Verizon May Ignite Online Pay-TV Fight

December 07, 2011, 7:45 AM EST By Scott Moritz

Dec. 6 (Bloomberg) -- Verizon Communications Inc., the second-largest U.S. telephone company, may set off competition among pay-television providers with a new Internet video service, said Janney Montgomery Scott LLC.

The service from Verizon, based in New York, could be a milestone because it would mark the first time a cable or other pay-TV provider moved to sell its content outside its regional footprint, said Tony Wible, a Janney analyst. The move may prompt cable operators, such as Comcast Corp. or Time Warner Cable Inc., to take similar steps, he said.

“We see this as a catalyst” for other companies, Wible wrote in a research note today.

Verizon is set to offer an online video service using Internet Protocol technology that will compete with Netflix Inc. and cable-television companies, Wible wrote. Verizon had 3.98 million customers for its FiOS TV service as of September.

Verizon hasn’t announced the online video service and Deidre Hart, a spokeswoman for the company, declined to comment. Reuters reported that Verizon would offer a service to compete with Netflix today, citing people briefed on the plan.

Verizon rose 0.7 percent to $38.32 at the close in New York and has gained 7.1 percent this year. Netflix fell 2.8 percent to $68.14 and has dropped 61 percent this year.

A move by Verizon into video may prompt cable and telephone companies to charge broadband customers based on the amount of data they use, what’s known in the industry as usage-based billing, Wible said. That would allow pay-TV providers to build up new revenue streams even if they lose customers for their television services, he said. It may hurt Netflix since its service would effectively become more expensive, he said.

Pay-TV providers that move quickly into each other’s territories could benefit, Wible said.

“The first movers may have an edge in the market,” he said.

--Editors: Peter Elstrom, Niamh Ring

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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