Sun Staff

Originally published February 17, 2005

On a recent Thursday afternoon at the headquarters of Verizon Wireless Data and Multimedia Services in Laurel, a dozen people huddled in a third-floor conference room, studying the video clips before them. On the front wall, a video baseball game was put through its paces. On a computer screen off to the left, a pop music video played.

Just days after the Feb. 1 rollout of V Cast, a new service that brings televisionlike video to the cellular telephone, the group was searching to add more content - music videos, computer games, news and sports highlights, even abbreviated TV shows Verizon has labeled ``mobisodes.``

In the progression of the mobile phone, where conventional conversations were augmented by the sweeping popularity of text messaging and instant sports scores, high-speed video is the next frontier. With its new V Cast service, experts say that Verizon Wireless, a unit of New York-based Verizon Communications Inc., has staked out an early lead.

``While it`s far too early to say who will be the out-and-out leader, by virtue of the speeds they already employ, and the considerable content library they`ve assembled, [Verizon and its V Cast service] are in the leadership position right now,`` said Jason Ankeny, a senior editor with the trade journal Wireless Review.

At a time when megamergers among telephone companies are setting the stage for head-to-head competition among a handful of survivors, leadership in growth markets such as wireless means far more than mere bragging rights.

These markets are key to sustained growth in sales and profits at a time when the traditional telephone business is declining in the face of intense price competition, the explosive growth of cell phones and threats from new technologies, especially Internet-based telephone service. Cable giant Comcast has announced plans to launch Internet phone service this year.

Companies such as Verizon - one of the few expecting to be present when the merger music stops playing - are racing to position themselves with aggressive expansions. The billions of dollars required to start such businesses from scratch and to build the needed digital backbones and wireless networks are helping prompt such deals as Monday`s announcement that Verizon will buy MCI Corp. for about $6.7 billion.

For Verizon, wireless is proving to be particularly critical. In its fiscal fourth quarter, the company lost nearly 700,000 of its traditional telephone customers. But in the same period Verizon Wireless added 1.7 million new customers and saw its revenue jump 22.7 percent.

Verizon Wireless accounted for about 40 percent of the parent company`s revenue for both the fourth quarter and full year: $7.3 billion and $71.3 billion, respectively.

As cell-phone use increases, competition among carriers means that companies such as Verizon Wireless - No. 2 behind U.S. leader Cingular Wireless - must find ways to spur usage and capture market share.

Offering new activities - text messaging, video games, sports highlights or even movie trailers - can be catalysts spurring big jumps in traffic.

No costs revealed

Verizon is hoping for that kind of payoff from V Cast, which is basically broadband communication in the wireless realm, making possible the speed and richness such multimedia applications as streaming video, video games, or television and movie clips require if they are to operate at peak efficiency. The company declined to disclose costs of developing the new service.

Offering such services also could keep customers from jumping to other carriers, reducing costly ``churn.``

And by mating the service with the worldwide Internet network backbone that Verizon will take ownership of when it completes its acquisition of MCI a year from now, large corporations might find uses Verizon has yet to envision, or at least disclose.

``Certainly, there are substantial commercial applications for this,`` said Mark Komisky, chief executive of Bluefire Security, a Baltimore firm specializing in security software for handheld devices.

Initially, the company is aiming at the cell phone user who has some time to kill, standing in line at the store, or walking out to his car, who wants to check the news or weather, watch a short video clip, or perhaps even kill a few minutes playing a video game.

That`s why Verizon Wireless` multimedia unit - working out of its headquarters in Laurel - is cutting deals with content providers, including such big guns as Fox, ESPN and CNN.

Those providers are increasingly realizing the payoff that such exposure can provide, said Paul Palmieri, head of business development for wireless services in Verizon`s Laurel unit.

Indeed, Fox has created a spinoff of its popular weekly anti-espionage program 24, just for V Cast. This 24 Conspiracy debuts as a 1-minute ``mobisode,`` available each week.

The quality of Verizon`s streaming video service has something to do with this willingness, according to such experts as Ankeny, the Wireless Review senior editor.

Up to now, the frames-per-second speed of streaming video has been far below the minimum of 15 frames per second that most experts say is needed for televisionlike video.

Verizon waited to launch V Cast until it was sure it could deliver film clips, games and videos at the needed speeds of 15 frames per second and above, the company said.

A large amount of content is available as part of the $15 a month subscription service. However, subscribers will be able to download premium content, such as music videos or highlight packages from the previous night`s NBA games, for an extra charge.

Content is being added all the time, said John Johnson, a spokesman for the Verizon unit in Laurel.

Content and traffic

Again using its success with text messaging as a model, the company has seen how the addition of content can help drive traffic through the system. In 2002, as part of its text-messaging program, the Laurel unit developed an accompanying Web site that allowed users to download ready-made content to their messages.

The number of text messages sent grew from 410 million in 2002, when they accounted for about $177 million in revenue, to 10 billion in 2004, worth about $1.1 billion in revenue, according to Verizon.

Small wonder that Verizon bought a Super Bowl ad to announce V Cast, and paid such celebrities as the NBA`s Shaquille O`Neal to appear on it. While bullish about V Cast`s prospects, the company has been circumspect about growth rates and long-term objectives.

But it says that early results are better than expected.

``We`re very pleased with the uptake - things are moving very quickly,``` said Palmieri. ``We have our sights set on this space.``

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