What a difference two years can make. Back in 1994, the buzz around the telecom industry was how every major telephone company was going to aggressively upgrade its network with fiber optics and would be offering a suite of broadband services (e.g., cable TV, interactive entertainment and information, home shopping) to American consumers — all within a tight timespan.

Then reality sunk in and displaced the hyperbolic promises, and suddenly no one was doing anything. Bell Atlantic backed off its plan to deploy hybrid fiber/coax-based networks, opting instead to wait until switched digital video equipment was mature enough and cost-effective enough to deploy. US West and others followed that lead.

Meanwhile, Pacific Telesis, Ameritech and Southern New England Telecommunications forged ahead, convinced that HFC was an architecture that provided them not only broadband capacity, but operational savings over their traditional, copper-based networks as well. But there were sticking points: network powering required some innovation, and integrating multiple services on the platform took a lot more engineering than many would have guessed.

But now, several of the nation's largest telcos are poised and ready to enter the video and high-speed data market. Some are still testing the waters, while others are jumping in with both feet. CED editors recently contacted each of the nine major telcos to uncover their latest video strategies. What we found was a wide range of approaches and, in some cases, strategies that are still emerging.

The collection of articles that follows is the result of our behind-the-scenes look into the telecommunications world.

Firm believers in HFC, with a dash of MMDS added in

Along with Ameritech and US West, this San Francisco-based regional Bell operating company is considered to be a leader in the development of a broadband networking strategy that covers voice, data and video as it attempts to protect its core business by fortifying the state of California.

Through its Pacific Bell Video Services division, the company is taking a two-pronged attack: embracing hybrid fiber/coax design as the platform for all wireline services in San Jose and San Diego; and deploying digital MMDS technology in the Los Angeles/Orange County areas as a means to attack the market quickly and cost-effectively.

Unlike many other telcos, PacBell is convinced that switching to the HFC architecture for all services, including voice, will save the company millions of dollars in operational and maintenance costs over the life of the network. So the company's engineers took the architecture and built it to telephone company specs for reliability and route redundancy.

"I have a Bell-shaped head," admits Keith Cambron, executive director of network systems engineering for the company. "We built it using telephony standards, so this is an extremely high-quality signaling network." As such, it's been designed for voice services, which remains the company's primary priority. But video and Internet access services are close followers, according to Cambron, because they are additional revenue generators.

By virtue of its cable TV franchise in San Jose, PacBell has been busily constructing a network to serve that community and now passes nearly 20,000 homes, according to Cambron, but plans to pass about 35,000 homes by the end of 1996. Crews have passed about that many homes in San Diego as well (the goal is to pass about 160,000 homes in the two areas combined by the end of 1997), but without a franchise to offer cable TV, that network is being built for telephony.

While PacBell has been aggressively pursuing the video business, its strategy could certainly change after the company is merged into SBC Communications, which is likely to happen sometime later in the first quarter of 1997, by all indications. "We definitely will complete the construction in San Jose, but they're (SBC) going to have to make construction decisions for 1998 and beyond," Cambron notes. "Our goal is to continue to build the network, prove that the technology works and that it's a good economic decision, but in the end, the construction program and commitments will be made by SBC. In San Jose, we're absolutely committed to that construction, and it will continue beyond 1997 regardless."

Cambron said he had met with SBC senior management to share his views on HFC and characterized SBC as being in "much more of a study mode than we are." Although SBC owns the former Hauser cable properties and is funding an HFC build in Chile, Cambron said SBC officials also seem to be interested in switched digital video technology as well. "They're familiar with both technologies but really don't have a full service network up and running commercially."


But make no mistake: Cambron is clearly an HFC proponent, whether the company pursues the video business or not. "In places like San Diego, it's more economic to put in (an HFC network) than to put in copper," he notes. "It's a good investment whether you're going to get into video right away or not. People tend to think video is the sole focus for what we're doing, but for telcos, we have to figure out how to replace the copper network."

In his role, Cambron regularly monitors other technological developments, but says HFC continues to be the most economical method to get the bandwidth he needs. "The only alternative (for video) we've embraced is MMDS because it takes so long to replace your copper network, and MMDS gives you tremendous access to the customer in a short period of time," says Cambron. "The other alternatives are SDV and fiber-to-the-home. We have a fundamental belief that analog video will be around for another 10 years-plus, and we need to offer that in addition to digital video. SDV doesn't serve additional outlets well, and we can't get past that. Also, we continue to see a 30 percent differential between HFC and SDV, and every quarter or 50 cents per home, we take a careful look at. So an additional 30 percent is very hard for us to justify."

As of September 1, PacBell has been offering analog video service over its San Jose HFC network commercially. Prior to that, the company had been testing cable service provision to about 1,300 residents for free. Since then, Pacific Bell has been quite successful at converting those residents to paying customers. "The conversion rates of the trial customers wasn't 100 percent, but it was close," he notes.

PacBell has been concentrating its voice service in the Pacific Beach area of San Diego, but service rollout has been hampered by software and hardware issues associated with the Lucent hardware.

"We've been waiting for about 10 months and are working with just about 100 customers." But with gear now ready to go, Cambron says crews in San Diego and San Jose will soon be replacing copper drops and installing side-of-home network interface units on every home.

And finally, interdiction gear from Blonder-Tongue is being tested and should be installed sometime in the first quarter of 1997, Cambron says. The goal is to replace the Scientific-Atlanta 8600x analog set-tops that are currently being used after production quantities of interdiction are received.

Overall, Cambron says he feels comfortable with the engineering and network design decisions he's made. "We feel pretty good that the recommendations the industry is coming around to are things that were incorporated into our architecture early on."

While there are reports that some telcos are having problems with digital MMDS, such is not the case in Los Angeles, where PacBell will debut that service sometime early next year. The company has been deeply involved with MMDS since the middle of 1995, when it purchased Cross Country Wireless for $175 million, which gave PacBell transmitting rights for Los Angeles, Orange County and San Diego. A second acquisition, of V*TV, gave the company transmitting rights in the San Francisco Bay Area as well.

Then, in March 1996, PacBell bid $21 million in the FCC's MMDS auction to acquire more channels in L.A. and San Diego, as well as authorizations in San Francisco; Seattle; Spokane; Tampa, Fla.; and Greenville, S. C.

Since then, PacBell has sunk some $200 million into upgrading the MMDS system in L.A. and Orange County to digital. Transmission towers atop Mt. Wilson and Mt. Modjeska give an unimpeded view into roughly 4 million homes located in the L.A. Basin.

PacBell is now entering a beta test phase where it will deploy 500 Thomson digital set-tops in about 350 homes, notes Jeffrey Carlson, VP and GM of Pacific Bell Video Services in southern California. Today, PacBell is offering 60 channels of video and 38 NVOD channels.

As for the technology, it's working flawlessly, reports Jim Baumann, executive director of engineering. "It's offering everything and more," he notes. "We've been pleasantly surprised at what our coverage area is and the robustness of the (64-QAM) modulation. The transport system is rock-solid — during the power outage we had out here, we only lost one off-air broadcaster who had a generator fail."

Pricing and packaging plans haven't been announced yet, but PacBell expects to launch its service late in the first quarter of 1997 with 136 video channels (including 40 near video-on-demand) and several digital music channels as well. This will occur after a call center is completed and field support has been organized.

Lengthy video history equals lessons learned

To summarize US West 's video strategy, you must first make a distinction between the company's plans in and out of its 14-state telephony region.

Poised to become the country's third-largest cable operator when the company closes on its planned $16 billion acquisition of Continental Cablevision (scheduled for November sometime), the company will be both one of HFC's biggest fans while it simultaneously looks for a way to leverage its existing copper network with technologies such as ADSL.

The RBOC has always been aggressively pursuing video, but to many observers, never seemed to settle on just how it wanted to build its networks. The company jumped into the fray with an expensive network build in Omaha, Neb., then redesigned the network and announced it would deploy to millions of homes in Denver; Portland, Ore.; Minneapolis/St. Paul; Salt Lake City; and Boise, Idaho. But after months of inaction from the FCC on its Section 214 waiver filings, the company last year announced it was suspending construction in those cities while it explored its technology options.

Within its telephony region, the company is interested in wireless (satellite and/or MMDS) technology, but hasn't decided on whether it would invest in or simply resell such services. "But over the long-term, they like switched digital video," notes Joe Wetzel, vice president of technology for US West Multimedia Group. "But I don't think they've committed to build anything." Why not? Because with the Telecom Reform Act and requirements to unbundle the network, there's doubt within US West as to whether it makes economic sense to build such a network.

And why the interest in SDV, when many argue that HFC is less costly? "There are two reasons," notes Wetzel. "One is where you start from (is the incumbent network coax or copper-based?) and the other is that an RBOC will always have a different service set in the range of services as well as penetration rates. Those things make a difference" in the conclusion.

Wetzel argues that SDV may not be much more expensive than HFC for a telco with lots of copper in the ground. "I think it's much closer (than a 30 percent cost premium). HFC has a bit more variable cost than SDV, so for us we opt for higher variable cost, but the RBOC has to serve 100 percent of the homes passed and we (cable service) don't.

Outside of the telephony region, it's much simpler. "First of all, we believe in convergence," says Wetzel. "So we want to offer voice, data and video . . . and the only current broadband network out there is cable, and we believe it's a strong cost competitor. Therefore, investing in cable makes sense, and it makes sense to do HFC." So, after it acquires Continental, the company will upgrade to HFC and add voice and data services, Wetzel says.

But does US West plan to expand its reach and overbuild another cable operator? "Probably not," says Wetzel. "We will go where we currently have franchises." And in cases where they serve only portions of a market — like Boston — they'd work with the other operator. "We would work with Cablevision Systems in Boston, not overbuild them" much like several operators today work together on advertising interconnects.

US West has already learned plenty about building broadband networks in both Omaha, and the Atlanta areas, even though the two systems are radically different. In Omaha, the company built a complex, dual-cable network to separate voice and video traffic that also utilized interdiction for the video so that set-tops weren't needed. Because of technology shortcomings that existed at the time, the company designed a double-star FTTC telephone network and added an HFC network on top of it.

While the architecture may have been necessary at the time, it's safe to say Omaha is truly unique. "The Omaha architecture will never be done again," said A.D. "Doug" Simpson of US West during the recent National Fiber Optics Engineers Conference. Simpson said that because technology has improved and because market demands differ, there is no one architecture the company has embraced. "Perhaps the best architecture is a wide variety of architectures," he notes.

Meanwhile, in Atlanta, the company is spending upwards of $350 million to completely overhaul the old Wometco properties as it continues to serve cable TV customers while readying to compete with BellSouth for voice customers. The company has been rechristened as "MediaOne" — a brand that the old Continental properties will be known as after the deal is completed.

To date, 12 separate headends have been collapsed into two regional "superheadends" that are completely redundant and house video signal origination gear as well as the AT&T Class 5 telephony switches. The system, which had been run as eight separate systems previously, was collapsed into a single network, with just one P&L statement. The 12,000-mile plant was upgraded with 6,000 miles of optical cable; a call center was started; a sophisticated network operations center was constructed; a new billing system and operational support system was implemented; SeaChange digital ad insertion equipment was purchased to serve seven different zones; and a new, 24-hour local news channel was started, mandating the construction of a new studio.

The 750 MHz network uses traditional HFC architecture, with 1550 nm signals transported over fiber emanating from both headends to 42 hubs, where the signals are converted to 1310 nm and sent to 2,175 nodes, each averaging about 500 homes passed. Six fibers serve each node and 90-volt powering was selected. Each of the 110 power nodes has a minimum of 30 minutes battery backup and unlimited backup time from natural gas generators. The system is about 70 miles square, covers portions of nine counties and covers 54 franchise areas.

As a result, the company is offering subscribers 95 (including 13 near-video-on-demand) analog channels and plans to roll out high-speed data modems by the end of the year. Presently, there are no plans to offer a tier of digital channels, although the network will support it, according to Greg Worthman, director of network upgrades at MediaOne.

As for high-speed data modems, MediaOne is primarily following the lead of Time Warner, says Barbara Warren, product manager of high-speed data services. As such, the company will be offering the RoadRunner service over Motorola's modems and Hewlett-Packard servers.

Does US West have any plans for ADSL or LMDS? Wetzel says US West Interprise — the data networking side of the house — has tremendous interest in the emerging technology, but not for video. "They've been real bullish on ADSL," he notes. As for LMDS, "it's one of those things that's being watched," he says. Depending on costs, it could be a complement to an existing cable system as a way to serve new, high-growth areas.

In the meantime, data and telephony are growing in importance as well. Wetzel says US West will continue to support the rollout of data services that is now underway and will also continue to fund the deployment of telephony services, such as what Time Warner is doing in Rochester, N.Y. "I think you'll see more rollout by the end of the year," predicts Wetzel.