Coming Soon: Triple Play

IF YOU WANT TO HEAR SOME plain talk about the frenzied competition between the Baby Bells and the cable providers to market bundled services, seek out Randy Luther, vice president of construction technology for Centex Homes in Dallas.

When Luther talked with Builder, he admitted he was doubling back, taking an especially hard look at packages from the Baby Bells, also known as regional Bell operating companies (RBOCs). But Luther says none of the RBOCs can service all the needs of the country's fourth-largest home builder, and the cable providers are just getting their feet wet with digital telephone service. So, for now, he hasn't signed a national deal and is still letting the regional divisions of Centex make their own voice, Internet, and entertainment decisions.

“The RBOC people are ‘having at it,' ” says Luther, describing the ferocity with which the RBOCs are competing against the cable companies.

Throughout most of 2005, the four remaining RBOCs—BellSouth, Qwest, SBC, and Verizon (left from the seven original Baby Bells that were created in 1984 with the breakup of AT&T)—have been bombarding home builders and developers with service packages that include landline and wireless voice products, voice over Internet protocol (VoIP), Internet access, and video services. The cable companies, well established in providing video and Internet access, have countered by taking advantage of their broadband pipes to roll out VoIP phone service.

The VoIP services from the cable providers are typically routed over private Internet protocol (IP) networks, not the public Internet. They offer less-expensive local, long distance, and international calling than standard landline service, because the IP networks are packet-based. Unlike circuit switching, which requires a point-to-point connection, packets are more efficient in that they can travel different paths through the network and even out of order.

The cable companies like to call their VoIP service “digital voice,” to indicate its private-network status, because they worry that the average consumer thinks the calls travel over the public Internet, which is much less secure than a private IP network. The RBOCs also offer VoIP, but, for now, tend to play that service down. Verizon, for example, markets its VoiceWing VoIP service primarily online. In contrast to the cable company offerings, VoiceWing travels over the public Internet, which does offer certain benefits, such as the ability to pick your own area code.

“I had one of the RBOC reps in here a few months ago, and he was all fired up, so excited,” Luther says. “But I told him, ‘Let's assume we would go with you. The reality is, we do business in 25 major cities, and your company couldn't even serve half our neighborhoods in the Dallas area,' ” Luther says, adding that there are still places in the Telecom Corridor in Richardson, Texas, outside of Dallas, where buyers can't get DSL service from the local RBOC; they have to sign on with Comcast if they want high-speed access.

The message to home builders: Weigh each provider's local strengths and judge whether you think the provider can really deliver. One of your primary goals should be simply to make life easier for your home buyers. Offering provider services is just another way to underscore that consumers get quality customer service when they buy one of your homes. Explain the services clearly, and it's one less hassle new homeowners have to deal with when they move in.

“All of this [emphasis] on provider services revolves around trying to make the moving experience as painless as possible for the customer,” says Bryan Waldorf, management information systems project coordinator for Maronda Homes, a large, Pittsburgh-based builder that's set to close about 10,000 homes this year.

“What we do is look at a strategic area and determine which company has the strongest network,” says Waldorf, who manages voice, Internet access, and video services for Maronda. “It just makes sense for the home buyers to go with the preferred provider. If they don't, they have to do all the legwork on their own,” Waldorf adds, noting that “if the customer opts to go it alone, at that point the provider doesn't care where the home buyer bought the home.”

With events unfolding rapidly, builders need to stay abreast of all the developments at the major providers—and be prepared when the providers start pumping you with sales promotions.

Maronda Homes tends to work with local cable companies for Internet and video services in its major trade areas. For example, the builder works with Comcast in Western Pennsylvania, Time Warner in Columbus, Ohio, and Bright House Networks in Orlando, Fla. Waldorf says Time Warner is the only cable provider that at press time offers VoIP in the areas where Maronda builds.

“We're open to VoIP,” says Waldorf. “Whenever the other cable providers are ready to roll it out, we'll let them change the promotion [to include voice],” says Waldorf, who adds that Maronda is also looking to talk to Verizon about its fiber strategy.

“The Verizon package has the potential of taking us all the way, with telephone service, high-speed [Internet] access, and video services,” says Waldorf. “It's something we're looking at that will be of great benefit to the home buyer.”

Whatever path you take, look very carefully at what's being offered—and whether the service is available where you're building. Time Warner, for example, does provide all three services, but only in its franchise areas, where it has a license to deliver cable services that typically covers the traditional municipal boundaries of any given community. A builder may want to sign on with Time Warner, or any other cable company, but the company may not be licensed in remote areas the builder works in.

Time Warner is ahead of Comcast with VoIP deployment, however. Comcast promises to have full voice deployment in its franchise areas by the middle of 2006. Most of the RBOCs offer all three services—as well as wireless voice—but builders should understand that, for now, the video services are typically pieced together by marketing agreements between the RBOCs and video service providers.

On the RBOC side, both SBC and Bell-South have satellite video offerings, SBC with DISH Network and BellSouth with DirecTV. SBC says it will start rolling out Internet Protocol TV (IPTV), an Internet-based video service (see “NextGen TV,” page 290), by year's end, while BellSouth is still in test mode.

Qwest offers its own digital Qwest Choice TV in selected markets as well as satellite service from DirecTV in all of the 14 states it services. For its part, Verizon has made numerous strides building a video service, striking content deals with Starz Entertainment and A&E Television Networks, among others, as well as winning video franchises in California, Florida, Texas, and Virginia. But at press time, Verizon had rolled out its video service only to selected communities and was promising a broader launch of its fiber-based FiOS TV video service this fall. Another player to be aware of is Sprint, which offers Dish Network satellite TV through its local communications division in 18 states.

Although some builders are skeptical about the ability of providers to deliver bundled services, there are several success stories. One is Kimball Hill Homes, a Chicago-area builder with 3,672 closings in 2004, which has been working closely with SBC.

Frank Scaramuzza, Kimball Hill's chief information officer, says SBC is laying down fiber at a 3,100-unit project in Sugar Grove, Ill. And earlier this year, Kimball Hill started offering its home buyers SBC's Smart Moves program.

With Smart Moves, Kimball Hill gives SBC access to its home buyers in exchange for more coordinated planning with the carrier in the preconstruction phase. Home buyers can also obtain a pass code and then go online to SBC's Web site to order everything from their newspaper to utilities and SBC's services. SBC offers a base package that includes local and long distance voice, Internet access, a video package, and at least one upgrade path. According to Scaramuzza, the upgrade path is designed to give the consumer the flexibility to add additional phone and video jacks, home security, and VoIP. All of the homes in Sugar Grove also come with structured wiring as standard, a feature that Kimball Hill worked with SBC to deliver.

“We looked at the opportunity of starting our own entertainment company,” says Scaramuzza, who adds that Kimball Hill will be working with SBC on at least two more fiber deployments later this year. “But that's not the business we're in,” he says, adding, “I'm a home builder first; we'd rather bring the experts to our customers.

“We thought it made a lot of sense to partner with SBC,” Scaramuzza continues. “They're big in Texas, Illinois, and Wisconsin, and their footprint is close to ours,” he says. “Now, we give them the [technical] information ahead of time, we're getting our trailers connected sooner, and we have fewer facilities issues. Plus, when they come out with new technology, it will be the right stuff.”

The San Antonio division of David Weekley Homes started offering bundled services to home buyers this past spring through Time Warner.

Frank Falkstein, David Weekley's San Antonio division president, says the bundled package is now being promoted at Rogers Ranch in San Antonio. The project is in its fifth year of an eight-year build-out and closes about 120 homes a year, roughly 40 of which are by David Weekley. The homes range from 2,600 to 3,800 square feet and start in the high $200s.

“Time Warner wants to be on the forefront of this technology, and it's of great benefit to the home builder,” as well as the home buyer, Falkstein says. “The buyer gets an easier move-in. Since the services are already turned on when they move in, it really helps the buyers with the stress of moving. It's just very convenient for consumers to check one more item off the list,” he explains.

Another project that's offering a full technology package is the Anderson Creek Club in Spring Lake, N.C., outside of Fayetteville near Fort Bragg and Pope Air Force Base. Roughly 10 builders are in this project, which started in 2001 and has gathered steam in the height of the building boom, averaging about 500 lots sold annually over the past two years. Single-family homes range from $250,000 to housing mix including carriage homes, town-houses, and condos.

According to David Levinson, the president of Anderson Creek Club, Sprint deployed a fiber backbone in the community and offers local and long-distance voice as well as high-speed Internet access. Meanwhile, the HOA is delivering video services to buyers. The Internet access and TV service is roughly $65 a month, which the home buyer pays for as part of HOA dues. Voice costs vary based on the service plan the home buyer signs up for.

The basic video package also comes with three special community channels: one for the golf course, which broadcasts community golf tournaments live; one for the HOA; and one for the developer, which uses the channel as a marketing tool.

“There's no better marketing than to have a direct channel to your existing homeowners,” says Levinson. “What really makes this unique is that the fiber optics go into every home.

“Look at how many people are running full- and part-time businesses from their homes today,” says Levinson. “Now, if one of the guys locally here retires from the military, he doesn't have to go to an office park and rent office space; he has all the capability in a spare bedroom.”

Other bundled-services success stories are out there and have been reported in BUILDER during the past year (see “Fiber Hits Home,” January 2005, page 57, and “Broadband City,” June 2005, page 83). For example, Verizon's big triple-play success is with Brambleton in Loudoun County, Va., where the company offers voice and high-speed Internet access and partners with Gatehouse Networks to deliver video services. Another promising development is Ridge Gate in Lone Tree, Colo., where developer Coventry Development brought in Qwest to build a fiber backbone for the new community, which will be built out over the next 40 years. Builders who may still be scratching their heads over triple-play services—or who are just outright skeptical about the technology—should know that there will never be a perfect universe when it comes to dealing with the RBOCs or the cable companies, so now may be as good a time as ever to consider offering the new bundle. The RBOCs are apt to take longer delivering services than many builders might like, and the cable companies can tend to be arrogant after holding a TV monopoly in local trade areas for several years.

But competition is coming one way or another. On the legislative front, the RBOCs keep pushing for statewide and even national franchising, a move that would alleviate the need for the Baby Bells to obtain local cable TVfranchises. Streamlining the licensing process would help the RBOCs deliver competitive video alternatives to consumers much faster, or so the theory goes. The National League of Cities, however, generally opposes any move to grant statewide or national franchises.

“Our members, local officials, welcome video competition and would be very happy to quickly process applications,” says Cheryl Leanza, principal legislative counsel for the Washington-based group. “But we are gravely concerned about the cities' ability to manage the physical rights of way and having all customers receive the benefits of competition,” she adds, noting that it makes no sense to have the Federal Communications Commission resolve a dispute between Verizon and Comcast over a local county matter.

At press time, a statewide franchising bill had been signed into law in Texas and was being challenged by cable operators, and similar bills were under discussion in California and New Jersey.

All of this heightened competition and legislative and legal interference may make choosing a provider even more confusing. Your job is to figure out the best deal for you and your home buyers. Before signing with a provider, really pin them down. Get them to document precisely their coverage area, current pricing, and any impending price hikes, as well as the degree to which they can deliver the services they're promising in your trade area.

The competition between bundled-services providers is fierce. There's never been a better time to negotiate a deal.

Don't sign a deal with a bundled-services provider unless it accomplishes these four goals:

market where cable TV service is typically included in HOA dues (Florida, for example), signing a deal with a provider will enable you to tell your buyers you've negotiated wholesale rates for cable TV. Bulk rates are typically negotiated for cable TV and sometimes for Internet access, as well.

Here's a look at the bundled services the RBOCs and major cable companies had available as of August 2005:

IPTV promises an easier way to network video applications.

Internet protocol television (IPTV) may offer a way to integrate video, voice, broadband, and wireless technologies by using a simple set-top box, which is typically a standard cable box.

Both SBC and BellSouth are working on IPTV, and SBC has a slight lead, with plans for a controlled market launch later this year and early next year. SBC pricing is not yet available, nor are the specific features to be offered at rollout. BellSouth is still only in test mode.

Wes Warnock, an SBC spokesperson, says IPTV will run on any TV, but the service can operate only in areas where the telecom provider has run fiber cable. The company's Project Lightspeed seeks to reach 18 million households with fiber over the next few years as part of its initial deployment, about 50 percent of the households SBC services.

“Basically, we're leveraging our fiber build-out to deliver advanced television services,” says Warnock.

Here's a quick list of some of the potential benefits:

“One of the best ways to understand the power of this technology is with photos,” Warnock says. “The homeowner can upload photos to their SBC Yahoo Web site in Chicago, and if their friend or family member in Dallas has IPTV, they could turn on the TV and view the pictures on the TV.”

Technology research group In-Stat estimates that the connected-community market will grow from 377,000 homes in 2004 to almost 1.4 million homes in 2009.

SOURCE: IN-STAT, JANUARY 2005