This week’s ruling by the U.S. Court of Appeals for the Second Circuit in New York that allows Cablevision to go forward with its network-based digital video recorder trial is the worst possible news for telcos trying to offer their own video services.

As AT&T, Verizon and others have delivered video over their networks, one of their main points of differentiation has been multiroom DVRs, capable of recording multiple streams of high-definition (HD) video and enabling — in AT&T’s case — up to four different recordings (not all HD) at one time.

While there are a lot of things in the product hopper, multiroom DVR has been a clear-cut winner. With the latest court decision, however, the DVR universe suddenly shifts. Cable operators have already been deploying network-based recording capabilities, trying to determine a legal way to store content in their networks from distribution essentially on-demand to customers. Time Warner Cable’s Start Over service uses essentially the same network technology as a network-based DVR.

The barrier to cable exploiting these capabilities further was the court case, which a group of entertainment companies brought against Cablevision, and the initial ruling upholding their complaint.

With this Appeals Court decision, Cablevision can proceed with its trial. The consumer benefits are many: access to content stored within the network to let you watch virtually any show without having pre-programmed a box in your home to record it, cheaper set-top boxes and more versatile programming options.

There may be further appeals by entertainment companies, which may or may not come with injunctions to again halt Cablevision’s trial, but this decision is still a key victory.

AT&T and Verizon in particular need to take note. Their video services are already limited by their footprints, and this ruling gives them only a short window to make a much clearer impression on the home video market, proving that what they are offering is significantly different and better than cable.