Technological advances emerging in stride with rising concern over an aggressively expanding cable industry are leading the telcos back to their future.

Like it or not, local exchange carriers are once again confronting the fact that the ability to offer video entertainment services is vital to holding onto their core residential voice and dial-up data market. The cable industry, by opening a high-speed data channel into the home that will eventually support IP (Internet Protocol) voice services, is waving an even redder flag now than it did with earlier, non-standardized packet voice strategies, notes Vern Mackle, telecommunications analyst with International Data Corp.

"It's probably no coincidence that (US West is) launching video services in a market where a cable company is moving into telephony," Mackle says, in reference to Cox Communications' voice service rollout in Phoenix, which happens to be using a proprietary system supplied by Arris.

"We're going to see small pockets where phone companies have to roll out services like this because cable is offering voice, but I don't believe there's a major incentive otherwise."

Maybe not, though US West, claiming 58 percent penetration and 17,000 customers in its Omaha cable service territory, says it views video as an opportunity, as well as a necessity. But, even if the renewed interest in telco TV is strictly a defensive-driven strategy, the ramifications over the next few years must necessarily extend far beyond the "small-pockets" scenario in light of the national scale of cable's strategic pursuits.

Nor is telco video as far off the charts as perceived in some quarters, given the fact that the four major carriers who stuck with the TV business beyond the video dialtone trial days are aggressively expanding their reach, and the others are pursuing new technical means which they anticipate will make video entry a lot easier than it ever was, within the next year or so. One measure of the importance telcos place on having an entertainment product to sell is the recent round of contract signings with DBS provider DirecTV, which has now signed up Bell Atlantic, SBC Communications and GTE as marketers of its service.

In the most recent instances of more direct telco video activity, US West in April announced expansion to a 400,000-household base in Phoenix by year's end, and to hundreds of thousands more homes in '99; BellSouth proceeded with its New Orleans wireless cable launch amid preparations for several more wireless and HFC cable rollouts in the months ahead; Ameritech announced it was pursuing new franchises in Chicago and several other Midwest cities, expanding on a franchise base that now stands at over 1.1 million households; and GTE, rethinking its facilities platform, was reported to be scoring major successes against incumbent operators in Thousand Oaks, Calif.

While these telcos are using a variety of network technologies to facilitate early expansion, their longer-term ambitions are founded on a consensus platform that has come out of nowhere in the past half year or so to dominate strategic planning. Known as "VDSL" (very high speed digital subscriber line), the platform is said to offer telcos the ability to terminate fiber as far as 4,000 feet away from the end user, and still deliver a full range of digital services at speeds of 13 to 52 megabits per second, depending on distance, over the copper pairs extending from the fiber nodes.

In support of developing standards for the platform, BellSouth, GTE, SBC and Bell Canada have joined forces with Japan's NTT, seven European carriers and Telstra Corp. of Australia in a broadband initiative known as the "Full Service Access Network." At the same time, US West, with its Phoenix rollout, has become the first carrier to move ahead with widescale deployment of the VDSL platform.

"For the first time, the carriers have a fiber-rich technology that leverages the last mile," says Bill Weeks, vice president for technology at NextLevel Communications, the privately-held entity that joined forces with General Instrument Corp. to form NextLevel Systems Inc. in '96 and has now been spun off to continue its focus on the telephone industry. "Until VDSL showed up, any fiber technology that came on the scene required ripping up backyards. Now, telcos can place the electronics at a feeder-based interface and enter the broadband market quickly."

If the VDSL system works as billed, it will offer a more telco-network-friendly approach to launching a full slate of consumer broadband services than the other means tried so far, including hybrid fiber/coax, fiber-to-the-curb and wireless cable. This is because the system, using the same modulation techniques used in ADSL (asymmetrical DSL) but over shorter lengths of copper, allows telcos to provide video along with data services and POTS (plain old telephone service) over existing wires from fiber termination points that are at or within easy reach of fiber that's already in place.

Weeks says his company will be able to supply system components, including an ATM (asynchronous transfer mode) gateway that serves as the home terminal interfacing the TV, telephone and PC with the telephone line, at costs low enough to be cost-competitive with cable. "People fail to recognize how fast the cost curve is falling for ATM," he says, noting that telcos are ordering ATM terminals for ADSL deployments as well as VDSL.

"Instead of expensive cable boxes for every TV set or modems for every computer, you have one box that does everything for your entire home," says Solomon Trujillo, president and CEO of US West Communications. "One box and one phone line will connect everything."

The success of the VDSL strategy is likely to rise or fall on this point, insofar as the ATM box as currently designed by NextLevel, provides service to three TV sets and costs about $900, according to informed sources. While, as a combination high-speed data modem and TV set-top for three TVs, this might sound like a bargain, the cost stays the same wherever the box is deployed, even if the customer isn't taking high-speed data service and is only interested in connecting to a single TV.

Weeks, without specifying the current gateway box cost, says volume orders will drive costs much lower over time.

But ultimately, no matter what price point is reached, the cost-benefit model for the ATM gateway strategy will depend on whether the volume of customers with multiple TVs and a desire for high-speed data service will be sufficient to balance out the single or two-TV households that don't want a PC connection as part of the service.

As planned by US West, the implementation of VDSL involves extension of fiber to distribution areas (DAs) serving anywhere from 200 to 500 households via the copper that's already in use, says David Beigie, a spokesman for the telco. "If you're within 1,000 feet (over copper wire) of the DA, you're capable of receiving service at over 50 megabits per second," he says.

Weeks says the NextLevel system will deliver signals at 20 to 25 megabits per second per line over longer copper link distances of 4,000 to 4,500 feet, which is enough throughput to support simultaneous video feeds to three TV sets from the ATM switch at the DA along with high-speed data and voice. US West is still weighing what the minimum data rate and maximum line distances will be in its deployments, Beigie says.

So far, the international Full Service Access Network initiative has produced agreement on an ATM/PON (passive optical network) specification that has been passed along to the International Telecommunications Union and a VDSL spec, including levels of noise and interference to be tolerated, that has been passed to the American National Standards Institute, says Alan Quayle, principal engineer for broadband at British Telecom, a member of the group.

In addition, the group has reached agreement on the set of OAM (operations, administration and maintenance) requirements needed to monitor and manage performance of the fiber/copper system, Quayle says. "Now, the big task for us is to agree on the means by which all these separate pieces are integrated into a total broadband access system," he adds.

Together, the member carriers represent about 310 million lines, or approximately 45 percent of telephone lines worldwide, Quayle notes. While FSAN is not mandated to set price targets, he says, members expect that their combined market strength will have a powerful impact on prices, not only because of the potential volume of orders, but also because unanimity on specifications will force vendors to compete on price.

The fiber/copper architectures under consideration include two sets of fiber transmission rates in the ATM format: 155 Mbps bidirectionally or 622 Mbps downstream and 155 Mbps in the return. Line counts per ONU, which will vary depending on where the interface with fiber is positioned, are still being worked out, Quayle says.

FSAN expects to complete work on the fiber/copper options in time to ensure delivery of FSAN-compliant systems from vendors by sometime next year, probably in the second half, Quayle says. At the same time, he notes, the group is working on a fiber-to-the-home architecture with a longer timeframe in mind, in recognition of the fact that many technical elements for the all-optical network are still in flux.

As the participation of BellSouth and SBC, along with several overseas entities in the FTTH segment indicates, carriers are taking this option seriously. While no one expects to see FTTH on anything approaching a wide scale for some time to come, there are projects on the drawing boards in several countries, including the U.S., that suggest all-optical networks might be an option sooner than many people think, Quayle says.

But, he adds, these are limited in scale and focused on newbuild projects, whereas VDSL is viewed as an approach that could be used pervasively at low cost. SBC, for example, is looking at some high-income residential communities where FTTH makes sense but, overall, expects to make use of VDSL more widely, says Brian Posnanski, a spokesman for SBC.

SBC's participation in the FSAN belies its image as a telco with no interest in offering video services. In actuality, Posnanski says, the company sees full-service capability as essential in the long term, though it hasn't felt any immediate pressure to move ahead, given the unappealing technology options that have been available up to now.

But VDSL architecture makes a lot of sense, Posnanski says, noting, "Fiber gets you to the neighborhood, and copper gets you to the customer." Notwithstanding the recently-terminated false start in HFC by SBC subsidiary Pacific Bell, PacBell has been especially aggressive in spending on local loop improvements, with $815 million, representing 40 percent of its '97 capital budget, going toward upgrade of the distribution plant last year, Posnanski says. "We're putting a lot of fiber in the local loop in California and in Texas as well," he notes.

The emergence of VDSL has stopped two telcos, Bell Atlantic and GTE, in their tracks when it comes to deploying video services plant. Both carriers have put previous plans on hold and are now focusing on the new option. Bell Atlantic, which has slowed deployment of its FTTC broadband network in the Philadelphia area and beyond, remains committed to its large-scale fiber strategy with plans to eventually add video and data to voice over such facilities, says BA spokeswoman Shannon Fioravanti. "Our plans for the full service network are still very much alive, but we're taking time to study new technical developments to ensure that what we deploy isn't outdated before we finish the job," she says.

Work on a VDSL solution is part of the new working relationship set up between BroadBand Technologies Inc. and Lucent Technologies Inc., which are partnered in supplying full service networks in some Bell Atlantic territories, including Philadelphia. "We expect to see field trials this year, and deployments starting next year," says Don McCullough, director of product line management at BBT.

At GTE, where video services are offered over hybrid fiber/coax networks in California and Florida, the carrier has decided to stop building HFC networks in favor of moving to the VDSL platform, sources say. "We're not ready to discuss details, but we have had a strong vendor response to our (VDSL) RFP and will be announcing our next moves shortly," says a GTE insider, asking not to be named.

The biggest technical issue surrounding VDSL has been near crosstalk, which is the interference caused across multiple wire pairs in a given wire bundle with several VDSL connections in place. Interference is an ongoing problem for other flavors of DSL as well, but becomes less severe as the power levels are reduced to deliver fewer bits per Hertz, which is one reason why telcos are talking about 1 Mbps or lower data rates as a mass ADSL consumer service, rather than 7 Mbps, which is achievable when systems are run at peak levels.

So far, BBT isn't ready to claim as much throughput over average copper wire as NextLevel does, preferring to think in terms of 13 Mbps over 4,000 feet or so and higher rates at shorter lengths, McCullough says. But US West believes the allocation of loop to subscribers can be managed to minimize the cross-talk problem to where the 20 to 25 Mbps level is reached at the longest VDSL line distances.

Meanwhile, VDSL is proving useful as an adjunct to FTTC topologies that were originally designed to serve as replacement platforms for copper pair rather than as video systems. For example, as Bell Atlantic rethinks its video network architecture in Philadelphia, the carrier is proceeding with deployment of NextLevel's FTTC system in the Boston area and is accelerating shipments to meet deployment schedules in New York City as well.

"For now, this is replacement plant, replacing entire wire centers for provision of voice services, but the equipment is designed for easy upgrade to broadband," Weeks says. He notes that 60 to 80 percent of the one-million-line FTTC order is targeted for New York City in single-family as well as high-rise multi-dwelling areas.

Weeks says critics of FTTC, who have derided the architecture over issues of cost, vulnerability of neighborhood-based electronics and powering, are behind the curve. For example, he says, electronics have shrunk to where BA is able to install strand-mounted ONUs (optical network units) terminating fiber in encasements measuring 20 inches by 10 inches by 10 inches. Pedestal enclosures, designed to meet Bellcore requirements for resistance to weather, bullets and tampering, aren't much bigger, he says, noting that NextLevel is preparing to bring out a small unit that can be installed just below ground level.

NextLevel powers its system via 19 gauge copper to the ONU and over the drop from there, eliminating any need for local power sources, Weeks notes. And, as for costs, FTTC is either at or very close to parity with copper replacement, depending on the telco, he says.

Anyone having seen telcos slip and slide trying to devise enduring video strategies is well advised to be skeptical about the activity surrounding VDSL. But if US West builds out Phoenix on the promised scale this year and moves on into other territories in '99, there will be every reason to believe the telcos have finally found a means of taking cable on.

"What's driving this is the fact that we believe the provider who can offer the highest value package of multiple services is going to hold onto the customer the longest," Beigie says. The cable-telco war might be late in coming, but it could be a brutal affair when it finally gets rolling.