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A la carte push latest volley in Comcast-Verizon battle to bundle services and win over consumers
Sunday, June 11, 2006

Stacy Innerst, Post-Gazette
Click illustration for larger image.
"A la carte" used to mean a single serving of strip steak or rack of lamb minus the accoutrements. These days, it also means allowing consumers to cherry-pick and pay for only the cable channels they want.

At least 14 states, including Pennsylvania, are rewriting rules that for decades have given local governments control over who provides cable television in their areas. The changes would give New York-based phone giant Verizon Communications Corp. what it has long coveted -- a big enough opening that would let it jump into the paid-TV market full throttle.

The a la carte push marks the latest round in the ongoing fight between telecommunications titans Comcast Corp. and Verizon. The nation's largest cable company and second-largest phone company are battling to be all things to all people, offering bundled services that include cable TV, high-speed Internet service and both traditional and wireless phone service.

It's a showdown that over time will be a victory for consumers, industry watchers say, with spoils in the form of a lower prices, more services and one monthly bill. But it could take years if not decades to determine which company is a winner.

Both have their strengths and weaknesses, and both are waging high-profile marketing campaigns as they continue to spend tens of billions on new technology, equipment and upgrades to come out on top.

Philadelphia-based Comcast began its latest push last year, when it started offering bundled packages of high-speed Internet access, cable TV and phone service at a discounted price ($99 in Pittsburgh, where it introduced the package in April). It has reeled in nearly half-a-million customers since then.

Industry analysts believe Comcast -- and its cable brethren that also have begun offering phone service -- could woo up to 12 percent of the nation's residential phone customers by the end of next year. And that doesn't include the explosion of cell phone and Internet-based phone providers that already are cutting into what has been Verizon's bread and butter.


Chart: How telecom titans stack up

Map: Cable companies expand in new markets


Verizon hasn't been standing still. In the last three years, it has spent tens of billions to replace old copper phone lines with brawnier fiber optic cables that have the speed and capacity to carry voice, video and Internet.

The upgrades have allowed it to counter Comcast's encroachment onto its traditional turf with its own version of the "triple play,'' reselling DirecTv satellite and in some cases its own subscription TV service with its phone and high-speed Internet package.

There are signs Verizon's tack is working. Its first move -- last year's price cuts on its digital subscriber line (DSL) high-speed Internet service -- has more than doubled its customer base since 2003 from 2.3 million to 5.1 million.

And in states such as Florida and Texas, where it has been cleared to offer its Fios brand subscription TV service, Verizon has captured between 20 and 30 percent of the paid-TV market in less than a year, analysts say.

It is against this backdrop -- Comcast encroaching on phones, Verizon on TV -- that the showdown over a la carte is playing out.

Changes in state laws in Texas, Indiana, Kansas and South Carolina, and proposed legislation in other states, including Pennsylvania, replace requirements that cable TV providers reach franchise agreements with each municipality where they operate with a statewide agreement.

Verizon and other nontraditional cable operators say the move would speed their ability to provide alternatives to cable companies by forgoing burdensome negotiations with every town and community. The local agreements, Verizon maintains, gives Comcast a big head start in the 36 states where it's rolling out the services.

It's a lead that Verizon and some industry watchers claim is unfair because cable companies didn't have to overcome the same hurdles when they got into the phone business.

"If you look backwards, phone companies have been competing for the past 20 years," said telecom industry analyst Jeff Kagan. "The cable industry hasn't,'' and the result is that its prices keep rising. The Federal Communications Commission says cable TV prices have risen 86 percent since 1995, outstripping the pace of inflation.

Cable supporters maintain that the franchise agreement changes would unfairly allow in new competitors without the costs that traditional cable companies faced -- not only to win local franchise agreements across the country but to build the requisite infrastructure for cable.

The franchise agreements, in which municipalities effectively bestowed local monopoly rights to a cable company, were required to ensure that the young companies in the then-fledgling cable industry offered their service everywhere, not just in affluent areas.

Moreover, observers note it's not as if Verizon is starting from scratch. Thanks to its "Baby Bell'' roots, the company has the advantage of already being the largest phone provider in most of the markets where its seeking to offer paid TV, noted Marvin Sirbu, a professor of engineering and public policy at Carnegie Mellon University.

"Yes, they are having to spend a lot of money'' to put in fiber optic lines for DSL and video service, he said. "But then, they are in the position to benefit" because of the marketing advantage of already having a relationship with many customers.

The balance could shift once Verizon's refurbished network is completed -- and it begins to bait consumers with unlimited power and better quality for services such as high-definition TV.

Fighting for the remote controls of the 70-plus million and growing households that pay for TV is perhaps the only thing that Verizon and Comcast have in common. Their backgrounds are dramatically different, as are the growth paths taken to get to this point.

Comcast is generations younger than the former offshoot of the former "Ma Bell" AT&T conglomerate that was dismantled in 1984.

A relative youngster in the telecom industry, family-operated Comcast sprouted in the 1960s as a cable TV business from founder Ralph Roberts, whose son Brian now sits at the helm.

Comcast's entrepreneurial roots and Verizon's public utility past have stoked their competitive flames as they publicly bicker about which has the greater competitive advantage to sway the public and lawmakers to their side.

The perpetual sparring is a good thing for consumers who have been flush with options for land-based and mobile phone service, but are typically stuck with fewer options for paid TV -- a cable company or satellite TV service offered by DirecTV or EchoStar. Critics say that's why cable prices keep rising.

Soon, a fourth component will fire up the competition between Comcast and Sprint even more. The cable giant is getting ready to add Sprint mobile phone service to its mix of offerings next year, and Verizon plans to launch its version of the "quadruple play" through its 50 percent stake in Verizon Wireless.

Ultimately, the two behemoths aren't dueling to see who's left standing -- both are equipped to gain money and customers -- but more to see who gets to claim to be king of the hill. It's a battle, said Mr. Kagan, the telecom industry analyst, that consumers should win as long as "the prices stay low and the innovation stays high.''

First published on June 11, 2006 at 12:00 am
The Associated Press contributed to this story. Corilyn Shropshire can be reached at cshropshire@post-gazette.com or 412-263-1413.