telephone companies have innovated

AT&T deserves at least some credit for the invention of talkies. The Warner Brothers purchased their pioneering Vitaphone sound movie technology from Bell Telephone Laboratories in 1925. Earlier that year, Western Electric and AT&T had created Bell Telephone Laboratories as a jointly owned but separate entity. The name Vitaphone highlights sound movies’ connection to the telephone.  So too did advertisements.  Warner Brothers’ billboards promoting their path-breaking sound picture Don Juan (1926) declared, “Warner Bros. / by arrangement with / Western Electric Co. and / Bell Telephone Laboratories presents / VITAPHONE.”

Both telephones and talkies exemplified electricity’s progressive promise.  A Warner Brothers flier urging vaudeville exhibitors to switch to sound movies shows a naked, muscular, laurel-crowned male.  The flier uses that classical image to represent intellectual progress. While the ruling Greek god Zeus used thunderbolts to cow his subjects, the classical figure on this flier prominently direct two lightening bolts to Warner Brothers’ Vitaphone product. Electricity was a potent symbol of progress in the 1920s and 1930s:

anything associated with electricity tended to generate awe and respect, as it combined intellectual complexity, the promise of a better future, and the risk of mishandling.[*]

Not surprisingly, the U.S. Federal Communications Commission (FCC), which was formed in 1934, has a seal prominently featuring electricity.  Promoting more awe-inspiring telephone industry innovation will make for a more publicly beneficial communications industry.

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[*] Crafton, Donald (1997) The talkies: American cinema’s transition to sound, 1926-1931. History of the American cinema, v. 4 (New York: Scribner) p. 21.

video distribution revenue

Video traffic accounts for a large and increasing share of global Internet-Protocol network traffic.  Akamai, CDNetworks, Limelight, and other content delivery networks  received an estimated $400 million in revenue worldwide  in 2008 for distributing video.  That revenue total is expected to grow 20% to 30% a year through 2013.[1]

Telephone companies have long provided video program transmission services.  These services have typically been provided to national television networks, local broadcasting stations, and commercial video service firms. Long-established telephone company program video services provide wire-line transmission of standard-definition, analog television signals.[2]  In 1998, U.S. local telephone companies received about $56 million for jurisdictionally interstate video transmission services.  Figures for subsequent years involve significant estimates.[3]  Local telephone company video distribution revenue in 2008 surely was greater than $40 million.  A figure of roughly $100 million is plausible.[4]  These figures are sizable relative to the total of $400 million worldwide for (digital) video on much more advanced content distribution networks.

Detailed rate element data for the historic Bell-Atlantic Telephone Company service area indicates the type of service provided.  Connections to customer premises (channel terminations) accounted for about 60% of  Bell-Atlantic video service revenue in the late 1990s and 84% in 2008.  Video connections for special events (daily video revenue) accounted for a few percent of total video revenue in the early 1990s and less than 1% in 2008. Average channel mileage for video network connections was about 5 miles through most of the 1990s, but increased sharply in 2000 and was about 13 miles in 2008.  Single-channel analog video service (Basic Video Service) generated about four times as much revenue as multichannel analog video service. From 1999 to 2008, revenue from Basic Video Service shifted away from the Premises-to-Hub configuration and toward the Premises-to-Premises configuration.  Digital program video transmission services generated only a small share of total video revenue.  Thus a good model for a major share of Bell-Atlantic video transmission revenue through 2008 is a single, analog video line connecting two premises.

Telephone companies have some important advantages in the video networking business. Telephone companies have locally ubiquitous networks, established relationships with customers, and understood service characteristics. For companies that don’t consider communications services to be a strategic input to their businesses, sticking with past services is likely behavior. The aggregate effects of such behavior amounts to a lot of network revenue.

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Data:  Selected data and calculations concerning telephone company video revenue, 1989-2008 (as Excel workbook). Rate detail for larger telephone company audio and video revenue for demand year 2008 (filing year 2009) (as Excel workbook).


[1] See Dan Rayburn, “CDN Research Data: Market Sizing and Pricing Trends,” presentation at the Content Delivery Summit, 5/11/09, Fig. 2.9.

[2] These services come in a variety of formats for 525 line/60 field monochrome or NTSC color analog video.  TV-1 and TV-2 provide the video diplexed with 1 and 2 channels of video, respectively.  TV-15 provides such video with one or two 15 KHz audio channels delivered over one or two, respectively, separate two-wire channels.

[3] Video service data is combined with audio service data in the FCC’s standard Tariff Review Plan (TRP) for filing year 2000 and later.  Moreover, the granting of pricing flexibility petitions beginning on March 14, 2001 has removed some jurisdictionally interstate video service from FCC price cap data. Here’s a Verizon pricing flexibility order released on March 14, 2001; a pricing flexibility order for Ameritech, Pacific Bell, and Southwestern Bell (now all part of AT&T) released on March 14, 2001, and a subsequent Verizon pricing flexibility order (2004).  By the 2009 FCC annual access filing, an estimated 74% of special access and trunking revenue that would have otherwise been reported under price caps had been removed from the Bell Atlantic filings.

[4] Larger local telephone companies reported $40 million in program audio and video revenue in demand year 2008. Revenue figures for both audio & video and video alone show sharp changes in particular years from 2000 to 2008.  For example, in demand year 2000 (filing year 2001), Bell-Atlantic video revenue was $7.7 million, compared to $18.6 million in the previous year. Bell-Atlantic received pricing flexibility for video and other special-access services about three months before its 2001 filing.  Similarly, Qwest (formerly US West) received pricing flexibility on Apr. 24, 2002.  About two months later, its filing year 2002 (demand year 2001) video revenue shows a large drop relative to the previous year.  Exclusions from price cap regulations plausibly explain these and similar downward jumps in video revenue.  Other sharp changes, like the explosion of Pacific Bell video revenue to $76 million in filing year 2003 (demand year 2002), are difficult to understand.  The Bell-Atlantic and US West video revenue series show periods of sustained growth beween 2000 and 2008. If telephone company video revenue grew just over 5% per year from 1998 to 2008, the revenue total would be about $100.  This figure would imply that 60% of video revenue has been withdrawn from price caps.  In light of the estimate for Bell Atlantic special access and trunking revenue removed (74%), 60% is a reasonable industry-wide estimate for program video revenue removed from price-caps.