An important milestone was reached for the first time last quarter. Telcos like AT&T and Verizon collectively added more video subscribers than DBS providers. AT&T and Verizon collectively added 411K new video subs, while DirecTV and DISH added only 310K. DBS has historically been the leader in new net video subscriber additions for the past few years, mostly at the expense of cable companies. Expect that trend to change. TelcoTV providers will probably take that quarterly “growth crown” for the next few years, as they ramp up their triple and quad play offerings. In fact, as Investors Business Daily accurately points out, telcos haven’t even begun rolling out in the largest cities yet. As they do, their growth rates should accelerate. Verizon’s recent news about offering FiOS in New York City, should it actually materialize, will be a good indicator on the growth impact caused by extending their reach into larger cities.

Interestingly enough, DBS providers are taking a double hit from the telco’s video progress. A good portion of the new telco video adds are coming at the expense of DBS, as evidenced by DISH’s poor first quarter for net new adds. In addition, telcos are slowing down there DBS resale efforts (AT&T – DISH and Verizon – DirecTV), as they ramp up their own video efforts. Those telco resale arrangements have been a good source of growth for DBS providers. As their telco partners get distracted with their own video launches, DirecTV and DISH will have to work much harder to replace those lost resale additions. Part of DirecTV’s strategy is to try to attract higher value subscribers with advanced feature portfolios and more robust HD content packages, hoping their higher ARPU will help replace revenues lost by smaller gains in net new subscriber additions.

DISH Networks reported disappointing results for the first quarter 2008 in a SEC filing. DISH indicated competition from cable and telecom carriers are main factors in their 89% decline in subscriber growth, which netted only 35K net subscribers. In the 10-Q filing DISH says, “We believe that this declining subscriber growth has been driven in part by competitive factors including the expansion of fiber-based pay TV providers, the effectiveness of certain competitors’ promotional offers, the number of markets in which competitors offer local HD channels, and their aggressive marketing of these differences.” This report offers a strikingly different result from DirecTV’s recent results which reported 275K net new subscribers, a 17% increase. DISH will officially report their quarterly results on Tuesday.

DISH appears to be falling victim to both telco and cable triple play success, and to DirecTV’s continued HD superiority. DirecTV is maximizing its HD lead over all competitors, and in DISH’s case, their advantage appears to be widening. Add telco and cable’s triple play competitive advantage, and DISH looks like it is in for a rough few quarters. They’ll have a difficult time reversing the trend, because their historical value play of low cost is vulnerable to the savings perception of the triple play bundle. Adding insult to injury, they have no trump card like DirecTV does with HD and high end sports programming. They even face a HD setback, whose timing couldn’t be worse, caused by a recent satellite launch mishap. It all adds up to an ugly situation from a DISH investor point of view. Their competitors are salivating at the prospects of luring DISH’s 13.8 million subscribers.

Verizon announced the expansion of high definition VOD service to eight additional states. With the expansion, Verizon’s HD VOD service is now available in California, Delaware, Florida, Indiana, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Texas and Virginia. Verizon says they will average about 1,000 HD VOD titles per month. Verizon joins other "terrestial" video operators trying to leverage HD VOD against the perceived HD advantage for linear channels offered by DirecTV and DISH Networks.

Both DirecTV and DISH ran into major HD setbacks this week. A new satellite that DISH planned to use for HD channels encountered a problem after its launch and its future is uncertain. The SES AMERICOM AMC 14 satellite was unable to get into its proper orbit after launch. DISH was planning on leasing the satellite for HD capacity, specifically for local HD channels. In another unrelated setback, DirecTV’s latest satellite launch has been delayed. They had scheduled a launch for Monday of this week, but it is delayed indefinitely. DirecTV plans on using this latest satellite for HD capacity as well, hoping it will help them achieve their promised 150 HD channel line up.

These delays put a cloud over both DirecTV and DISH, considering HD is seen as a competitive advantage for DBS over cable and IPTV. Most likely the setbacks are temporary ones. Perhaps they will give competitors some time to play catch up. The news looks worse for DISH. If the AMC 14 issue can’t be positively resolved, DISH will face major setbacks with its HD strategy. Even if they manage to get the satellite into its proper orbit, it will burn precious on-board fuel, significantly reducing its service life. Whatever the outcome, DISH’s HD strategy will be impacted, and not positively.

DISH Networks will launch an all HD programming package, beginning February 1st. According to Home Media Magazine, the package will offer 70 national HD channels for $29.99/month. Local (where available), sports, and premium HD channels can be added at additional cost. DISH claims to have 76 HD channels currently, with a goal of 100 by year end.

CenturyTel and Echostar renewed their strategic partnership to offer DISH Network as a part of CenturyTel’s triple play bundle. Both parties seem to be quite pleased with the relationship, although no official subscriber numbers or projections were released with the announcement. This development begs the question, what exactly is CenturyTel’s long term triple play strategy? Have they decided that an IPTV or other wireline video solution is not in their long term plans? That would seem to go counter to the telecom industry’s thinking on this issue. For now, CenturyTel and Embarq seem to be the two carriers of note who appear to be “digging in” with a DBS partner. Maybe they know something everyone else doesn’t.

Read the CenturyTel press release for the details.