SBC :NYSE - commentary research ) picked cable equipment maker SFA :NYSE - commentary research ) as its video gear supplier.
In its latest bid to challenge the cable and satellite industry, the San Antonio phone giant says it will spend $195 million with Scientific-Atlanta to build a TV-over-the-Internet system.
SBC's multiyear contract with Scientific calls for a cable TV-like infrastructure with video distribution handled by two super hubs that feed 41 regional hubs. Scientific will provide hardware and network management services to SBC, according to the announcement Thursday.
SBC has vowed to spend $4 billion on a fiber optic network expansion plan that would deliver the so-called triple play of video, phone and Internet access. The IP-TV portion of the project promises to deliver advanced video services like high-definition programming, video-on-demand and video recording features over upgraded telephone lines.
Using Internet protocol and fiber optics, SBC hopes to beat cable and satellite players at their own game by offering users more control over their TV programming. But some observers are skeptical about SBC's ability to pull it off, pointing out that it is much harder for phone companies to add video than it is for video broadcasters to add phone service.
Though dollarwise the deal is only a fraction of SBC's total commitment to network spending, "This is certainly a win for Scientific-Atlanta," says Legg Mason analyst Timm Bechter. Bechter does not have a rating on Scientific-Atlanta.
At midday Thursday, SBC shares were off 4 cents at $23.66, while Scientific was up 81 cents to $28.68. Shares of Scientific rival Harmonic Lightwaves (HLIT:Nasdaq - commentary - research) dropped 8% to $9.27, as investors saw the cable infrastructure supplier getting snubbed in the deal.
In January, SBC announced that Microsoft (MSFT:Nasdaq - commentary - research) would provide the IP TV operating system for its future set-top boxes.
And in November, SBC said it would trim its fiber spending plan to $4 billion from $6 billion, and also shortened the time frame to three years from five years. The company says that by the end of 2007, 17 million homes will be eligible for the faster network connections.
New York-based Bell Verizon (VZ:NYSE - commentary - research) has said it plans to spend about $3 billion extending fiber cables directly to homes to offer its own bundle of advanced services including IP TV.
Skeptics point to the seemingly prohibitive costs of the telcos' plans and the poor track record phone companies have had in previous attempts to offer video.
Regional U.S. telephone giant SBC Communications is one step closer to offering cable television to the 18 million households in its 13 state coverage area. The company announced a $195 million contract with Scientific-Atlanta Thursday to provide a video operations center and regional hubs for the new service. Under the brand name, U-verse, the SBC's television rollout is set to launch in 2006 after field trials begin later this year.

The company is seeking the so-called "triple play," where a telecommunications company offers voice, data and video in one bundled package. Local telephone companies like SBC have been losing business to cable TV companies, which have added telephone and Internet services in recent years.

In a slew of recent deals, SBC is looking to stop that trend. Within the past six months it has signed alliances with various technology firms to build out a fiber network to the home strategy. For instance, SBC has a $1.7 billion deal with Alcatel to build out its fiber optic network and a 10-year, $400 million, pact with Microsoft to license its IPTV technology to allow multi-channel television to stream over its Internet backbone.

In most of the U.S. only cable TV companies like Comcast have been able to offer the "triple play" of voice, video and data services. But traditional phone companies like SBC and Verizon have been upgrading their copper wire telephone networks to fiber optic. SBC says it plans to spend billions of dollars to overhaul its telecommunications network, saying the aging and brittle copper wires which were originally laid in the early 1900s do not have enough bandwidth to allow television capability.