While Verizon is taking some heat in the investment community for its long-term bid on fiber to the premises, one consulting company’s research indicates Verizon may be the only telco getting it right.

The latest version of The Convergence Consulting Group’s annual report, “Battle for the North American Couch Potato: Bundling, Internet, TV, Telephone Report” indicates U.S. cable companies are advancing much faster on the local telephone market than telephone companies are advancing into video. And it finds the cable industry much better positioned to handle the expected demand for high-definition TV and ever-faster Internet access.

“Cable has been planning to move to higher versions of DOCSIS 3.0 and we are confident it will continue its network trajectory,” said Brahm Eiley, analyst with The Convergence Consulting Group. “The bottom line is that when cable offers a bundle of services, it tends to match what the telcos and the satellite [companies] are offering. They offer more speed for the price, and more bells and whistles, than the telcos can – except for Verizon. Verizon is a bit of a spoiler at the end of the day – offering a very competitively priced TV and Internet offering.”

According to his company’s forecasts, U.S. cable companies will have eight percent of the residential phone market by the end of this year and 22% or 24 million lines by the end of 2009. By contrast, the telcos will have less than one percent of TV subscribers by the end of this year and only six percent by the end of 2009, the forecast states.

It will take Verizon until the end of the decade to get its network in place, and the return on investment in the meantime does give investors pause, but Eiley believes that AT&T and its new merger target, BellSouth, will quickly discover the need for further capital investment to take fiber closer to the home.

“They are designing networks to deliver 22 Megabits to 26 Megabits – two streams of HD TV is 20 Megabits, and if you want 10 Meg Internet service – that blows 26 Meg away pretty quickly,” Eiley said. “They can double that with pair bonding but that’s not going to work everywhere. We think they’re going to reach a point where they have to re-invest to build out fiber farther.”

Eiley credits Verizon CEO Ivan Seidenberg with having the foresight to build the network for the future.

“They are not playing this game for the next year or two, they are playing for the longer horizon,” he said. “Verizon doesn’t want to be the telco who gets the bottom half of the customer base. They want the best customers -- the ones that want the most speed, the bells and whistles.”

Other key report findings:

-- The top 7 cable companies have on average 40% of their TV customers taking Internet with them, compared to the Bell companies’ 17% of residential telephone customers taking DSL/fiber Internet access with them. That makes it more likely that cable will be able to add significant numbers of telephone customers quickly, as Cablevision and Time Warner say they are already doing.

-- Residential Internet access revenue was over $26 billion in 2005, and will reach $30 billion for 2006.

-- Video on demand/Switched VoD revenues will be $1.5 billion for 2006 ($1 billion in 2005).

-- Digital Video Recorder subs were 12 million in 2005 and will reach 18.5 million by the end of 2006. High-definition subs were 6.7 million at the end of 2005 and will be 12 million at the end of 2006.

-- 2005 TV revenue grew 10% to $63 billion and will see 9% growth in 2006 to $69 billion.