The telecom Triple Play: cable and telephone companies are stepping up to the plate to offer telephone (voice), cable television (video) and Internet (data) services--all from one provider. But will apartment owners score with residents or strike out swinging at cost and liability burdens?
Telephone companies are no longer just telephone companies. Cable companies are no longer just cable companies. And the utility companies, well, some of these are changing, as well. Each is trying to make the "Triple Play," offering all three: telephone (voice), cable television (video) and Internet (data) services. Of course, this isn't the result of insatiable consumer demand to receive all three services from one company, as there is little evidence of such a demand. Instead, it's the result of consumers, including apartment owners and developers, being driven to this by a handful of the nation's largest cable television and telephone companies.
Nearly 10 years after passage of the 1996 Telecommunications Act--Congress' attempt to increase the number of service providers, reduce prices and increase choice the regretful result is fewer providers and higher prices. And now with their battleground largely cleared of hindering competitors, this handful of cable and phone industry giants is engaging in a modem day clash of the titans. Their weapons of choice are fiber optic networks. Unfortunately, this will leave many property owners, developers and residents in the crossfire of seemingly unreasonable demands and confusion.
Trying to wrestle residential customers from cable rivals, telephone companies, such as Southwestern Bell (SBC), Verizon and BellSouth, are rapidly expanding their fiber optic networks, though in completely different ways. And it is because of these networks they can have enough bandwidth to provide state-of-the-art cable, phone and high-speed Internet services.
"[Fiber] allows us to leapfrog today's U.S. telephone and cable TV networks," Lea Ann Champion, SBC Executive Vice President, said in a statement. But this is one serious game of leapfrog, where the stakes are high.
Slicing the Pie
A 2004 research report from DataCom News shows the total number of cable modem and DSL customers in the United States and Canada topped 32 million. Of that total, 64 percent access the Internet using cable modem service provided by their cable companies. Even with the cable companies' slow down in subscriber rate increases, this is nearly a two-to-one margin over the phone companies' DSL customers.
Adding insult to injury, cable companies are also now nibbling into the phone customer market with a service called voice over IP (VoIP), or digital voice service. So now, cable companies are rapidly expanding the service areas where they are providing a bundle of phone, cable and Internet services. Combined with their increasing stronghold on cable television customers with technologies and services, such as digital video, video-on-demand and digital video recorders (DVRs) installed in set-top boxes, cable companies have come to pose a significant threat to the phone industry.
So, the Bells hunger to not only regain control of being the gateway for consumers to access the Internet, a control they lost long ago, but they are also trying to protect their core phone business. And while they were sitting at the drawing board developing strategies to accomplish these goals, they decided to mount this challenge by also pushing into the cable industry's territory, seeking to steal away cable television customers.
Deploying billions of dollars worth of fiber optic networks, in some cases all the way into customers' homes, the Bells have decided what's good for the goose is good for the gander. While still maintaining a strong-hold on phone customers, they are also seeing an increase in subscribers for high-speed DSL Internet service. Other than by using fiber networks, they are developing and deploying technologies that make their Internet services faster and more robust.
But just as man cannot survive on bread and water alone, neither can phone companies survive on selling just phone and Internet services. Enter a digital television service called IPTV or Internet Protocol TV--the Bell companies' lethal weapon for competing with the cable industry
The Game Begins
For at least a decade, phone companies have been promising to rewire America with fiber optic networks. Now, with a romp of regulatory victories in hand, the regional Bells (Verizon, SBC and BellSouth) are moving full-speed ahead to accomplish this goal. However, this is admittedly an endeavor that may take several years to pay off for the big three. Some analysts wonder whether the companies can even afford the tens of billions of dollars they're spending to replace the copper in their networks. Further, the Bells will need to secure good enough terms on TV programming and lure customers away from the cable and satellite companies to justify the investment. But none of this has caused the Bells to falter in their efforts.
In September, Verizon announced taking orders for its new television service. Customers in Texas are the first to receive the service that includes more than 180 digital video and music channels, 20 high-definition channels and video-on-demand, all carried over fiber optic cables that replace older copper lines. They plan on introducing the service in six other markets, including Florida, Virginia and California, soon. By the end of the year, it is estimated that 3 million single-family and multifamily homes will have the ability to order is service.
SBC, with a completely different network-building strategy, is accomplishing the same goal. This year SBC will deliver a triple play of television, data and voice services to customers under the name Project Lightspeed. To help it bring television service into its menu of services, SBC signed a 10-year, $400 million agreement with Microsoft. SBC expects to reach 18 million customers by the end of 2007.
And BellSouth is not to be left behind. It, too, is continuing a multi-billion dollar spending spree laying down fiber optic networks. Other than working to lock down its phone customers and grow its broadband Internet customers, BellSouth has also initiated the technical trial of its television service, tapping the advancing capabilities of the company's next generation broadband network. Along with Verizon and SBC, BellSouth has every intention of delivering cutting-edge voice, video and data services to customers in full competition with the cable companies.
Bill Smith, BellSouth's Chief Technology Officer, summarizes what's to be expected from the telephone industry's decision to enter the market with advanced video services: "IPTV will potentially forever alter the way we consume video content much like personal video recorders have done. IPTV places customers in the driver's seat and gives them complete control of their entertainment experience regardless of the media format or which device within their home they wish to use [television or computer]," he said. "We're bringing together the benefits of broadband, the rapid adoption of home networking technology and the magic of software to give customers content where, when and how they want it."
Building a Fiber Network
SBC's fiber strategy is rapid and aggressive. They will generally not connect fiber lines directly into homes and apartments, except for new development projects. Instead, they will bring fiber to one point in a neighborhood (FTTN, Fiber to the Node) on an apartment property (FTTP, Fiber to the Premise), then use a significantly upgraded copper network from those points to deliver services into homes and apartments. This strategy is highly cost effective and requires less time to deploy than the strategies used by its competitors. As such, SBC is expected to deploy its trio of services on a more broad scale, faster than its industry colleagues.
BellSouth, who's third to move toward fiber has a strategy similar to SBC's. Fiber is brought into the home only for new construction, but for older neighborhoods and existing apartment communities, the company will come to a central point with a fiber network, and then use an upgraded copper wire network for what's referred to as the "last mile."
Competitor Verizon Communications is taking a much different and vastly more expensive approach. The company will bring fiber directly into homes and apartments, then distribute its services to the television set, telephone and computer using the existing (or new) copper network.
Of all the fiber network strategies deployed by the Bells, FTTH (Fiber-to-the-Home) is the one causing the most issues for multifamily housing developers and owners. For some, particularly those operating in Verizon's territory, the challenges imposed by an FTTH installation range from forced changes in construction plans, to increased costs, to infrastructure ownership and control issues. But eventually, all developers and owners are expected to be faced with their local Bell company asking (or demanding) to either replace its copper network on existing properties or install only fiber networks in new projects. But unfortunately, the issues don't end here.
Once the Bell company has facilitated bringing fiber onto a property and up to or inside the buildings, it has laid the highway to provide all three--voice, video and data--services to residents. And while many agree more choice in services for residents is better, there are numerous hidden potential liabilities and ongoing issues with a fiber network of which owners should be aware.
What and Who
Matt Ames is a partner with the Washington, D.C., office of Miller & Van Eaton. Since Congress passed the 1996 Telecommunications Act, he has advised the National Multi Housing Council (NMHC) on voice, video and data infrastructure issues. In a recent report published by NMHC, "Telephone Fiber to the Premises: Apartment Owner Issues and Considerations," Ames addresses six points for developers and owners to consider when approached by companies wanting to install a fiber optic network on a property:
1 Space Requirements and Installation Tuning. The size of equipment currently being installed by phone companies inside apartment units to accommodate a PITH network is based on the single-family model, making the boxes too large to suit the needs or desires of many property owners. For the moment, the options are either to forego having a fiber network installed or find space to accommodate the larger equipment.
2 Access to Electrical Power. With few exceptions, traditional copper phone lines allow communications to take place even in the advent of power failure. However, with fiber networks, no electrical power means no communications. Accounting for building a backup power source is a cost that will need to be borne by either the owner or developer or the phone company.
3 Liability in Case of Power Failure. To prevent loss of a residents' ability to contact emergency services during a power outage, there needs to be battery backup with each units' system. For dependability,, batteries must be replaced routinely. Owners should clarify, in writing, who is responsible for routine battery replacement and who is liable for battery failure.
4 Electrical Grounding Requirements. Because the designs and specifications for fiber network terminations are continuing to evolve rapidly, owners need to make sure that the optical network terminal is properly grounded, in accordance with all local safety codes.
5 Location of Demarcation Point. By making the request to install fiber to each apartment unit and control this fiber, the telephone company is effectively forcing the owner to set a demarcation point in each unit. This causes a significant loss of control over wiring for the property, which is something the multifamily industry has long fought against. Owners should consider designating a single demarcation point at the minimum point of entry (MPOE) to the building, rather than in each individual unit.
6 Exclusive Contracts. Allowing the telephone company to install its fiber network with a service contract that locks in exclusivity for any or all of the three services (voice, video, data) it provides, may cause conflicts with other contracts for the same services already being provided at the community. Carelessly not reviewing existing contracts before signing the telephone company's contract could cause an owner to breach an existing exclusive contract.
Fortunately, private property laws in America have changed little since their inception. As such, neither telephone nor cable companies can enter a property to install a fiber network without permission. This is most particularly the case where the company already has a copper network installed in the building. As such, all owners and developers should strongly consider requiring a specific agreement with the provider(s) requesting access, making certain to properly assign the assumption of certain costs and liabilities, as well as protect against the loss of certain rights to own and control all voice, video and data inside wiring infrastructure.
In general, the deployment of fiber optic networks by telephone companies is a good thing. It provides access to state-of-the-art technology and services for talking on the phone, watching television and surfing the Net. In short, it brings everyone one step closer to a fully digital lifestyle (for those desiring such a thing). And certainly, residents will complain little about such competition being available. However, for this to be an advantage for owners and the long-term value of their properties, they must seek to fully understand and manage the cost and liability burdens potentially imposed by all this innovation and change.
Between the cable and phone companies' battles stands consumers--apartment residents. Between the resident and these telecommunication giants stand property owners and developers. If the technology and these relationships are properly understood, engaged and managed, everyone's attempt to provide or access the Triple Play will result in a home run.
Visit www.multihousing.com to learn about what telephone and cable companies are doing with their fiber optic networks, network installation issues, legal, regulatory and contract issues as these relate to fiber optic networks and service.
Regional Bells Slug It Out
With regulatory victories in hand, the regional Bells (Verizon, SBC and BellSouth) are moving full-speed ahead to accomplish their goal to rewire America with fiber optic networks.
SBC. SBC will deliver television data and voice services to customers under the name Project Lightspeed and is expected to deploy services on a broader scale, faster than its industry colleagues, SBC's fiber strategy is rapid and aggressive bringing fiber to one point in the neighborhood instead of directly into the home.
BellSouth. BellSouth initiated a technical trial of its television service tapping the advancing capabilities o/the company's next-generation broadband network. Like SBC, it too, is continuing a multi-billion dollar spending spree, laying down fiber optic networks.
Verizon Communications. Verizon began taking orders in Texas for its new television service in a vastly more expensive approach, the company will bring fiber directly into homes and apartments, then distribute its services to the television set telephone and computer using the existing (or new)copper network.
Larry Kessler is an apartment industry advisor on technologies, regulations, wiring infrastructure, contract negotiations, broadband Internet and digital video services. He can be reached at 843/884-1101 Ext. 11.