Derrick Bulawa, who runs a small phone company in North Dakota, was getting worried as he began to lose some of his 6,000 subscribers to cable companies offering bundled TV, Internet and phone services.
So last month he turned to a commercial satellite operator owned by Luxembourg-based SES to launch a digital television, or IPTV, service over satellite.
If I don't compete in the towns where cable can offer telephone services, we're dead, said Bulawa, whose BEK Communications company is a co-operative owned by its customers.
BEK, like the many other small rural phone companies that together service about 45 percent of the U.S. geographical area, faces increased competition from triple play packages. At the same time, they cannot afford to spend billions of dollars to build their own advanced TV service as national telephone companies Verizon Communications Inc and AT&T Inc are doing.
But the small companies' dilemma presents a business opportunity for commercial satellite operators to sell Internet Protocol TV.
Like SES Americom's IP Prime service, privately held Intelsat Ltd has started a business to deliver cutting-edge IPTV for small telephone and cable operators over their existing wires.
IPTV allows for more interactive television, such as video on demand and high-definition programming.
We're helping the small to mid-sized telcos to compete, said Dave McGlade, chief executive of Intelsat, the largest commercial satellite operator, which sold a 76 percent stake to UK private equity firm BC Partners in June for $4.6 billion.
They're able to differentiate themselves with interactivity that this technology allows, McGlade said, and it brings more choice to the marketplace.
The National Rural Telecommunications Cooperative trade group estimates IPTV's potential market at 10 million rural households. Assuming the average monthly revenue per user is similar to cable's triple play packages of about $100, that could represent an annual revenue opportunity of $12 billion.
Both SES and Intelsat's IPTV services allow phone companies to deliver up to 200 digital TV channels without making a huge capital investment, which would be required to upgrade their copper wire systems for TV programming.
Both companies say they have the experience and scale to negotiate with Hollywood and cable networks to offer affordable programming packages for their phone partners.
Their IPTV services are an alternative for rural phone companies to partnering with satellite TV providers DirecTV Group and EchoStar Communications Corp.
Bill Squadron, senior vice president of media partnerships at SES Americom, said the company was saving an average telephone company 90 percent of what would otherwise be $6 million to $8 million in upgrade costs.
The ability to offer high-definition TV is also attractive to smaller cable operators that have yet to upgrade their networks to offer these services.
If you're a cable operator, you need to enhance your video product because your existing plant does not give you the ability to add high-definition services, said Jon Romm, executive vice president of sales at Avail Media. The Reston, Virginia-based company packages and resells the Intelsat service to operators.