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IPTV & Triple Play Big Picture:
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Overview
- In the last few years, IPTV, TelcoTV and the Triple Play
are terms which have become very familiar in the telecommunications
industry. But what exactly are they? In it's most basic form,
IPTV (Internet Protocol TV) is packet-based TV that is transmitted
over an Internet Protocol-based digital network, similar to
the way streaming video goes to a PC. TelcoTV is term loosely
used to describe TV that is delivered to you by the telephone
company over their network, whether it's based on IP or ATM
(Asynchronous Transfer Mode). Triple Play is a bundled offering
which includes voice, video and data. In any event, the emphasis
is on delivering video through a digital broadband network
as part of a bundled offering. And it's TV that is the lure
of telephone companies, utilities, municipalities and other
types of companies interested in building or utilizing their
networks to offer bundled services of voice, video and data.
The business premise here is that subscribers stick with service
providers that give them the products and services they need
at a fair price, meaning bundled service packages at a discounted
packaged rate. For companies who already have or are in the
process of building networks that provide data and voice services,
it makes complete business sense to look at offering a compelling
product like TV entertainment. Moreover, it's not just a matter
of going after more profits, it's self preservation. Offering
bundled services of voice, video and data can keep the customer
from being lured away by another service provider who can
offer such services. By offering greater value and more convenience,
churn, or customer turnover, can be reduced while loyalty
and retention can be increased. In the United States, players
in the broadband video space are many, including telephone
companies (telcos), broadband service providers (BSPs, or
overbuilders), municipalities (Munis, or town/city initiatives),
utilities, greenfields and real estate developers (new communities).
What
is IPTV?
- TV over IP, as opposed to that which is provided by traditional
cable or broadcast and satellite TV, utilizes digital broadband
networks such as ADSL (Asymmetric Digital Subscriber Line),
VDSL (Very High Bit-Rate Digital Subscriber Line), fiber and
wireless LMDS (Local Multipoint Distribution Service) to transmit
programming to consumers' homes. Because the signal is being
delivered over an IP network, it's broken down into packets
which can be managed efficiently. In brief, when implemented
by a telco or operator, a TV over IP solution typically streams
between 50 and 150 TV channels over an IP network. The content
would be streamed from the operator's IP head-end (central
channel processing point) over the fiber backbone to a central/regional
office. From there, the video is then distributed over the
"last mile" (through the neighborhoods) to the subscriber's
home. Complimentary streaming equipment at the central office
allows operators to insert additional channels of local content,
which can be targeted at specific areas or groups of users.
At the subscriber's home, an IP set-top box descrambles the
signal and displays the video stream on a TV set. There are
many profound advantages to IPTV, including the effective
use of bandwidth. To fully understand the benefit, IPTV bandwidth
usage can be compared to that found with Cable TV. In a typical
Cable TV network, a majority of the bandwidth is dedicated
to numerous MPEG streams which give us our TV channels. These
streams are being multicast, essentially meaning they are
sent to all subscribers in a given Cable system at all times.
Though the system is effective and low costing, it wastes
a considerable amount of bandwidth. In effect, you have a
80 channels worth of bandwidth being piped into your home
even though you can only watch one at a time. That means 79
channels worth of bandwidth is being wasted. And therein lies
the rub. In Cable networks, MPEG transmission is an inexpensive,
scalable and time-tested solution, but it wastes a large amount
of precious bandwidth space. On the flipside, an IPTV system
does not have the 80 channels worth of bandwidth being dedicated
to multicast signals. While the IPTV signals can still be
multicast, the amount bandwidth required to get the TV signals
into the home is minimal compared to Cable TV. IPTV can be
deployed by any of the telcos, BSPs, Munis, utilities and/or
greenfields over their digital broadband network.
Twisted
pair & digital networks -
Aside from satellite and wireless TV delivery formats, wireline
networks generally come in three forms, twisted pair, coaxial
and fiber. Twisted pair is what the telephone companies use,
coax is offered by Cable TV operators and fiber is provided
in rare cases by upstarts such as municipalities, new service
providers, special developers and similar kinds of ventures.
Fiber is very expensive to deploy but has extensive bandwidth
capacity. Coax and twisted pair have much less, but depending
on the architecture of the network, technology and form of
compression used, each can be relied upon to deliver bundled
services. In any event, IPTV can be delivered over twisted
pair, coax or fiber, as long is it's coming through a digital
broadband network. In the case of a broadband digital network
over twisted pair, there are a few different technologies
available; ADSL, fast ADSL and VDSL. However, though VDSL
deploys twisted pair for the last mile, it depends on a fiber
backbone, which may preclude it from consideration. To that
end, most of the TV deployments undertaken in the US and Canada
over twisted pair have utilized ADSL broadband digital networks.
There are exceptions, such as the Qwest TV over VDSL deployment
in Phoenix or the integrated communications provider SureWest
Communications, who has the largest fiber-to-the-home (FTTH)
deployment in the United States with approximately 8,000 homes
wired in Sacramento, California area. For more information
on technology and deployments, see below.
Advantages
of IPTV
- As noted above, delivering video over an IP network saves
significant bandwidth space. But the advantages run further
than this. For one, new levels of interactivity between internet,
voice and video can be established, enabling new types of
services previously unavailable over stacked networks. For
instance, in traditional Cable TV networks, video transmission
is delivered over MPEG streams on a specific portion of the
bandwidth. However, high speed data products such as Cable-modem
based internet service are delivered over an IP based network
that is separate from the broadcast TV network that uses MPEG
transmission. If both services were delivered via an IP network,
overlapping products would be possible. A good example is
interactive TV, which often relies on data-centric applications.
Currently, the delivery of such apps is complex because of
the separation of IP packets from MPEG streams. With all video
and data being delivered by packets, such issues would be
nonexistent. Another distinct advantage of delivering video
over IP is that a much higher number of "channels"
can be delivered to the viewer. In traditional networks, the
operator has only so much space to work with, and in turn
must pick and choose the networks to be carried. The one-shoe
fit's all doesn't allow for market segmentation and ultimately
the highest levels of satisfaction. Also, in the case of IPTV,
the "switching" is done in the network which is
a perfect fit for services such as VOD. Lastly, IPTV delivery
has a return path, which ensures advanced products can be
facilitated.
How
the past five years have shaped the market today
- Sending television signals down phone lines created much
excitement in the late 1990s. At the time, US West rushed
to offer the service in Phoenix in 1998, spending $3,000-plus
to hook up each customer. Enamored investors bid up the market
value of Next Level Communications, which makes the gear needed
to insert the fat video signals through copper wires, to $17
billion. But the market never transpired. No other major phone
company followed US West into the market. Complicating matters
was the fact that the capital markets slammed shut, and the
Federal Communications Commission announced it would require
phone companies to share with competitors any TV-capable networks
they built under a government regulation called UNE or "unbundled
network elements." In essence, the regulatory action
served to squash what little remaining desire the Baby Bells
might have had to spend billions into network upgrades. Next
Level went on to lose 99% of its market value and several
of its competitors vanished. But now the pendulum is swinging
back. There are a growing number of telecom industry experts
who believe that the TV-over-phone-lines idea really can work
after all. In a huge turn of events, the FCC changed its rules
in February (2003) to allow phone companies to build new video-friendly
networks without being required to lease them to competitors.
The cost to hook up a subscriber has fallen 75%, to under
$800, says Next Level, who's stock is suddenly popular again.
Small U.S. phone companies around the country have shown the
gear can really work, and in May (2003), the FCC counted 45
of them selling TV service. However, that doesn't mean there
aren't challenges and issues.
Accomplishments
with delivering video over DSL
- First and foremost, the telcos have been able to offer TV
over their networks and establish a business case for doing
so. That is a huge accomplishment. For instance, to offer
video over ADSL, the QoS has to be reliable and consistent,
a major feat considering the obstacles faced over the past
five years. Today, a number of access network suppliers offer
solutions that allow telcos to provision ADSL with at least
8 Mbps bandwidth to at least 10,000 feet in most instances,
or enough for service to two TVs plus overhead bandwidth for
other services, all over a single line. There are also other
viable alternatives, including those for VDSL, ATM optical
networks and IP/Ethernet optical networks. In addition, many
of the telco video service providers have been offering bundled
services, including tiered TV which can be in the form or
“basic cable” and various combinations of premium
services, voice and data services. These bundled services,
often called the 'triple play,' can help provide the customer
with greater value and more convenience, in turning lowering
the churn risk and increasing the chance for longer term retention.
Another accomplishment has been the testing, integrating and
rolling out end-to-end systems that are comprise of a variety
of components from different suppliers. This is no simple
task because often it is taxing on smaller suppliers to provide
the manpower for field integrations and iteration testing
required to solve problems. Newer hardware and software providers
must write implementation processes, testing procedures and
other documentation while learning and adjusting on the fly.
In addition, though many of these suppliers did not have the
luxury of large budgets to trailblaze the future of the telco
video market, they manage to accomplish it anyways.
Strategic
Considerations:
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Issues
surrounding video over IP
- A few years ago, the premiere issues of IPTV were QoS and
the cost of the customer premise equipment (CPE) such as the
set-top box (STB). The lossy nature of IP packet delivery
and the requirement of near perfect picture quality were at
odds. With sufficient and stable bandwidth, the issue is lessened,
but it has been the advances in equipment and processing have
largely overcome this problem. In terms of the STB, the costs
have gone from more than $700 to less than half that in the
past four years. While the price drop has been significant,
that pales in comparison to the $150 volume price found with
large ops in the Cable TV industry. Still, as usual in the
Cable TV and telecom sector, it is expected that the price
will continue to fall steeply as volume rises, and low cost
STBs such as its AmiNet100 is a step in that direction. Aside
from the QoS and STB costs, there are other issues with IPTV.
One is that no analog channels can be provided. For viewers
with regular TVs, they either need the STB to convert the
IP signal or they cannot receive TV. Another is the security
of the IP packets that deliver the TV signal. In comparison
to Cable TV, there is the condition access system (CAS) which
encrypts the TV signal as it is sent from the head end to
the set-top box. The typical CAS providers in the US are Motorola
and Scientific Atlanta. In the case of IPTV, because the signal
is relying on packets, a different encryption scheme is required.
Finding secure answers is the question here, made more complex
by the nature of today's APIs. Another issue is that the cost
for IPTV headend gear is generally higher right now because
volume discounts have not been realized and because some IPTV
hardware solution providers are smaller companies who cannot
incur ongoing expenses the way larger ones can. Also, in some
cases, Cat-5 cable needs to be wired to the TV, requiring
resources and expense. Lastly, if the STB is booting from
the server at the headend or hub, the start up time can be
longer, posing an inconvenience for the viewer. An unknown
risk to IPTV is the unpredictable nature of the plant capacity
utilization. There is also the question of whether today’s
Web sites or ISPs will evolve into full video services outside
of the telco’s walled garden. For instance, Real Networks’
“Real One SuperPass” service counts more than one
million subscribers. This service provides streaming access
to CNN, ABC News, FoxSports and other content feeds for $9.95
per month. Then there's Movielink.com, CinemaNow.com and a
host of other premium content producers are taking root online.
In addition, AOL, Disney, Sony, Universal and all the other
top-name media giants have online ambitions. In effect, all
that consumers need to get this content from their PCs into
the living room is low-cost, wireless Digital Media Adapters
with QoS functionality. Thus, we hear the term dumb pipe.
Apart from their standard monthly DSL charge, the network
operators will not see any additional revenue from their pipes
unless they build-out an optimized network architecture for
such services and form partnerships with key content producers.
How this value chain develops will be key to their success.
Challenges
of rolling out video over IP
- Aside from cost benefits and engineering prowess that comes
with time as a market develops, there are other noteworthy
challenges for the TelcoTV players. First is systems integration.
When there is a new market and a number of smaller suppliers
involved, this is can be a huge issue. As note above, the
expertise simply has not been developed. In many cases, the
supplier does not have the budget or resources to develop
and/or implement processes, systems, procedures and so forth.
In addition, such suppliers often have to take it upon themselves
to proactively work together when it is not always the most
urgent use of resources. In some cases, there is overlap between
technology, products, services and strategies that can be
conflicting. What's more, the carrier may not have the resources
to effectively plan for integration, leaving more of the responsibility
up to the vendors. In essence, as can be found in other segments
of the telecom industry, such as VOIP or OSS, a major reason
for these complications is that there is no single point of
responsibility, other than that of the service provider itself.
In other words, with a compilation of vendors and providers,
there is nobody to shoulder the burden of being the technical
and integration lead. In turn, often it's the unprepared and
under qualified service provider who must coordinate integration
and testing efforts across network platforms, routers, middleware,
set-top boxes, the head-end, video servers and so on. And
it must by done while using three or four separate management
platforms, because no single element management system for
the end-to-end video solution exists today. Not only can this
make fault isolation is difficult. Testing and isolating iterative
problems can be enormously difficult. Lastly, content acquisition
continues to be a significant challenge. Not only is it complex
to manage the content acquisition process, but packaging and
pricing it at a competitive level is also difficult. In some
cases, content contracts obligate service providers to offer
the programming as a package, which precludes them from having
flexibility in their tiering and other offerings. In the end,
there are many considerations for rolling out IPTV.
Critical
success factors
- In order to effectively make broadband TV services attractive
to consumers, service providers have to consider a number
of things. For one, it's imperative to present oneself as
a single provider for all broadband services, including voice,
video and data. Thus, there is no consideration about offering
a triple play because competition will win the battle if not.
And to that end, the broadband network must be capable of
delivering high quality real-time TV services as well as voice
and data reliability and availability. Customers wont stay
if TV channel content is not clear or their telephone has
static. Next, the services must be intuitive, easy to use
and attractive. Offering an IPG that's outdated will not help
your cause. Another must is protecting against piracy by using
digital rights management (DRM) software to control distribution
and use of broadcast TV content. Just as Cable TV operators
have conditional access systems (CAS), service providers need
the same kind of answer. Just the same, it's equally important
to ensure any regulatory conditions, such as licenses to offer
broadcast TV or local franchise agreements, are met. In terms
of competition, reviewing competitive factors is key. This
may lead to commercial bundling of broadcast TV from an existing
supplier with other services that are more economically viable.
On the advanced product side, linking broadcast TV services
with online services, such as online video and online gaming,
to provide a compelling service mix is a great advantage.
Then, the business plan has to be clear, the organization
has to have their marching orders, the roadmaps have to be
laid out and everyone has to execute. Then there are the technical
considerations for success. The service provider has to start
by choosing the right vendors and creating the right technology
platform. Careful planning is required because once the provider
has acquired, custom-integrated, tested and deployed it's
services, it's difficult to make any changes to the infrastructure.
Notwithstanding the fact that everything from the set-top
box to the head-end to the middleware must all play well together,
the level of reliability consumers will expect makes it necessary
to test the end-to-end solution and ensure it's complete operation,
no matter what the conditions. This means iterative testing,
which is difficult when combining different vendors who don't
have integrated products. At the same time, the company must
make the operational efficiencies related to provisioning,
ordering and customer service the best that they can be. Together,
after launching VOD early in the learning curve for a BSP,
I know first hand what a challenge it is...
IPTV
and Triple Play Business case
- With any nascent market in it's early stages, volume is
a key attribute to a business case. In the case of TelcoTV,
it effects the costs of headend gear, access equipment and
set-top boxes to name a few. As costs have decreased and competition
increased, service providers have improved their business
case for offering video over digital networks. The development
of ADSL-based video systems has helped this cause. Carriers
outside the U.S., particularly in Asia, have driven the costs
of such systems down to a point where video deployment is
now economical. "The cost of the technology is in line
with regular ADSL now," said John Kasha, vice president
of business development for Xavi, which has done most of its
business in China. In terms set-top boxes, a huge upfront
investment, the cost has dropped dramatically. A few years
ago they were above the $600 range. At the start of this year
(2003), they were $350. They were expected to fall below $150
by year end. In addition, other equipment costs have fallen.
"The commercial availability of headend and access technology
that delivers high-quality IP TV video has dramatically reduced
the barriers to entry for telcos that are looking to compete
with cable companies with triple play service offerings,"
says Steve Klein, vice president and general manager at Corecess
Global, which sells an IP-based DSLAM. Because these DSLAMs
rely on IP rather than ATM transport they also offer service
providers significant savings in upfront. For instance, DSLAM
access nodes from Allied Telesyn, which can support up to
512 video channels, are selling for less than $100 a port
in volume. To that end, while costs have generally come down
across the board, as volume increases, they will only continue
to fall. As for VDSL, although the economics have generally
repressed rollouts, the costs there have also fallen. For
instance, when the technology first hit the market, Qwest,
the telco who has built the largest VDSL deployment in the
U.S., was spending about $3,000 to $5,000 per customer to
install and set up the equipment. Even if Qwest could expect
to match the cable industry's average customer lifespan of
seven years, the resultant revenues of about $7,500 per customer
represented a dubious investment. However, today, the investment
cost is said to be in the $1,000 to $1,700 per household.
Hence, it is much more affordable, and with that price range,
is more aligned to the competition. In general, service providers
are planning for a 2-5 year payback period. For instance,
Champaign Telephone Company, an ILEC that provides local telecommunications
services and IPTV for the residents of central Champaign County
and Urbana, Ohio, has planned for a five-year return on investment
(ROI) for its ILEC business in Champaign, and a similar return
on its CLEC business in West Liberty, Ohio. This planning
horizon gives them the flexibility to test their and fine-tune
their service packages in the market, to arrive at the best
mixes for their customers. Some equipment vendors have noted
that because the deployment cost per subscriber has dropped
50% over the last year or so, the ROI yields a two-year break
even. Lastly, there are many network architectures currently
proposed for the Telco Triple Play. For each of these network
architectures, multiple variables will determine the success
or failure of the resulting business model. What does it take
to attract the consumer to a premium video service? How much
bandwidth is needed? How much CAPEX is required to reach the
critical number of viewers for a sustainable business? How
is the service defined in the network? How is it managed and
billed for? What standards should the network be built for
today? Who owns or supports the digital home media network?
Many questions. Still, there's no doubt competition is increasing
and TelcoTV is becoming much more cost effective:
COST
TO INSTALL TV SERVICE OVER A PHONE LINE
1998 - $3,000+ per home
2003 - $800+ per home
U.S.
TELCOS OFFERING TV OVER PHONE LINES
1998 - 1
2002 - 45
AMERICANS
GETTING PHONE SERVICE OVER CABLE LINES
1999 - Under 200,000
2002 - 2.5 million
Source: Telco TV (Take 2) Scott Woolley, 05.12.03
Additional
considerations to the business case
- There area a few other considerations that can effect the
overall business case of services providers interested in
adding TV service. One is the addition of standards. In the
Cable TV market, the industry research and development arm,
called CableLabs, created a standard called DOCSIS (Data Over
Cable Service Interface Specification) which defines the interface
requirements for cable modems involved in high-speed data
distribution over cable television system networks. With a
standard in place, vendors of CMTS (Cable Modem Termination
system) equipment and DOCSIS enabled modems could design to
spec. The benefit was that numerous manufacturers could enter
the market and costs could rapidly decrease. Aside from FS-VDSL,
such a standard as DOCSIS is not in place for TelcoTV service
providers, though efforts are being made. Another consideration
that can effect the business case is joint ventures. Rural
telcos increasingly are pulling together in an effort to launch
video services more quickly and cost effectively. One key
development on this front is the growth in shared video headends.
"For us that's happening all over the place -- the Dakotas,
Wisconsin, Minnesota, Kentucky, Tennessee," says Next
Level's Geoff Burke, director of marketing services. Sean
Blakley, senior product line manager at Advanced Fibre Communications
(AFC), notes many independent operating companies are "very,
very small," as in 5,000 lines or less. "So it's
just not cost-effective for them to build their own headends,"
he says, suggesting the sense it makes to share costs and
resources. However, sharing a headend among different operators
creates headaches of it's own. The reason is all the telcos
that share it have to agree on the same general programming
lineup as well as on some equipment, says Blakley. "Middleware
sits in the headend and at the set-top box," Blakley
adds. "If the headend has a certain encoder, all companies
have to agree on one middleware company, or choose all different
ones [and do integration]." The consortium also has to
create a legal entity to handle all these decisions, he adds.
Lastly, another consideration is differentiation. Once telcos
decide to take the video plunge, they need a plan to differentiate
their services from those cable companies serving their regions.
Such services as caller ID; interactive TV and DVR services;
digital music on-screen title, track and artist information;
and the ability for operators to add locally created content
and e-commerce can go a long ways towards differentiating
TV services from that of competitors. Without it, the long
term payback can be effected. Lastly, as the telcos enter
the battlefield for broadband video, the winning strategy
is not yet clear. Key issues include where and when it makes
sense to upgrade a DSL network for higher bandwidth access
versus incurring the expense of deploying FTTP. The telcos
will also have to choose whether to match the MSO service
bundles with a traditional broadcast overlay network of their
own, a satellite TV service resold from EchoStar or DIRECTV,
or a cutting-edge IPTV implementation. This is a huge consideration
in of itself. While IPTV is perhaps the telcos’ best
chance to leapfrog the competition by delivering a truly converged
voice-data-video experience, the implementation has key issues.
Importance
of VOD
- Although some technology suppliers have facilitated this
content acquisition process for some time, the reality is
that until recently only a small number of movies have been
available for VOD at any given time. Now that an increasing
variety of movies and programming are becoming available for
VOD, and the number of VOD suppliers is growing, the initial
vision can finally be realized. A number of service providers
have built their business cases upon the easy availability
of movies for video-on-demand. And such IPTV services that
offer VOD will be of particular interest to consumers who
do not or cannot subscribe to existing services such as satellite
or cable TV. That said, knowing first hand the importance
of content having rolled out VOD for an overbuilder, without
it, you will have a hard time making sales. If anything, you
can turn off your customers to the category altogether. In
terms of VOD developments, Next Level Communications Inc.
has added video on demand support to its full service access
platform, which the company says is the most widely deployed
telco TV equipment in the world. The Next Level solution,
now commercially available, is currently providing VOD services
to subscribers at All West Communications in Kamas, Utah.
Next Level and its partners Kasenna Inc., a broadband infrastructure
software provider, and Myrio, a software middleware and integration
service company, has demonstrated the VOD solution to potential
telco customers. "VOD is a tremendous revenue opportunity
and a 'must have' addition to our broadcast TV services to
beat our cable competition," says Tony DiStefano, general
manager of All West and a longtime Next Level customer. "There
has been a lot of confusion in the market about VOD, but make
no mistake, customers want it very badly. With this VOD solution,
Next Level and its partners are again raising the bar and
keeping us ahead of the cable and satellite guys -- the same
people our customers had formerly thought of as premier entertainment
providers." In addition, Michelle Abraham, senior analyst,
converging markets and technologies for In-Stat/MDR, says
"Video on demand will be a significant revenue opportunity
for all service providers' She adds "This combined solution
from Next Level, Myrio and Kasenna brings together the capabilities
of two-way bandwidth and proven ability to combine video,
voice and data services in a package that telco subscribers
will find extremely appealing." J. Michael Norris, CEO
of Next Level Communications, says VOD is a critical piece
of the service bundle from any telephone company that wishes
to compete head-to-head with cable. "The consumer demand
for the service is strong, and cable companies are only now
beginning to commercially deploy it," he says. "Myrio,
Kasenna and Next Level have made it possible for telcos to
deliver VOD today over their existing networks, complementing
a service bundle that includes 100 percent digital TV, high-speed
Internet, phone services, and unique features like onscreen
caller-ID and message waiting. Telcos are engaged in a battle
for broadband supremacy, and we've enabled them to deliver
a package of services that no cable company can touch."
In essence, VOD gives the service provider not only a convenient
and desired product offering, but a compelling point of differentiation.
Bundling voice, video and data services offers value and convenience,
but the real draw of the package is the TV service. With VOD,
operators can ensure they have another powerful tool to acquire
and retain customers.
Regulatory
impacts
- There are a few regulatory impacts of note worth mentioning.
One is UNE or "unbundled network elements." This
is part of the 1996 Telecommunications Act that requires telephone
companies to offer various parts of their network system to
potential competitors at wholesale prices. In short, telephone
companies, particularly the RBOCs, have been reluctant to
invest huge amounts of money into an infrastructure that will
become immediately available to competitors. Thus, UNE has
served as another impediment to the rollouts of VDSL. However,
in February 2003, the FCC completed Triennial Review of the
unbundling obligations of Incumbent Local Exchange Carriers
under the implementation of the Local Competition Provisions
of the Telecommunications Act of 1996. In effect, the FCC
granted the regional Bell companies relief from having to
lease their fiber networks to competitors at regulated rates.
But even while the local telecom giants have long said they
have no incentive to invest in new technology if they were
required to lease their voice and data networks to competitors
at a loss or at a rate that restricts them from generating
a reasonable profit, as of early September (2003), none of
the RBOCs had laid out any specific plans as a result of the
good news. On another important regulatory front, Bell Canada,
a sister RBOC to our friends in the North, is urging Canadian
regulators to Review ‘Triple Play’ Market for competitive
parity. Essentially, Bell Canada is pressing the Canadian
Radio-television and Telecommunications Commission (CRTC)
to initiate a proceeding that would establish the basis for
an even playing field in the so-called “triple play”
market. The company, which is owned by BCE Inc., has condemned
the purported absence of parity between the way cable TV companies
and telcos are regulated. The significance is that carrier’s
complaints echo many of those voiced by telecom executives
in the United States. The telco has said that despite the
lack of regulatory parity between cablecos and telcos, competition
between the two industries continues to intensify. With undue
restrictions placed upon, it says it is at a competitive disadvantage.
Telcos
will power the IPTV market
- Telcos and carriers have had no choice but to start looking
at providing video services to their customers. Deregulation
has increased competition in their traditional telephony markets.
The threat is not only coming from the cable companies, but
also from mobile services, which have reduced the number of
land-based phone lines that many households need. Likewise,
the growing prevalence of broadband Internet access is making
a second dial-up line unnecessary in many homes. Telcos are
adopting TV over IP strategies as a pro-active stance, before
cable companies start infringing on their traditional revenue
channels, and also as a way of justifying DSL offerings. Based
on this approach, for some telcos it is not financially viable
to offer plain broadband intended for Internet use, without
the additional TV over IP service. By streaming TV over their
native infrastructures, telcos have a chance to recoup or
gain market share and increase revenues by offering a wider
range of services. With TV over IP, operators can offer a
greater level of service to their customers. The fact that
customers receive converged services on a single pipe and
interface with a single provider for all communication needs
results in easier technical maintenance, streamlined billing
and improved customer service. In this regard, many telcos
are in a good position to capitalize on the high level of
existing service that they offer their customers. What's more,
by utilizing digital networks, telcos and operators can offer
far more sophisticated programming packages. It is possible
to target specific channels at small groups of viewers, based
on pre-defined viewing profiles. Rural telcos have been identified
by video vendors as the one group of domestic telcos that
are moving aggressively to deploy video services. That's in
large part attributed to the fact that in this conservative
investment market, rural carriers still have access to funding
through low-interest loans and grants provided by the U.S.
Department of Agriculture's Rural Utilities Service (RUS).
In light of that, vendors are increasingly designing equipment
and marketing campaigns to appeal to these carriers.
(sources: Video: The Next Front in the Broadband War, by
James E. Carroll, Converge! Network Digest, 9/9/2003; IP television
preparing for take-off, by Elspeth Wales, australianit.com,
8/19/03; IOCs Join Forces for Telco TV Entry, XChange.com,
2/01/03; Next Level Brings VOD into Telco TV Mix, XChange.com,
3/01/03; ABI: Get Ready for Telco Video, telecomagentsgroup.com
10/06/03; Telco Rivals Patient With Their Broadband Assault,
by Gary Arlen, Contributing Curmudgeon, Multichannel News,
7/21/03; Selling Yugos, by Kevin Fitchard, TelephonyOnline,
5/12/03; Waiting on the RBOCs; Vendors await telco fiber contracts,
TelephonyOnline, 8/8/03; Allied Telesyn Unveils "Video-Optimized"
DSLAMs, by Paula Bernier, XChange.com, 8/01/03; Occam scores
video deal with SureWest, by Vince Vittore, TelephonyOnline.com,
6/30/03; Allied Telesyn pitches triple play, by Vince Vittore,
TelephonyOnline.com, 6/23/03; Telco Video Dreams - FTTH? VDSL?
A little bit of everything...by Karl Bode, Broadbandreports.com
5/29/03; Alcatel Bulks up DSLAM with Eye on Video Service,
by Vince Vittore, TelephonyOnline, 5/19/03; SBC may add video
service, by Vikas Bajaj, The Dallas Morning News, 4/26/03;
CenturyTel to test video in Wisconsin, by Vince Vittore, TelephonyOnline,
9/26/03; CenturyTel Rethinks Video Options, by Vince Vittore,
TelephonyOnline, 8/18/03, ITV Newsletter, Tracy Swedlow, 9/24/03;
Video Positioning at Stake in Motorola Takeover Bid, by Vince
Vittore, TelephonyOnline, 2/10/03; VDSL rollouts slowing to
halt, by Steve Caulk, Rocky Mountain News, 3/24/03; Bell Canada
to expand VDSL trial, by Vince Vittore, TelephonyOnline, 6/4/03;
Video ready for DSL primetime, by Vince Vittore, TelephonyOnline,
4/2/03; Multichannel News; CableWorld; TelephonyOnline)
Market
Players:
Overview
- In the United States, players in the broadband video space
who are offering or looking to offer a Triple Play are many.
They include the Cable operators, telephone carriers, broadband
service providers (BSPs, or overbuilders), municipalities
(town/city initiatives), utilities, greenfields and real estate
developers (new communities). This section covers all of the
players, except the Cable operators which are covered extensively
in State of Industry, VOIP
and other sections.
Who
are the Telephone Carriers
- The telephone companies, often called Telcos, come in several
denominations. First, there's the regional bell operating
companies (RBOCs), such as Verizon, SBC, BellSouth and Qwest.
They have deep pockets and are formidable competitors. Then
there's incumbent local exchange carriers (ILECs) and independent
operating companies (IOCs), who are the smaller regional telcos.
To make things complicating, because the RBOCs are an incumbent
carrier, they can also be categorized as an ILEC. The RBOCs,
ILECs and IOCs are all subject to the federal carrier service
regulations. Next there are the IXCs (InterExchange Carriers),
who are comprised of the traditional long distance providers
such as AT&T, Sprint and MCI. Though their market invincibility
has declined, they too are still a force. AT&T has entered
the local dial business in several markets and has look at
merger growth strategies. Lastly, there is the CLECs (competitive
local exchange carriers), which include new companies such
as New Edge Networks, Conversent Communications, Integra Telecom
and iDial. For a complete list, see RBOCs,
ILECs and CLECs. In terms of video over broadband networks,
for now it's the ILECs/IOCs and maybe a few CLECs who are
the dominant players. Below is a brief rundown on each. The
RBOCs are included because they are a significant competitor
in the voice and data space:
Regional
Bell Operating Companies (RBOCs):
Overview - The RBOCs are
desperate to offer a bundled voice, video and data product
to blunt the growth of Cable TV operators and to protect their
voice and data turf. Currently, the RBOCs have been selling
packages of services, or "bundles," that include
local, long-distance, wireless and Internet services at discount
prices. The carriers, however, face the threat of increasing
competition from cable television companies, some of which
offer broader packages of services that include video, Internet
and telephone services. Competition in the telecommunications
industry has heated up as local and long-distance companies
enter each other's markets. The Baby Bells also face a decline
in the number of telephone access lines as customers shift
to wireless telephones and electronic mail. By expanding its
product mix, the RBOCs hope to offset shrinking revenues in
its core local operations. But while the RBOCs have weighed
other options to transmit video services such as high-speed,
high-capacity optical networks, or through a joint venture,
none have been overly attractive. Indeed, there has been pressure
from all sides. For instance, the search for new revenue sources
comes as a weak economy and increased competition for communications
services has put great pressure on phone companies. In SBC's
case, it lost 2.4 million phone lines in the year that ended
March 31, 2003, leaving it with 56.7 million. Some industry
officials say phone companies need to broaden the services
they sell consumers to include video to stem that drain and
grow again. But while video service would also put SBC on
more even footing with cable companies, there is no simple
answer. "I don't doubt for a minute that SBC is looking
for an answer," said Phil Jacobson, managing partner
of Network Conceptions LLC, a consulting and research firm.
"They are all looking for an answer. 'What do we to get
out of this commodity business that telecom has become?' I
don't think the answer is going to be simple. They are looking
for a simple answer." Jacobson said phone companies that
have entered the video services in the past – including
AT&T Corp. and Ameritech, which SBC acquired in 1999 –
have regretted the move. "Just because they have cash
on the balance sheet doesn't mean they should spend it,"
he said. "That's been the folly of – how many companies
now?" SBC should instead focus on its DSL and corporate
data business, where it has only begun to make significant
headway, he said. Moreover, Edward E. Whitacre Jr., chairman
and chief executive of SBC, said he doesn't plan to offer
television programming over SBC's high-speed digital subscriber
lines because it would take too long. "That's one way,
but it's not ready now," he said in an interview after
the company's annual meeting here. "It'll take years.
I'd like to do something quicker." what complicates the
case for RBOCs to add video is that most have networks based
on ATM (Asynchronous Transfer Mode), a technology that will
be limited and eventually outdated compared to IP (see more
below in Technology).
RBOCs
alternative to video is satellite bundling
- As such, the carriers have focused their efforts on partnerships
with DBS satellite providers DirecTV and Echostar (each partnership
is outlined below). So while IOCs are busy offering video
services to compete with cable's `triple play,' leading RBOCs
have implemented a strategy aimed to reduce their churn and
compete with the leading cable operators by reducing expenditures
on upgrades to their old DSL infrastructure and quickly adding
a video service through their satellite partnerships (see
more in Satellites). In turn,
the DBS operators will benefit by increasing their total video
subscribers through partnerships with telcos. While it's the
RBOCs who will "own the customer," this is expected
to be only a short term or mid term strategy. Either way,
the RBOCs have to act. Leading cabler Comcast has already
lured more than 1.8 million subscribers away from the established
carriers to its cable-telephony product, while the RBOCs have
seen more than 8 million subscribers shift their accounts
to alternative long-distance carriers. But even though deploying
video-over-DSL is one way for telcos to fend off the triple-play
challenge from cable ops while compensating for lost revenues
from their long-distance activities, they aren't moving on
it. "Some of the RBOCs would love to compete on video,"
reckons Majors. "But they are being held back by debt,
management problems, the falling stock market and fear issues."
Another problem is their large ATM infrastructures, which
are not as suitable for large scale video over DSL services.
No matter what, the RBOC's traditional telephone service is
being threatened by internet telephony, mobile phones and
cable phones. Though they have lowered the price for their
high speed DSL internet access services to help lure new customers
and retain their current subscriber base, in the long term,
they will need a fully viable bundled service through one
line. Below is a recap of each of the RBOCs video plans:
BellSouth
- signed a resale agreement with DIRECTV. Bill Smith, BellSouth's
chief product and technology officer, described the partnership
as "a long-term solution" for expanding its service
bundle and a “roadmap” for the evolution of its
network. Specifically, BellSouth is working to expand the
partnership to include a distribution of DIRECTV programming
over broadband network facilities. This could include fiber
to the home (FTTH) deployments in the future. BellSouth also
unveiled a customized version of Movielink's online movie
rental service to its DSL customers.
SBC
Communications
- entered into a partnership agreement with EchoStar Communications
to offer a co-Branded satellite TV service as part of its
integrated local, long distance, wireless and DSL bundle.
SBC is investing $500 million in Echostar and said it was
committed to developing an integrated customer experience
with the satellite service.
Qwest
Communications
- signed strategic marketing agreements with both DIRECTV
and EchoStar Communications for specific markets in its territory.
Richard C. Notebaert, Qwest’s CEO, described the dual
partner approach as a means of “testing the market”
prior to widescale video service deployment. For several years,
Qwest has been offering multi-channel video entertainment
services over VDSL in market trials. High initial costs for
VDSL kept these rollouts to a minimum. Also in August, 2003,
Qwest signed an agreement with Sony Pictures Digital Networks
to provide gaming and entertainment packages over DSL. Under
this model, Qwest DSL users gain access to Movielink downloads;
music downloads from Sony Music; and downloadable episodes
of daily soap operas. The content is delivered over DSL to
the customer's PC and not the living room TV set, but the
model could be extended via digital media adapters and PVRs.
Verizon
Communications
- did not sign a deal with a DBS provider but said it might
consider a video partner over the next 6 to 9 months. In an
investor call this summer, Ivan Seidenberg, Verizon’s
CEO, said he will look to a video solution that leverages
its network, possibly an FTTP solution. If there were any
doubt as to Seidenberg’s long-term vision, these were
laid aside in a high profile, cover story published by BusinessWeek
magazine on August 4th. Seidenberg put it this way: “When
you’re the market leader, part of your responsibility
is to reinvent the market.” His ambition, as recounted
in the interview, calls for rolling out fiber to every home
and business in Verizon’s 29-state territory over the
next 10 to 15 years. BusinessWeek, which estimated such a
commitment would cost $20 to $40 billion, described the proposed
undertaking as akin to “building the Roman aqueducts.”
In the short term, Verizon has moved to spur DSL take-up rates
by cutting prices, partnering with MSN and offering Wi-Fi
access for DSL access.
The
RBOC FTTP RFP
- This past summer (2003), the three largest ILECs issued
a brief announcement that could possibly redefine local loop
architectures in the U.S. for years to come. BellSouth, SBC
Communications and Verizon agreed on a common set of specifications
for Fiber to the Premises (FTTP) local access networks. In
public comments, the three carriers said that their common
technical requirements will be based on existing technical
standards. A vendor selection process was put underway as
the FTTP request for proposal (RFP) was initiated. Equipment
companies say they are pleased the Bell companies are seeking
bids from vendors for FTTP equipment. They expect the first
contracts to be announced within months. Danny Briere of consulting
firm TeleChoice Inc. says the total RBOC order for the fiber-to-the
premises (FTTP) equipment should be at least an $800 million
to $1 billion order per year. Bringing fiber closer to the
customer would enable telcos to lower their operating costs,
since fiber is cheaper to maintain, and would give telcos
more bandwidth to offer a variety of services, possibly pushing
the Bells to finally add facilities-based video services to
their product bundles in a significant way. How widely the
Bells deploy FTTP technology likely will depend upon the outcome
of the FCC’s long-awaited Triennial Review. The Bells
say they hope the review will give them regulatory relief
related to new local fiber builds. In fact, the Bells have
made clear they must have regulatory relief before they proceed
with FTTP technology. Even if the Bells do receive that relief,
however, there is no guarantee they will pursue the fiber
builds. In the past, the Bells have promised new technology
and services (in the form of ISDN, DSL and fiber) in return
for regulatory relief, but so far have failed to deliver.
In essence, whether there is any real movement on the FTTP
front remains to be seen, but if so, the RBOCs could leapfrog
any technology advances of the competition.
RBOCs
& DVRs
- BellSouth CTO Bill Smith, who was the keynote speaker for
the Alliance for Telecommunications Industry Solutions (ATIS)
portion of the U.S. Telecom Association show in October (2003),
said the RBOC wants to do more than just match cable's channel
line-up. Among the potential options is a subscription pay-per-view
service that takes advantage of its recent deal with MovieLink
or its resale agreement with DirecTV. At the same time, the
carrier is studying ways to take advantage of the personal/digital
video recorder (PVR/DVR) phenomena created by TiVo and ReplayTV.
"I can get everything I'm interested in with a time-shifted
environment, but that's probably not the best solution for
someone else,” Smith said. Cable operators have already
started testing subscription PVR services, but providing the
same services over copper raises the issue of network capacity
and where content is stored. In the network-based model, or
NPVR, content is located on servers in a central location
and is called up on demand by users. In the model being followed
by cable, a digital recorder is integrated with the set-top
box, something BellSouth, SBC Communication and Qwest Communications
could do given their relationships with satellite providers.
“When you have people with 200 to 300 megabytes of storage,
there are a lot of things you can do with that,” Smith
said. “I think there's a place for something that goes
into the home and something that goes in the network. It's
not going to be a simple solution.” Some vendors also
are not encouraged by the thought of network-based PVR, noting
that for every stream there must be a virtual private channel,
and capacity will run out quickly on legacy equipment designed
for voice and data. “Even taking 100 channels to a remote
[location] is tough for legacy DLCs,” said Kevin Walsh,
vice president of marketing for Calix, which teamed up with
Myrio, Tandberg Television and Westell to demonstrate end-to-end
video at the show. Beyond technical issues, NPVR, as with
Mystro and similar type offerings from Cable operators, is
raising some sticky legal issues with content providers. "The
studios like NPVR because they can license more content,"
said Derek Kuhn, chairman of the Broadband Content Delivery
Forum and a director of marketing with Alcatel's Fixed Solutions
Division. "The whole idea of PVR/DVR changes the way
you watch TV, and the content providers don't like the idea
of indefinite rights." Until those issues are worked
out, telco-provided PVR could be stuck in neutral.
ILECs,
IOCs, CLECs and
Additional Market Players:
ILECs & IOCs - In
short, the cable industry is on a collision course with the
incumbent and independent phone operators. These carriers
can either wait for the competition to come to their doorstep
or they can be proactive and blunt the threat, if not leapfrog
their technology. The end result is they need to be offering
a bundled package of voice, video and data products to compete
with that from the major MSOs including Comcast, Cox, Charter
and Cablevision. To that end, in the second half of 2003,
there have been several announcements of the Telco Triple
Play deployments planned by America’s many independent
operating companies (IOCs). Most of the rollouts are over
upgraded copper loops, but a few were launching FTTH deployments.
The carriers included Citizen’s Telephone (Virginia),
CSS Communications (Washington), Dalton Utilities (Georgia),
Fairpoint (North Carolina) and Matanuska Telephone (Alaska).
The independent phone companies have been early movers into
triple play services for a number of reasons. One significant
one is that their networks are smaller, allowing them to be
far more nimble in adopting new technology. Second, the up
front costs are less. Third, in some cases, resources can
be shared with other providers. Yet in other example, the
IOC may be expanding into a new service region, such as a
neighboring town. Most importantly, bundling is a hit with
consumers and the ILECs have taken notice. For instance, to
date in 2003, the telcos have witnessed tremendous uptake
on service packages combining local and long distance. Similarly,
the mobile networks have proven that a reduction in customer
churn depends on the number of features and number of minutes
they provide. Just the same, the cable operators have discovered
high-speed Internet service to be an effective tool to stop
the subscriber loss to DBS (satellite). The network with the
best service bundle wins the customer’s wallet. So ILECs/IOCs
are looking to cash in. And for the first time since 1996,
the regulatory picture in the U.S. appears to favor the build-out
of new broadband networks. The incumbent local exchange carriers
lobbied ferociously for regulatory provisions that keep competitors
out of newly built facilities, and with the FCC’s recent
Triennial Review, they have gotten their wish. To date, most
of the activity in the U.S. with video over DSL and IPTV has
been with these carriers. However, many of the ILECs who have
ATM-based networks, particularly the RBOCs, are immersed in
the idiosyncrasies and investment of ATM. They may be reluctant
or unwilling to strand this technology.
CLECs
- The CLEC industry grew revenue to $51.86 billion in 2002,
up from $48.01 billion the previous year, and controlled a
13.2 percent stake in the local switched telephone market
as of the end of last year, according to NPRG and Federal
Communications Commission data. Although the flood of bankruptcy
filings by telephone companies over a three-year period has
subsided, financial woes continue to mark the sector. The
competitive telephone industry has stabilized but is still
bleeding losses and remains in a “tenuous” position,
says an association representing the sector. Of 21 public
companies surveyed by the Association of Local Telecommunications
Services, 18 improved their earnings before interest, taxes,
depreciation and amortization (EBITDA) in 2002. “In summary,
the financial condition of the CLECs as a whole has stabilized
although it is still quite tenuous,” states the annual
ALTS report. The companies “remain extremely vulnerable
to fluctuations in the market, to regulatory decisions and
to the overall economic health of the nation.” In addition,
CLECs must demonstrate to investors they are moving closer
to free cash flow, or the ability to fund operations on their
own, if they expect to access the capital markets and repay
their debt obligations, says Mike Weaver, an analyst with
Fitch Ratings. “It would increase investor confidence
in their business plan,” he says. However, cautions the
analyst, there is a wildcard: the economy. Todd Rosenbluth,
telecom services equity analyst with Standard & Poor’s,
says an improvement in the wireline sector will lag a recovery
in the general economy. S&P, he adds, sees the unemployment
rate peaking at 6.2 percent in the fourth quarter of 2003.
“We think the recovery in telecom will be at least six
months out after that,” says Rosenbluth. Some investment
firms say consolidation is in the cards for CLECs. Peter Claudy,
a general partner with M/C Venture Partners, says consolidation
has to occur among companies competing in the same territories.
“You basically speed up the time it takes to get to free
cash flow positive,” says Claudy, whose firm has been
investing in the emerging wireline business for 10 years.
“It’s a more valuable business in terms of the market
position and some day would be of interest to a buyer if you
have a greater share of the market.” The biggest inhibitor
to mergers and acquisitions, he says, is the balance sheet,
specifically the debt level of companies. “If a company
is leveraged it makes it that much more difficult to put the
companies together,” he says. “There are a lot of
stakeholders that don’t agree.” Kevin Fechtmeyer,
managing director of Shattan Group LLC, a private equity firm,
says any CLEC with less than $100 million in annual revenue
is bound to merge with another or be acquired. “I think
dialogue has escalated. Closings have not though,” he
says. Clausen says the key driver behind consolidation will
be a complementary footprint. “Everyone knows this [consolidation]
is the course of action the industry has to take” but
it is “so difficult to find the right match of facilities,”
he says. XO Communications Inca attempt to acquire Global
Crossing is a good example. Analysts for New Paradigm Resources
Group Inc., a research firm that contributed to the ALTS report,
say the phone companies are poised for a comeback in the latter
half of the year and in 2004. Craig Clausen, COO and senior
vice president of NPRG, says the CLECs have abolished much
of their debt through restructurings and improved their operations
by contracting and focusing on sales and marketing. “They
are much more familiar with the markets in which they operate,”
Clausen says. “They are all operating as if they are
sober now. Before it was all a drunken stupor.”
CLEC
video market
- SureWest, California's fourth-largest competitive local-exchange
carrier, is providing broadband services in Sacramento through
companies such as Roseville Telephone and SureWest Internet.
It made a big splash in the video market with it's purchased
of the storied Western Integrated Networks (WIN) "WINfirst"
franchise in the Sacramento, CA, area at the fire-sale price
of $12 million. WIN listed about 3,000 subscribers by name
as "accounts receivables" in bankruptcy papers,
but SureWest officials told regulators that the sub count
was "almost 5,000." WINfirst made headlines for
it's attempt to build a next-generation, fiber-to-the-home
(FTTH) service whereby it would be offering a compelling bundle
of voice, video and data products. The financial risks were
high, and after the market turned, it eventually sunk the
venture. Aside from SureWest, many of the rest of the CLECs
in the U.S. participating in video services are rural cooperatives
or subsidiaries of small, local ILECs. For instance, late
in the summer of 2003, MH Telecom, a CLEC subsidiary of local
ILEC Mount Horeb Telecom of Mount Horeb, Wi., and the Horry
Telephone Cooperative (HTC) of Conway, S.C. For these rural
companies, the selling premise is simple, video drives the
uptake of services, not data. While customers may not intuitively
understand the benefits of 1.5 Mbps service, they are enthused
about receiving 150 cable channels in an area that may have
poor cable service or even none at all. The addition of voice
and data services further differentiates these rural providers.
Geoff Burke, Next Level director of marketing services, says
bundled services are great for CLECs. "Not only is video
a great driver for high speed Internet uptake—it's also
great for very high margin services like long distance and
caller ID. Some customers can get caller ID displayed on their
TV screen. It's not the most technologically glamorous of
the services we enable, but customers love it." But to
deliver cable services, carriers have to have a cable head-end,
which they can build themselves for about $1 million, or they
can band together to build a cable head-end. "In most
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