While Verizon and other regional Bells have toyed with video over DSL in the past eight years, none has made a major commitment to the technology. That could change as Verizon envisions a profitable business plan that would first target high-density apartment buildings in big cities, and later add office towers for corporate users.
The reason the new plan could work, insiders said, is that the technological groundwork is already in place. Adding video to voice and Internet services over the same twisted copper pairs would add income that could help pay for the network as it grows.
Verizon is already negotiating deals with major studios to deliver video-on-demand, a business that could produce major new revenue streams for the carriers and the content providers.
"We have a solution that the studios think is attractive," said Verizon spokesman Larry Plumb. The company has yet to announce its plans. Two business models already exist for video-on-demand. One would be the same one that Blockbuster uses to get videotapes from the studios: a set fee per store for a quantity of tapes, which can be rented an unlimited number of times. The movie studios prefer the second model, though, which gives them money each time a movie is viewed.
for Despite half-hearted efforts to deliver video over copper pairs in the past, telecom insiders said the regional Bells feel certain of the market for video-on-demand.
"It already exists," Plumb said. "It's called a video rental store. This is just more convenient."
But Gary Kim, president of NxGen Data Research, doesn't expect to see Hollywood movies over DSL anytime soon.
"Video-on-demand is a bad business to be in," he said. "I love it, but there are no margins. Hollywood takes 50 [percent] to 60 percent of the gross. How can you build a business that way?"
Unless the regional Bells can force a change in Hollywood's release windows, they'll be left scrambling for the crumbs of the film industry, Kim added.
Verizon was preparing to launch video in 1993 as the first major nonvoice broadband service, after a trial effort that included content deals with the studios. The plan was delayed by the rapid rise of the Internet and the 1996 Telecommunications Act that created a flurry of competitive activity. But now that broadband networks are reaching critical mass, adding a video service makes sense.
After residential buildings, the next targets for video-on-demand are likely hotels, college dormitories, hospitals and office towers.
High-density buildings are ideal for video-on-demand, because the necessary gear--the DSL Access Multiplexer (DSLAM) and the video server--can be located on the premises. That explains the bitter fight between AT&T Broadband and regional Bell Qwest Communications International over access to apartment buildings in Washington state, a feud that was resolved by state regulators in AT&T's favor last week.
Meanwhile, DSLAM vendor Copper Mountain Networks and video software developer InfoValue Computing, of Westchester County, N.Y., are expected to announce a deal with an East Coast regional Bell for video-on-demand equipment next month. Company officials would not identify the customer, but it could be Verizon or BellSouth.
"Now, the DSL technology is good enough to provide a high-quality connection, and the service is fast enough and cheap enough to deploy," said Tom Eng, manager of product development at InfoValue.