US telcos will win their franchise battle and increase video competition - ABI Research

May 30th, 2006 - The four-way battles now raging in the United States around the question of municipal, state, or national franchise agreements for telco video services will see the telcos ultimately prevail over cable operators and local governments, according to new analysis from ABI Research. "That will mean an accelerated deployment of IPTV video services to customers, and increased sales of set-top boxes," says the New York-based research group.

"We are at the cusp of a strong run-up in IPTV subscriber bases over the next year or two," says principal analyst Michael Arden. "The telcos have sympathy at the higher levels of government, and in general the principles of encouraging competition and preventing monopoly mean that the telcos will be victorious in this battle. It's just a question of when."

ABI Research explains that under FCC regulations, local governments can require video operators active in their areas to conclude franchise agreements and pay fees. Cable companies have had to complete agreements with every small municipality.

Telcos, arguing that their offerings are not video services but broadband services that happen to have video features, have tried to avoid that arduous process. Now, they are increasingly getting relief in the form of initiatives in several states to grant state-wide franchises. Texas, Colorado, Louisiana, South Carolina and New Jersey, among others, have passed, or are considering, legislation setting up state-wide franchises, and a proposal for a federal version has been put forward.

"Local governments and cable operators oppose these moves. Their reasons include the obvious: revenue lost to the municipalities and greater competition for the cable companies. But both groups cite an apparently altruistic fear as well. They allege that the telcos will 'cherry-pick' the most affluent neighbourhoods for their IPTV, where customers would be more likely to buy premium channels, VOD, network PVR and other high-priced services, leaving less prosperous communities further disadvantaged."

Such selectivity is not permitted under equal access provisions of the law, and telcos deny any such intention. However, notes Arden, when AT&T was initially planning its IPTV deployments, it based much of its market selection strategy on which markets would generate the highest ARPU.

ABI Research has published a wide range of materials on IPTV, the latest updates being 'Telco TV Market Update: Operators' Aggressive Rollouts Prepare Market for Wide Telco TV Adoption', and 'Telco TV Forecast Database'.