As small independents and Tier 1 carriers roll out their own fiber-based video services, those in the middle — the larger rural telcos — are being left behind. Lacking the density advantages of bigger and smaller companies, these mid-tier carriers have the hardest time making a business case for a fiber-fed triple play.

CenturyTel, Embarq and Windstream have all formed partnerships with satellite video provider EchoStar rather than launch their own terrestrial video offerings. After nearly doubling its satellite video customer base last year to 162,000, Embarq said publicly in January it is unlikely to pay the steep cost of a fiber-based video service anytime soon.

Last fall, Windstream announced plans to deploy fiber to the home (FTTH) in greenfield applications. But even where the company has FTTH, it will still install a satellite dish for video service. “If we drive fiber into 600 new houses, 600 houses doesn't cost-justify the back-end infrastructure,” said Roger Woziwodzki, vice president of strategic business development for Windstream.

Windstream's low teledensity makes fiber rollouts uneconomical, Woziwodzki said. But some say mid-tier telcos face a unique dilemma in obtaining video content. On one hand, they don't have the financial muscle of an AT&T or Verizon to sit down at the negotiating table with content owners. On the other hand, they're too big to effectively work with the content aggregators that act as liaisons to those content owners.

For example, the National Rural Telephone Cooperative (NRTC) offers its small rural telco members a package of turnkey IPTV content from SES Americom called IP-Prime (The Independent, February, page 18). Offering the service currently on a trial basis and commercially later this year, the NRTC gets the programming by leveraging the combined purchasing power of its members — but only members with less than 100,000 access lines are eligible to order the service. That excludes CenturyTel, Embarq and Windstream, which have between 2 million and 7 million lines. Those carriers could work with SES Americom directly, but as one vendor in the IPTV space put it, “Those aggregators are charging you for the service, so your margins are that much lower. It hurts your business case.”

Using a satellite partner can make video a less lucrative business for telcos, too. For example, Windstream made less than $10 million in commission revenue selling EchoStar video last year — less than 1% of its total revenue.

“These satellite partnerships are inherently transitory,” said Len Feldman, director of IPTV analysis for Multimedia Research Group. “It's highly likely that, sooner or later, they'll go with another solution. However, for a variety of reasons, I think it's unlikely they'll license content directly from the content suppliers. They're far more likely to do business with SES Americom or another content aggregator.”

Windstream is mulling the idea of collaborating with EchoStar on a jointly developed set-top box. And both Embarq and Windstream are eyeing AT&T's Homezone service rollout as a possible model to follow. For Homezone, AT&T uses a satellite partnership to bring IPTV to the 18 million or so homes in the half of its footprint for which fiber to the node is not an option. That rollout represents a sort of halfway point between the biggest rural telcos and Ma Bell. In that sense, it will be a helpful service to keep an eye on. The Homezone half of AT&T's network may be the closest thing these middle children have to a peer.

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