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from: Light Reading

Qwest's Quest for Video

APRIL 09, 2007

Qwest Communications International Inc. (NYSE: Q - message board) was one of the first names in telco TV, but lately it's not the first name that comes to mind when the subject comes up.

While other big telcos are mounting scare campaigns against cable TV and attempting to woo Wall Street with their vision of the future, Qwest has taken a more contemplative approach. It hasn't broadly defined its video strategy. And the company says its watching the IPTV pioneers and will continue to experiment with several ways of delivering video services to its customers.

Today, Qwest sees four main ways of reaching consumers with video service. The oldest method is its VDSL-based ChoiceTV service. The most broadly applicable is its ability to resell DirecTV satellite service. But the company is also getting ready to reach its broadband users with a video-on-demand (VOD) offering, and it's also closely watching IPTV deployments around to world, to see when might be the right time to offer that service as well.

Legacy choices
ChoiceTV is Qwest's VDSL-based TV service that passes about 500,000 homes, mostly in the Phoenix area. It's offered over a fiber-to-the-node (FTTN) network with NextLevel -- now Motorola Inc. (NYSE: MOT - message board) -- hardware and software. Qwest doesn't have any big expansion plans for ChoiceTV -- the company says it does continue to improve the content on offer, making it as competitive with Cox Communications Inc. 's video service as possible.

But Qwest does note that an IPTV network is the next generation of a service like ChoiceTV. There are no plans to upgrade immediately but, when it happens, an upgrade would give Qwest the ability to use stronger video compression technologies and more interactive services, as well as offering its own digital video recorder (DVR) service.

Qwest does have an option that is unique to most carriers: Consumers in the ChoiceTV footprint can still opt to order DirecTV instead of the VDSL-based TV service. Verizon Communications Inc. (NYSE: VZ - message board), by contrast, won't resell satellite TV in areas where its FiOS TV service is available.

Qwest's satellite star
Throughout most of Qwest's 14-state footprint, the carrier sells an assisted triple play -- a voice, video, and data bundle of services where DirecTV Group Inc. (NYSE: DTV - message board)'s satellite TV service makes up the video part of the deal.

Qwest describes this as a very successful partnership but won't comment as to whether the reseller model is really a big revenue winner for anything other than DirecTV. What it does do, though, is give the telco something to sell to prevent subscriber defection over to cable.

But the relationship may get more symbiotic in the near future, Qwest says, as it could use its DSL connection to homes to provide a video adjunct to what DirecTV beams down from satellites. "We have done a lot of work with DirecTV to continue to find ways to enhance that experience," says Qwest executive VP of product, Dan Yost. "There is an opportunity there for video on demand -- an integration of broadband with DirecTV to provide additional integrated capabilities."

While noting that DirecTV does do its best to provide local content in all its markets, Yost says broadband may come in handy, as there "is still other local content out there that is of interest, and you might want to find a way to integrate that into DirecTV's service on a selected channel."

Between the fourth quarter of 2005 and 2006, Qwest increased its video subscribers to 424,000 from 178,000. But the company doesn't break out how many of those are satellite TV customers.

Qwest's broadband video plan
Finally, in the second quarter, Qwest says it will launch a broadband VOD service available to its customers who have PCs running Windows XP or Windows Vista operating systems. The still nameless service will be co-branded with Microsoft Corp. (Nasdaq: MSFT - message board)'s Windows Live platform. Qwest says it will be working on deals with content providers to make free, pay-per-view, downloadable, and searchable video content available through this upcoming service.

"Increasingly what we're finding is people want to be able to watch content freely from platform to platform," says Qwest's Yost. He says this will also give Qwest a way of differentiating itself from traditional TV services.

What about IPTV?
Just like AT&T Inc. (NYSE: T - message board), Qwest has an FTTN plan and will upgrade its nodes across its network to, at first, allow for greater broadband speeds. But the company says it is preparing to be a "fast follower" in the IPTV space, as soon as it sees the technology and services catch on.

"We have been doing the necessary lab work to be in a position to launch some IPTV kind of service, if we see it gets to the point where it's a differentiated kind of service," says Qwest's Yost.

Fiber-to-the-home (FTTH) "is not a strategy AT&T needed to follow, and neither do we," he says. "What really is necessary is to bring fiber to remote terminals. We are doing that in all of our major cities."

Qwest's FTTN expansion will be big, but it will be gradual. And, as such, the carrier isn't saying much about the scope of its plant upgrades. "We really haven't published any specific figures on our fiber deployment yet. I don't see us doing that this year," says Yost.

While Verizon touts some parts of its network as future proof, Qwest's geography, buried plant, and finances conspire to keep its goals humble by comparison. "Our fiber network can provide 20 Mbit/s of bandwidth. Obviously FiOS can provide higher. The question is what do you need? I think certainly AT&T and ourselves believe we can satisfy what the customer demand is," says Yost.

And, though it's definitely less aggressive, there is some wisdom to the Qwest "fast follower" approach, analysts say. "If you are sitting on $13.4 billion of net debt like Qwest, you don’t have the luxury of thinking about a massive FTTH deployment," says Heavy Reading senior analyst Stan Hubbard. "And that may turn out to be a good thing from a strategic point of view in the near term, as this whole battle between IPTV and Internet TV plays itself out."

— Raymond McConville, Reporter, Light Reading