Verizon and OnCue: Fuel for FiOS and wireless

Josh Wein, FierceOnlineVideoVerizon (NYSE: VZ) may have agreed to buy Intel's (Nasdaq: INTC) OTT service, but it could be a long time before Verizon introduces the kind of service Intel had been planning.

The provider will certainly breathe new life into the project, which Intel had called OnCue. For months, OnCue's future seemed grim. A change in leadership at the chip manufacturer left the company with a CEO who lacked enthusiasm for the media distribution service. Content owners were keeping their distance. Public statements from the team running the project that it planned a vast, cloud-based DVR service to go along with its linear pay-TV offering probably only amplified the company's troubles.

In Verizon, OnCue has found a buyer with experience building relationships with the TV networks and content owners. Verizon also has the financial and technical resources to keep OnCue going. When the companies announced the deal Tuesday, they said it will "accelerate the availability of next-generation video services, both integrated within Verizon FiOS fiber-optic networks and delivered 'over the top' to any device."

I bet they chose those words very carefully. The deal may in fact "accelerate the availability" of new over-the-top TV services. But that doesn't mean Verizon will introduce such a service.

For now, Verizon's focus will almost surely be on using the acquired Intel technology to improve its FiOS pay-TV service, which is available to fewer than 16 million U.S. households. That's great for FiOS's 5.3 million video subscribers and their neighbors, but any improvements OnCue yields for FiOS will remain within the limited areas where Verizon has deployed the fiber optic cable cables that make up the core of the FiOS network.

Offering a video service to Verizon Wireless's 100 million-plus customers, with the hope of attracting more, will probably be the next step. With Verizon Wireless, the company has near complete coverage of the U.S. with its LTE service. It said Tuesday that the LTE network is available to nearly 305 million people--recent estimates put the U.S. population near 317 million. If Verizon thinks adding a pay-TV service to Verizon Wireless can help it attract more subscribers, it will probably restrict access to that service to paying wireless customers.

There is evidence to suggest that a video product can help sell Internet service. Video and Internet access have gone hand in hand since cable operators first began selling broadband. Google Fiber (Nasdaq: GOOG) includes a pay-TV service. And for years, cable operators claimed the "triple play" of video, voice and broadband service as its killer product. With OnCue, Verizon has the opportunity to offer all three wirelessly and benefit from the same marketing and operating efficiencies that come with running all three on the same network.

Is Verizon really going "over the top" if it's using its own network? I don't think so. That would be like describing a cable operator's home phone product as an "over the top" phone service. That's voice over IP, or VoIP, but it's not over-the-top VoIP the way that a product like Skype is.

Likewise, a video service for Verizon Wireless customers may be TV over IP, but it's not the kind of over-the-top video service Intel had been teasing, Sony has said it will test, or Amazon has reportedly discussed with media networks. Verizon's Intel Media acquisition may speed the availability of that kind of service--if it introduces a Verizon Wireless IPTV product, competitors will surely react. And today, the traditional pay-TV distributors lack the national wireless network needed to go toe-to-toe with Verizon. So if a distributor like Comcast (Nasdaq: CMCSA) or DirecTV (Nasdaq: DTV) wants to offer a national IPTV service, it will have to either go over the top of someone else's broadband network, partner with other ISPs, or build its own national network to reach the same number of potential customers.--Josh

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