Navigating telco TV
In smallish Keller, Texas, a suburb 30 miles west of Dallas, Verizon FiOS TV recently got off the ground, and in one defining moment, sent a resounding message to the cable and satellite industries that telco TV is now on the air, and in business.
Telco TV. It comes in various forms, sizes and shapes and uses a variety of new technologies, existing network architectures, IP-based transport, coaxial cable, as well as copper and fiber-to-the-prem networks. It also poses a significant threat to the incumbent cable and satellite service providers.
Telcos of all shapes and sizes—including SBC Communications, BellSouth, Surewest Communications and Verizon Communications—are helping to lead the way into the video space. Many are using new IP-based technologies, while others are tapping older, but tried-and-true cable-like RF broadcasting techniques to deliver a full service menu of high-definition fare, video-on-demand, digital video recording, music channels, interactive gaming and more over fully digital networks.
Coupled with data and voice services, telco TV is expected to become serious business. Worldwide, telco TV use will reach 32 million households by 2009, predicts Research and Markets.
And though a track full of hurdles needs to be cleared by telco TV providers (marketing, cultural, speed-to-market and operational issues, among them), a growing number of experts are calling telco TV a telecommunications revolution of sorts.
"It could be a watershed event (FiOS TV in Keller and the growth of the telco TV market at large) in the delivery of telecommunications services in [this] country—video into the telcos' arsenal and voice into cable's. But we have to look at each telco individually, not as a whole industry. Their success will hinge on video, but they're not homogeneous," says Clif Holliday, analyst and writer for Information Gatekeepers, a Boston-based consulting firm.
They're not passive either. Verizon arguably is setting the telco TV pace in terms of large-scale plans with its FiOS TV product, and aggressive strategy of offering video content and more across its 15-state market, where it recently filed for franchises in 21 North Texas communities totaling 400,000 households.
"FiOS is the genesis, and fiber is the future. We are acquiring content and planning to deliver up to 100 Mbps over fiber-to-the-home (FTTH). However, this is not just a video strategy to compete with cable," says Mark Marschand, Verizon's senior director of network technology, media relations.
FiOS TV uses a fiber-to-the-premises (FTTP) broadband network and the company is constructing similar networks in half of the states where it offers landline communications services, he adds.
Verizon's video strategy does not presently include IP-based technologies, but an RF broadcast overlay akin to cable's platform.
"We don't think IPTV is ready yet for a mass scale. But we are using it for VOD," Marschand says. VDSL is not being used at all, he adds. "But we're looking at other access technologies like fixed wireless in about six cities."
With a low-end IPTV strategy and with no VDSL, increased capacity via fiber is the key for Verizon, he says. And with it comes an assertive HD strategy. "Having the capacity to send more HD channels over fiber is a big differentiator for us. Offering more HD is huge from a marketing perspective. It's a catalyst to drive more customers to our service."
Currently, the FiOS TV offering in Keller supports 20 HD channels.
On-demand is also squarely on Verizon's radar screen. Adds Marschand: "We're being very aggressive with VOD. By 2006, we will have 1,800 titles over fiber with all channels digital. We know we have to have a solid VOD package."
Verizon's work with Microsoft to develop an interactive program guide is a work in progress, he notes, while its partnership to develop IPTV "is not yet happening."
Despite the momentum Verizon and others are reporting on the progress of their entry into the video distribution business, one particular challenge must be met—getting a firm grip of the video business.
"The telcos have been trying for years to make the eventual shift to delivering video, but they must be nimble and flexible. Getting their corporate culture to understand that is very difficult. They've failed to do that in past attempts, but have been successful in climbing back out of deep holes," Holliday points out.
Additional pressing issues are top of mind for Verizon and other telco TV entrants as well. Admits Marschand: "We have two super headends in different parts of the country, and they work in tandem. But it's a challenge to maintain the reliability and service quality. In addition, there are OSS and IT challenges. But we knew we had to change the support in the back office, so we developed 40 new support systems for the network transformation. It's been a significant business challenge."
Figure 1: Telcos’ approaches to IPTV differ.
Others take the IP route to video
SBC is dealing with similar challenges, but taking a different route to its video business, using a "split" strategy of FTTP, fiber-to-the-hub (FTTH) and VDSL technologies. It recently completed its trial in San Antonio (Project Lightspeed, part of the company's U-verse portfolio of IP-based services), which provides the company with "the quality and bandwidth and video stream we were looking for. It's real and it works," maintains Michael Grasso, SBC's assistant vice president for consumer marketing.
It's also preparing for the next phase—controlled marketing—scheduled for early 2006, and to follow with a scaled offering later in the year. In the meantime, SBC is building a telco TV infrastructure that will include a switched IP network to power its HD offerings, a component in the company's video model.
"The power of a switched IP network is a very powerful HD proposition for customers, and it gives us an edge with HD content providers. We'll aggressively pursue HD as a lead offer," Grasso says.
SBC will spread its strategy of using a mix of access technologies to 18 million households, or 50 percent of its franchise area, by 2008, he says.
SBC also is focusing on securing the required relationships with content providers for its video service. Adds Grasso: "We're working to close those content relationships for service offerings and have closed deals in all major content areas."
Yet Grasso has no illusions about the challenges that lie ahead for SBC and its entry into the competitive video distribution marketplace, especially in the marketing space. "We're walking into a full market, and not with a new proposition, but we're bringing some new services and a variety of improved experiences over cable, which has a history of sub-par service and not always the best products."
Telco TV must improve its own experiences with deployment of new services, however, says Forrester Research in a study titled, "Telcos' IPTV Reality Check."
"Telcos have jumped on the TV bandwagon," the report explains, "but it won't be an easy ride. Entering the market means spending billions in network upgrades, rolling out services with unproven IPTV platforms, and navigating the difficult content acquisition process. IPTV promises great content selection, more interactivity and enhanced TV features, but given telcos' lame track record with selling new services like DSL, we expect their TV efforts to get off to a slow start."
Nevertheless, IPTV technology looms large in many of the telcos' business plans. In fact, it's a key component of BellSouth's strategy.
BellSouth, Zimler explains, is using existing coaxial cables to pipe Ethernet signals within the home.
"We are using the 'no new wires' [approach] to minimize installation times and looking at different models to bring content into the home via several different technologies, vendors and standards, including wireless 802.11. And, we believe the best form of connectivity is powerline in the home," Zimler says.
But supporting HD is key, and operational issues remain.
"We have to develop content relations and appropriate bandwidth to support HD channels and interactivity with in-home wiring. The compelling device at retailers is HD, which the Consumer Electronics Association says is the roadmap to the future, and IP will drive it. But there are chickens and eggs everywhere, and HD is the critical strategy. Without it, we can't compete," he admits.
Other key issues such as OSS and BSS integration will need attention as well, he maintains. "We have to make sure the set-top manufacturers and other vendors can support the service, and marketing is on all of our minds as well. There is an extensive marketing exercise underway to help achieve our goal of not only providing video, but an all-encompassing service that will make video so compelling that we're able to further our IP strategies," Zimler concludes.
Figure 2: Partnerships and deals that benefit IPTV.
Figure 3: What is different about IPTV?
Furthering those strategies will require some help from the support services sector, however.
"There's trial activity and a reliable, predictable business model being developed for IPTV and telco TV. The advent of IPTV has begun its traction mode. The result is major equipment companies are putting resources into IPTV and opening new divisions to focus on the telcos and their entry into the TV business," says Chris Coles, president and CEO of Home Entertainment at Myrio Corp., a software, content integration services provider that is part of Siemens.
Meanwhile, Scientific-Atlanta, a traditional big cable supplier, has spread its wings to cover telco TV. It is designing, building and will activate SBC's super hub offices, IP video hub offices and IP video operations center.
"The telcos are in transition and the basic building blocks are there for packet networks and transport. They're all in place to move video around. Their mission is to go from circuit-switched to packet, so they're re-inventing their networks. Video is just one of the pieces to that transformation," says Paul Connolly, S-A's vice president and general manager, emerging businesses, transmission network systems.
The transformation, he warns, will take time. "The telcos are in a good position to offer over their networks, but they must have the right software and content streams, and that will take awhile," he says.
What made sense for service providers such as Surewest was to add an IP format for video over its FTTH and copper networks. It receives content via satellite, fiber and off-air reception. Its headend is capable of offering 260 channels.
"We use Cisco [Systems Inc.] for distribution to the home, then to the residential gateway, and can deliver 100 megabits to each house. We have 80,000 homes passed and fiber-to-the-premise to 20,000 homes. We will also do FTTH and roll out MPEG-4 generation set-top boxes to allow HD over DSL-type networks. We already had a traditional copper plant with 25,000 DSL customers, so we wanted to leverage that customer base," says Bill DeMuth, vice president and CTO of Surewest.
And leverage counts in the telco TV world. Adds DeMuth: "We wanted a network solution with an open architecture to allow best of breed technology and flexibility. That required more integration on our part, which was very challenging, especially with QoS and security issues. We've also had to educate our content providers on security matters and how we're dealing with them," he notes.
Securing enough bandwidth for HD services presents yet another obstacle to overcome.
"We're still challenged with the integration of HD and DVRs and behind where we would like to be, but getting close to rolling those out. New compression [technologies] will make a big difference, along with a new generation of set-top boxes. We're trying to set the foundation for future new technologies."
A new generation of telco TV players is also expected to make a big difference.
Optical Entertainment Network recently announced the launch of FTTH and IPTV services, with more than 400 channels of content, to 1.6 million homes in the Houston area. The service delivers all offerings, including voice, data and videoconferencing, over one integrated IP architecture.
Concludes Holliday: "There are lots of small telcos, cities and electric companies setting up fiber delivery systems around the U.S. that will serve smaller communities, so we'll see all shades of color with telco TV and IPTV. Some cable companies will be very successful competing against them; others won't. For many of the telcos, it's a bet-the-farm situation with telco TV and IPTV."
For the major players such as BellSouth, SBC, Surewest and Verizon, betting the farm on telco TV and navigating the technological maze ahead of them is one wager that they're apparently willing to make.