share from cable, and at least here in SBC territory, we’ve seen and heard a lot of advertising. There’s definitely some money being spent on the marketing side of these offers.

A more important question is this: what can the telcos gain from these relationships? Obviously, the satellite/DSL/voice bundle gives a telco something to match up with cable MSO triple play services – which will become a truly important weapon to have in the arsenal if/when the MSOs get serious about deploying VoIP services to their customers. Telcos can even perform a bit of one-upmanship on the MSOs by bringing their mobile services into the game with a quadruple play service combining high speed internet, local and LD voice, mobile voice and data, and TV. Increasing ARPU and the top line is always a good thing.

Triple play services are the immediate benefit for telcos. In the mid-term, telcos can use these satellite TV partnerships to “figure out” video services.  Working with satellite providers will help telcos figure out the marketing, billing, customer support and other aspects of being a TV provider. So when telcos are ready to offer something of their own, they’ll have a head start.

But even if these services sell well, we still have a few reservations. First, and most importantly, the telcos don’t own these video services. The facilities are not theirs, the relationships with content providers aren’t theirs, and – it follows – the bulk of the revenue is not theirs. Video content costs are constantly rising, and satellite TV offerings seem to be in large part (if not primarily) competing with cable MSO offers on a price, not features. The revenue pie gets sliced up pretty quickly, and leaves not a lot for the final reseller. Telcos should be familiar with this concept from the other side of the equation – they certainly remember all the DSL ISPs that couldn’t make a profit with resold DSL services.

Second, just as the HDTV revolution begins to finally pick up some steam, satellite is inherently spectrum and bandwidth limited. Yes, satellite operators were ahead of cable MSOs in offering HDTV, but the MSOs are moving very rapidly to expand their HDTV lineups too. Consumers who are spending $3,000 (or more!) on a new HDTV will probably want more than just a couple of movie channels and some high resolution nature programming. They’re also going to want broadcast network and local TV in HDTV, and they won’t want to have to combine a satellite dish and a terrestrial antenna to get it.

Finally, these DSL/voice/satellite TV bundles are truly just a marketing phenomenon, and not a technical one. There’s really no integration between the copper broadband network and the satellite TV network – one bill, but two CPE devices, two installations, etc. We were customers of DirecTV DSL back before DirecTV pulled the plug and we faced these issues firsthand.

Combining the networks into a single gateway device not only simplifies inventory, provisioning and installation, but it also provides opportunities for new, better services. For example, satellite, on its own, can’t compete with cable’s video-on-demand offerings, but add in a high-speed DSL connection, and suddenly VoD becomes a possibility. Or imagine taking the home networking functionality of a DSL gateway and mixing in a satellite-fed DVR system which can distribute recorded programs throughout the home. Suddenly a telco has a platform that can compete head-on with the MSO’s CableHome vision.

So let’s ask again: what’s satellite offering the telcos?  Or to put it another way, how can telcos overcome these issues and make these satellite partnerships work? Let’s take the third issue first, since the solution is easiest. 2Wire recently announced the launch of a new “MediaPortal” platform that provides exactly the integration that’s lacking in today’s offers. A single home gateway platform, integrating DSL and satellite TV, complete with a range of home networking options to get content to the right places in the home. We haven’t seen the 2Wire platform in action yet, so we’ll stop short of endorsing it. But the concept is exactly right, and a telco that brings this type of platform to market quickly could get a jump on the MSOs who still typically separate modem and set top box/DVR into different “boxes” in a customer’s home.

The first two issues are a bit thornier. The ultimate answer to both is for telcos to continue to move ahead with their FTTH plans. HDTV is a huge driver here, and a FTTH network provides bandwidth for HDTV that neither existing satellite systems nor most cable systems can touch. FTTH also brings control of the network facilities back into the hands of the telcos, and takes them out of the “reseller” mode that they’ve found themselves in today. 

Note that this doesn’t mean abandoning the satellite TV partnerships. In even the most optimistic scenarios, a FTTH build-out is going to take many years. Satellite TV provides TV services now (without some sort of interim, higher-speed DSL infrastructure upgrade to slow down FTTH plans), and will continue to provide TV for customers not economically reached by fiber for some time into the future.

The ultimate scenario for the telcos would be to find a way to keep the satellite providers involved, even as FTTH happens. A telco/satellite customer could get his or her “satellite” lineup, and then add in extra HDTV and local broadcast stations (and VoD) when FTTH comes to the neighborhood.

A strong partnership with a satellite provider could help telcos manage and acquire video services while still providing more eyeballs watching “satellite TV” for the DirecTVs and Dish Networks of the world.