Telcos Get ‘Religion’ About Video

Verizon plans to offer video starting in the first half of 2005. In late October, the company announced it has signed a multi-year contract with Motorola, which will outfit it with video network infrastructure and customer premises equipment related to Verizon’s launch of video services on the company’s new FTTP network next year. Motorola will also provide project integration and operational services.

The company already had announced it will pass some one million homes and businesses with the new FTTP network this year, in parts of nine states. In 2005, the company expects to double its FTTP deployment and launch its first video services over the new network.

SBC Communications, meanwhile, plans to do a field trial of video over its fiber access facilities in the first quarter of 2005, with a commercial rollout of video expected to begin in the third or fourth quarter of next year. The company says that through its Project Lightspeed initiative it expects to deliver integrated IP television, ultra-high-speed, broadband services, IP voice and wireless bundles of products to 18 million households by the end of 2007.

Global IP Video Subscriber Forecast

Chris Rice, SBC’s executive vice president of services and CTO, tells xchange that SBC will do a trial offering 100 to 1,000 homes a single video stream over an SBC fiber-to-the-premises or fiber-to-the-node network in the first quarter of next year. Rice declined to provide specifics of locations or number of targeted households for SBC’s expected IPTV commercial rollout to begin in mid-to late-2005. He added the commercial rollout will be predicated upon the readiness of Microsoft’s IPTV platform, which SBC at SUPERCOMM this summer announced it was testing.

Ed Graczyk, director of marketing and communications for the Microsoft TV Division at Microsoft Corp., says the software giant expects to have its IPTV solution ready to go commercial in scale by the second half of 2005.

Microsoft’s IPTV platform includes end-to-end software that handles video from the point the content is “ingested” by the network from a satellite head-end or other source to the actual display of the programming on the TV set, explains Graczyk. It also can do the coding and encoding of that content, and distribute it, he adds.

Global IP Video Services Revenue

In addition to SBC, Bell Canada, Reliance Infocomm Ltd. (of India), Swisscom/Bluewin and Telecom Italia are involved in the Microsoft IPTV “early adopter program,” for which carriers have to make “a seven-figure” investment to participate, says Graczyk. Through that program Microsoft outfits service providers with the software, servers, set-tops, training, integration and other professional services for a lab trial, a “friendly” trial and then consumer trials involving up to 1,000 homes. Those service providers can then decide whether to move forward with larger commercial deployments, which of course would entail a new licensing contract with Microsoft.

If and when SBC does move forward with facilities-based video services, those services will run over fiber-to-the-user and fiber-to-the-node/ DSL-to-the-home networks.

Following SBC’s announcement in October that it has expedited the buildout of its fiber access network in light of new regulatory developments, the telco announced a $1.7 billion, five-year deal with Alcatel for equipment and services related to Project Lightspeed. SBC has identified Alcatel as its primary supplier of network infrastructure including access and fiber technologies, IP routing and Ethernet switching solutions, and network systems integration services — including offering integration services for SBC’s future facilities-based video services. That’s in addition to SBC’s existing deal with Alcatel for passive fiber-to-the-user equipment (FTTU). SBC last December announced a four-year agreement with Alcatel for the FTTU equipment, but declined to provide financial details of that deal.

As part of this new deal, Alcatel will provide SBC with its remote 7330 IP DSLAM solution, which supports multiple variations of DSL for the service provider’s fiber-to-the-neighborhood node architecture. SBC also will use Alcatel’s 7750 Service Router and 7450 Ethernet Services Switch to offer differentiated IP-based services, such as video.

Alcatel in the past couple years has snapped up several companies to position the company to deliver IP services — including video — over networks based on its popular DSL equipment, says Mike Quigley, president of Alcatel North America. For example, Alcatel in July of 2003 acquired TiMetra Networks, a provider of IP/MPLS service routers for the network edge. In November of 2003, Alcatel acquired the network solutions unit of PacketVideo, bringing video server technology for mobile communications into the Alcatel fold. And in February of last year Alcatel announced plans to buy iMagicTV, a company offering software to handle the creation, delivery and management of digital TV and rich media services over broadband networks.

But the Alcatel contract with SBC doesn’t include Alcatel’s video software, and it appears that while SBC spokesman Wes Warnock says the telco “will look at” the Alcatel middleware, the telco is on track to go with the Microsoft IPTV solution.

“SBC continues to work with the Microsoft TV IPTV platform as the software platform for its IPTV services,” Microsoft’s Graczyk says. “Our platform will deliver services that run across the SBC network, which will use Alcatel’s network infrastructure equipment.” Alcatel’s Quigley comments that “Clearly as part of the evaluation overall we used a number of different middleware components and demonstrated we could work with multiple middleware solutions, and Microsoft was one of them.”

While SBC will deliver only a single stream of video to consumers in its initial Microsoft IPTV trial, Rice during his on-stage comments at USTA’s TELECOM ’04 show this October noted that MPEG4 and Windows Media 9 will allow four IP video streams to be delivered to each household served. In addition to standard-definition TV and HDTV, that will enable SBC to offer interactive services, said Rice. He talked about such features as the ability to check voice mail — with the picture of the caller on-screen — over the TV; the ability to offer pop-ups on the TV to remind users their favorite shows are on; the capability to bring TiVo-like personal video recording capability to all TVs in the home; and the ability for viewers to see multiple angles of programs such as sporting events. “As wireless and wireline become more IP-based, it allows for more integration,” he added. (For more on wireline and wireless integration, see xchange’s cover story.)

Graczyk says Microsoft’s IPTV, which can be used by telcos and cablecos, allows instant channel changing (within 150ms), and supports all of the features available in cable or satellite today, including PVR, interactive programming guides, hundreds of channels and thousands of video-on-demand channels. It also allows service providers to list and offer searches for video-on-demand content along with other programming listings.

“The reality is the bundle today is nothing more than a marketing tactic” of putting existing products together, possibly on the same bill, adds Graczyk. With IPTV, carriers can enable existing services that leverage that triple or quadruple play — things like caller ID on a television; photosharing so consumers can view slide shows on their TVs; or even sending notifications to mobile phones alerting users of the start of a new show, delivering them a video clip of that show, which they can watch on their mobile, and enabling them to set their PVR to record the show. “It’s really those connected services that leverage the triple play that get people excited about IPTV,” says Graczyk.

Of course, delivering these advanced video services could potentially help telcos attract and keep customers, and drive enhanced revenues. But cable companies in the past couple years have focused heavily on rolling out enhanced video services like PVR and on-demand offerings — at least in their major markets — so in some cases these “enhanced” video services will look to consumers like just more of the same.

Video on demand is increasingly becoming a mandatory service for telcos offering TV services, says Steve McKay, CEO of Entone, which offers a suite of products including video-on-demand servers, asset management systems, set-top boxes and IP video gateways — primarily to small and medium telcos. But it depends on the markets, he adds. For the large markets video on demand is a “parity” service, “but for smaller markets — maybe the CenturyTel’s and down — it will be a differentiator.” (McKay here is referring to CenturyTel Inc., which provides communications services to more than three million customers in 22 states. It is the nation’s eighth largest local exchange telephone company based on access lines.) Kevin Brown, vice president of marketing for Pannaway Technologies Inc., which sells IP-based triple play equipment, adds that telcos offering IPTV will also have a leg-up on cable companies in offering on-demand programming because while the telcos are all digital, the cablecos will have to give up an existing channel for each video-on-demand session they deliver.

“Because of the switched nature of the telco networks, they’re much better suited for video on demand,” adds Entone’s McKay. Entone was started by a group of people that previously worked at Cable & Wireless Hong Kong to launch the world’s first video-on-demand telco network back in 1995. That C&W network now serves 350,000 subscribers, according to McKay. “The big issue with cable is you have to nail up bandwidth from the server to the set-top box, and that network route is not available to other applications,” continues McKay. “On the switched network telcos have, it allows you to have an enormous amount of content.”

That will help telcos offer not just your run-of-the-mill broadcast and on-demand content, but also to differentiate their services by delivering, for example, local content such as high school football games or advertisements from area merchants. In fact, some small telcos are currently offering this kind of local fare today.

Entone’s McKay continues that telcos using his company’s new Hydra IP video gateway, which it launched last month at the TelcoTV show in Orlando, will also realize lower installation costs.

Most homes have three to four TVs, so for multiple-TV homes you need multiple set-top boxes and that requires telco technicians to wire homes for Ethernet, which typically costs about $500 just for installation, explains McKay. But Hydra, which will sell for “well below $150 per TV,” is a single device that sits at the primary TV and uses the in-home coax to distribute video to up to six TVs in the home — thus eliminating the cost and unsightliness of stringing Ethernet along homeowners’ floorboards, he says. Hydra, which is a telco-only video product, is expected to be generally available next month.

At the same time new technology is bringing down the costs of telco TV installation, equipment costs are coming down in many cases.

For example, McKay says Entone’s video servers are much less expensive than traditional video servers, which cost several hundred thousand dollars upfront. While the traditional video servers are based on proprietary hardware, Entone’s servers are based on HP and IBM server hardware, which makes them far more affordable and easier to support. That means while a traditional SeaChange-type server costs about $150 per stream, the Entone server software running on hardware from HP or IBM is closer to $50 or $60 per stream. And HP and IBM have local support centers throughout the county, he adds.

The cost of set-top boxes has also come down in the past year or so from around $500 to around $100, depending upon the features.

So it should be no surprise that more telcos — big and small — are joining the ranks of TV service providers.

Kevin Walsh, vice president of marketing at access solution vendor Calix, says demand for the company’s video cards is “exploding.” The company had shipped 130 of its video cards as of October, meaning 25 percent of the company’s customers are now in the video business.

Somewhere along the way to the triple play, says Walsh, service providers got “religion” about video.

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