SBC, Microsoft Team Up on TV Over Broadband

Nov. 18--For SBC Communications, Wednesday's deal with Microsoft for software to deliver television programming to homes over high-speed lines is the latest broadside in the company's battle to compete with cable companies.

For Microsoft, the first-of-its-kind deal, worth $400 million over 10 years, establishes a beachhead after a decade-long campaign for a piece of territory in the profitable American TV industry.

Richard Doherty, the research director for New York-based Envisioneering Group, said the deal vindicates the software maker's multibillion-dollar effort over the past decade to develop and promote its TV technology.

"Microsoft got this huge endorsement from SBC today," said Doherty, who studies digital entertainment technology.

"Emotionally, it's very important. The $400 million deal is very symbolic that these investments were in the right direction. It's a validation of the whole concept." The deal comes as the regional phone companies known as the Baby Bells -- SBC, Verizon, Qwest and BellSouth -- have been battling cable companies like Comcast, Cox and Time Warner for dominance in an industry being upended by Internet and wireless technology.

Both sides are betting the key to victory is bundling -- offering consumers a package that includes phone lines, wireless communication, high-speed Internet and video entertainment.

"The Bell companies and cable companies are in a no-holds-barred, head-to-head competition for consumers," said telecom analyst Allen Long, president of Long and Associates. "Each type of company is trying to provide every type of communication need a consumer might have."

Phone and cable companies are competitive in high-speed Internet through their respective digital subscriber line and cable-modem services. Those broadband connections have allowed cable companies to intrude on the Bells' traditional turf by offering Internet-based phone service, known as Voice over Internet Protocol, or VoIP.

That has forced the phone companies to respond in kind. This week, San Antonio-based SBC announced consumer VoIP trials in Los Angeles and three other cities and plans to launch the service throughout its 13-state territory early next year. Verizon began offering nationwide VoIP service earlier this year.

Phone companies dominate the cell phone industry but are weak in video entertainment, where cable has had a clear advantage. SBC's Microsoft deal is a bid to stake a claim in that turf.

SBC earlier this year announced plans to spend $4 billion deploying fiber-optic networks close to consumers' homes beginning early next year. Dubbed "project light-speed," the move is expected to reach 18 million households by the end of 2007 with fast broadband connections that can support both VoIP and Web-based television, or IPTV.

Wednesday's deal calls for Redmond, Wash.-based Microsoft to provide SBC with its IPTV Edition software platform. The companies plan to test the technology with consumers next year and start selling it in late 2005.

"Our service will change the way people experience TV," said SBC Chief Executive Edward E. Whitacre in a statement. "We will deliver integrated communications and entertainment services to enhance the digital lifestyle of our consumers."

The software will enable SBC to send TV programs individually over its smaller-capacity phone lines into consumers' homes, with quick switching between channels. This would free more bandwidth for other uses, Doherty said. Cable companies, by contrast, send all channels to the home, where the consumer makes a selection, he said.

"Cable is like a waterfall where you scoop out a cup," Doherty said, comparing the Microsoft platform to a soda fountain, where "they shoot you just the cola." Ultimately, the battle benefits consumers, he said.

"Consumers are going to be big winners over the next year or so in the price competition for their monthly eyeballs," Doherty said.

SBC Launches Residential VOIP

SAN ANTONIO -- SBC Communications Inc. (NYSE:SBC - News) today announced the launch of a residential Voice over IP (VoIP) service that will significantly expand the SBC IP service portfolio and give DSL customers a powerful new option for communicating with friends and families.

The full-scale VoIP service rollout will take place in early 2005. It is preceded by a trial, now under way, in Los Angeles, Dallas, Chicago and San Antonio. The service will use IP technology and a DSL Internet connection to deliver not only voice calling but also other enhanced features, such as a Web-based portal and advanced call- management capabilities that make it easier for customers to manage their communications.

"When we fully launch our service early next year, consumers will be able to choose between traditional and traditional plus next- generation voice services from SBC companies," said Randall Stephenson, SBC chief operating officer. "Over time, we expect that VoIP will be a preferred voice service because of the features and benefits this technology enables.

"Our VoIP services continue to evolve, as we introduce innovative features that take full advantage of the power of IP technology," he said. "Residential VoIP is an important emerging technology, and with our industry-leading base of DSL customers and our ability to integrate wired and wireless communications services in new ways, we're committed to playing a leading role in this growth market -- just as we have in the business VoIP market."