Inside Telco TV in Texas

Charlie Pantauso was eyeing a wall of TVs at a video hub office in Carrollton, Texas, for Verizon Communications Inc.’s new FiOS TV service in nearby Keller recently when he noticed the signal for KLDT-55 had disappeared.

Following a protocol used any time Verizon loses a video signal from a programming source, Pantauso phoned the small local station, which runs mostly infomercials, to see if there was a problem. “Am I off the air again?” a staffer at the station responded when he picked up the phone, having not yet realized the signal was dead.

It wasn’t the first time Verizon engineers caught a bug in a video signal before the program supplier noticed.

Verizon executives say they are approaching their FiOS TV rollout with a phone company’s mentality to customer service. Just as consumers expect to hear dial tone every time they pick up a phone, they say viewers should get a crystal clear TV signal every time they power up a set-top box.

“We have to grab market share, and when you’re in that position you have to have a better product all around,” says Verizon senior vice president of video solutions Marilyn O’Connell.

FiOS TV launched commercially in Keller in September. That was followed last week with the launch of FiOS in Herndon, Va. Verizon is competing against Charter Communications Inc. in Keller and Cox Communications Inc. in Herndon.

Verizon is expected to announce the first commercial launch of FiOS TV in Florida in December, along with more Texas communities.

While an army of Verizon lobbyists is working to convince local franchise authorities to give it the green light to compete with cable and satellite providers in hundreds of cities in its 28-state footprint, Verizon has already constructed a nationwide backbone to support FiOS TV.

A visit to its facilities in Dallas, Keller and Carrollton illustrate how the telco is building an infrastructure that could eventually support millions of TV households.

There’s a non-descript warehouse located behind a Ceramic Tile Super Center in Carrollton, which houses a new video hub office (VHO) for FiOS TV.

Beyond a control room, where Pantauso and other engineers monitor video signals, sits a cavernous, air-conditioned room featuring dozens of racks of servers, most of which have yet to be used. As Verizon eventually expands FiOS TV to all of the Dallas/Forth Worth market and surrounding suburbs, more servers will come online, says vice president of video network service operations Jerry Holland.

Verizon has constructed two “super headends” — one in Tampa, Fla., and a second in Bloomington, Ill. The headends pull video signals off satellites and relay signals via a fiber infrastructure to the Carrollton VHO and hubs in five other markets, which officials declined to name. Each hub can support an entire DMA.

The super headends in Tampa and Bloomington can each serve the entire country, but they will each be used to deliver programming. If a technical glitch hits one of the super headends, its sister facility would pick up the slack.

“We can run the whole country on one headend,” Holland says. “The whole idea is to focus on reliability — backup after backup.”

The FiOS TV platform is a hybrid of a traditional cable broadcast architecture coupled with an advanced Internet-protocol TV system. Verizon uses traditional cable quadrature amplitude modulation technology to deliver analog, digital and HDTV channels, and relies on IPTV technology to deliver video-on-demand programming.

Verizon officials say that using a traditional cable architecture allowed them to come to market faster with a video product than they could have if they pursued a dedicated IPTV platform. SBC Communications Corp. is pursuing a pure IPTV strategy for its video rollout, which has been delayed until 2006.

“We looked deeply at that [IPTV] option. We didn’t feel it was ready. It hadn’t proven to be scalable,” O’Connell says. “There was still a substantial efficiency in using broadcast for linear [programming], and since we had the ability to use the [IPTV] data stream for the interactive piece, we felt in a way we were sitting in the best of both worlds.”

Verizon plans to eventually integrate FiOS TV with mobile-phone service from Verizon Wireless.

FiOS TV vice president of product management Shawn Strictland says the company will rely on IPTV technology for advanced features, such as allowing FiOS customers to program digital video recorders with their mobile phones, or allowing them to access the V Cast programming service from Verizon Wireless.

“For us, that’s what IPTV is — it’s about that ability to give the customer control over their TV experience from wherever they are and on whatever device their on,” Strictland says.

In Keller, Verizon competes against satellite providers DirecTV Inc. and EchoStar Communications Corp., as well as Charter. The telco’s central office in Keller — which houses thousand of copper wires for its telephone service — also features a display of the HD and standard-definition video feeds for FiOS TV, DirecTV and Charter.

A demonstration of all three video feeds is a regular stop for Verizon officials giving visitors tours of the Keller operation. It’s easy to see why — the FiOS TV feed is distinctly crisper than the Charter and DirecTV feeds on regular and HDTV channels, including local, basic-cable and premium networks.

Verizon officials attribute the clearer video feeds on FiOS TV to its strategy of not compressing HDTV signals, as is the practice for Charter and DirecTV.

Keller resident Chris Kroeger had a standard-definition TV when he first had FiOS TV installed in August. After noticing the picture quality was better with FiOS running on the same TV that was previously hooked up to Charter and EchoStar’s service, he bought a new plasma-screen HDTV.

“[FiOS] was an impetus for me to go out and upgrade my TV,” Kroeger says.

Kroeger’s brother is a Verizon employee. But that didn’t stop him from noting that FiOS TV had a glitch the first week he had the service, which forced him to unplug and reboot his Motorola Corp. set-top.

Channel surfing with the FiOS TV remote in Kroeger’s living room shows that FiOS TV is very similar to digital-cable platforms. There’s about 200 channels to choose from, and a broad VOD library, offering both free and pay content.

There’s one subtle difference with the DVR. While DVRs from Scientific-Atlanta Inc. and other vendors list multiple shows with the same title in a list, FiOS TV, which uses a Microsoft Corp. interactive program guide, groups multiple episodes of the same program title as a single listing.

In Kroeger’s case, rather than having to scroll through nine episodes of Barney — recorded for his kids — the main DVR list contains one listing for Barney. When selected, it branches out to list all the episode titles.

Viewers flipping through FiOS TV channels will notice a delay of one to two seconds when navigating from HDTV channels to regular digital and analog channels. Verizon officials attribute the delay to the set-tops, not the network. Cable and satellite subscribers with HDTV set-tops also notice a similar delay when tuning channels.

Keller residents are at ground zero in the looming war between Verizon, cable operators and other distributors, and some say they’re inundated with marketing pitches from Verizon and Charter, ranging from door-to-door sales calls to Web advertising.

Keller resident Mark Clemons, who has had FiOS TV since August, says he still gets pitches from Charter, some in the form of door hangers.

Charter has slashed its prices in Keller in a bid to stem subscriber losses, offering subscribers a $50 monthly package that includes digital channels and its high-speed Internet service.

Clemons, a former subscriber of Charter, DirecTV, Comcast Corp. and Cablevision Systems Corp.’s Voom, says he’s a big fan of Verizon’s customer service.

“I like customer service. Being a realtor in this area, it’s all about customer service. Every time I call [Verizon customer service representatives], somebody answers, and they always solve my problem,” says Kroeger, who sells real estate for Century 21.

O’Connell says Verizon routes all calls from FiOS customers to a premium customer-service center called Encore, which she says acts like a concierge service. There, customer service representatives can handle all calls, including those related to FiOS TV and other Verizon products.

While FiOS TV hasn’t been ranked in terms of customer service by market-research firms, the company’s landline and wireless phone operations and DSL service traditionally rank at the top of J.D. Power & Associates’ customer-service rankings. Last year, Charter tied for last place in J.D. Power’s rankings of pay-TV distributors.

Verizon officials decline to quantify how many subscribers have signed up for FiOS TV, although O’Connell says the company is on track to meet its goals for 2005. Verizon hopes to win 20% share of the pay TV market in Keller, O’Connell says, but she wouldn’t outline the timeline for that ratio.

She says Verizon has also seen success in Keller with the rollout of its FiOS Internet high-speed data service, which launched last year. About one-third of the homes Verizon passes in Keller now subscribe to FiOS Internet, O’Connell says.

When Verizon first launched FiOS Internet, about 50% of new customers were first-time high-speed data customers. And of that group, about half were getting Internet access to the home for the first time.

“We had people bringing out old computers that had been sitting in their closets, because they decided they were now ready to use it,” recalls Sheila Lau, president of Verizon’s Texas operations.

Lau says Verizon has trained 200 field technicians in Texas on how to install FiOS TV and FiOS Internet in the last year, and that the company is currently training another 150 technicians, including a number of former cable employees.

“We are going to train every single tech to do everything — data, voice and video,” Lau says. “Customers have told us they want the whole package, so we don’t want to send different crews out there.”

Verizon executives say they don’t plan to match Charter’s steep discount of the high-speed Internet and digital-cable bundle. Verizon is charging $39.95 monthly for a 160-channel package of basic and expanded basic channels, and charging an additional $34.95 monthly for a 5 Mpbs FiOS Internet service. Subscribers can also pay up to $179.95 monthly for Internet access speeds of 30 Mpbs.

If most potential FiOS customers take the attitude of Keller resident Scott Ohlrich, who discussed Verizon recently at the bar in Up N Smoke Barbecue on Main Street in Keller, price may not be the key factor in the local battle with Charter and other pay TV providers.

“For me, price isn’t everything,” says Ohlrich, who gets TV from EchoStar’s Dish Network, and high-speed Internet access from local provider OneSource Communications, but is thinking about switching over to FiOS. “It would be customer service. The old adage, 'You get what you pay for’ — I’m willing to pay more for something that’s going to benefit me,” Ohlrich says.