Telco video close-ups, Part 1

Last month, I began a series of articles about the state of telco video, and based on the level of interest and the number of telcos getting involved, I’ll continue the series for the next month or two as well.

One of them is the Livingston Telephone Co. of Livingston, Texas, an early adopter that received a fair amount of attention in the press a few years back by offering IP-based TV over ADSL. Recently, I caught up with General Manager Curt Walzel, who updated me on their progress and enlightened me on what they’ve learned to date. Currently celebrating a century of service, Livingston saw TV as being a natural extension of its tradition to offer a complete and up-to-date range of services to its subscribers. Although it has but several hundred TV subscribers, each one is a win against one of its two local cable competitors, both of which are analog and therefore limited in their channel selections.

When Livingston Telephone initially investigated the possibility of offering TV, its assumption was that people would flock to the idea of “turning their TVs into computers and their computers into TVs,” but in reality, subscribers didn’t really care. Although it sounded cool, their actual interest was to have all-in-one service from a single provider, on one bill. Similarly, Livingston assumed that video-on-demand would be their “killer app,” which somewhat limited the number of suppliers from which it could choose. But once the service was actually available, it turned out to appeal the most to subscribers in the 30- to 40-year-old age group, and those with kids--in other words, not everybody took VOD.

One of Livingston’s biggest successes is something they call “Channel One,” a channel dedicated to local and community affairs, and available through its TV-based “walled garden” portal. The walled garden, for those not familiar with the terminology, is akin to a Web portal, but on TV. It’s a way to present textual and graphical information in an appealing way to subscribers, and it’s put together in much the same way as a Web page. Except that the TV screen, being low-resolution, limits the amount of information that a single screen can hold.

Mr. Walzel claims that Livingston has continued to meet its goals of using TV to increase its market share while making a contribution to cash flow. And, by offering TV, Livingston has proved its original assumption that it could make its digital infrastructure investment more revenue-effective. The telco considers itself to be on-target with everything it expected to do, with the exception of its schedule--everything has taken longer than expected. See last month’s column for reasons relating to systems integration and program acquisition; all of which applied to Livingston.

Another service provider is Iowa Network Services, where I spoke with Howard Juul and Bill Shoemaker. INS is a venture supported by more than 120 shareowner companies in the Midwestern state of Iowa. Rather than being a telco in its own right, INS is a service provider that brings content acquisition, third-party technology and systems integration services to “retail” service providers across its state.

This has proved to be an appealing proposition in a state where most towns are in rural areas and telcos are generally too small to justify building their own TV head-ends. To date, INS has placed two telcos in service with TV and has a number of others in the pipeline, either actively in the process of implementation or evaluating its proposition. One of INS’ advantages is that it can deploy TV services atop VDSL, ADSL and soon, fiber-to-the-home, over ATM and IP, making INS one of the very few (if not the only) service provider currently doing so. This gives them additional flexibility to meet the service requirements and the competitive landscapes unique to each individual telco, and some service providers that aren’t telcos at all.

A significant number of telephone companies in Iowa are also cable operators; some are Qwest towns, some are former GTE towns. This led INS to select a supplier that could implement a protocol converter for head ends that will end up serving not just telcos but which also allows INS to offer digital expansions to cable operators.

As is the case with virtually all the other service providers I’ve spoken with, INS has found program acquisition to be a challenge. Because TV programming has to be acquired in bundles, INS offers a relatively large program package to its customers. Although this is an advantage, it also creates a situation where even the most basic package is very extensive, and therefore, relatively expensive in comparison to other service providers. What’s more, some telcos in the state have existing NCTC (National Cable Television Cooperative) contracts, making the cutover to INS more challenging.

We’ll watch closely as INS gets through additional deployments and gains more experience in engineering, technology and program acquisition in the process.

Our third service provider this month is 101-year-old WVT Communications, formerly known as Warwick Valley Telephone, in New York State. WVT is in a very interesting market situation, being a small city in its own right, but serving a region that straddles the states of New York and New Jersey. This means that they have to deal with two different state regulatory bodies. Also, it is only about an hour’s drive from New York City, giving it a varied and sophisticated subscriber base with a combination of urban, small town, suburban and rural sensibilities.

Speaking with Chris Carey, WVT’s director of business planning and development, and Jean Beatty, WVT’s marketing manager, I quickly saw that WVT has a clear sense of the future and is rising to meet its challenges just fine, thank you. One reason could be that Mr. Carey came into WVT with both a business and technical background that was directly relevant to the task, having been involved in NYNEX’ selection of VDSL gear in 1996.

Another thing that WVT was quick to note: They like who they are; an independent telephone company that’s not encumbered by a large corporate structure. This allowed them to get into the TV business in just a couple of years after first conceptualizing that TV could be a revenue stream.

WVT Communications serves about 30,000 access lines and about 75% of them are within range to offer VDSL-based TV services. Of the customers actually provisioned and taking VDSL-based service, a majority are “triple play.” Although WVT would not reveal specific numbers, they believe that they are posing a significant challenge to their cable competitors, especially given the fact that, as is the case in Livingston and elsewhere, every new WVT TV subscriber is a loss to the cable company. Perhaps as a result, WVT echoed the sentiments of others, saying that program acquisition has been a challenge.

There was an early recognition that WVT was competing with cable. While the RBOCs continue to have cold feet with respect to TV, cable has forged ahead with broadband internet service and telephony, and that has happened right in WVT’s market. In addition, WVT saw from the outset that there’s a great cultural difference between telcos and cable/satellite, and to suddenly be competing with them would require WVT to bring in people with very specialized backgrounds. This prompted them to bring in an ex-cable general manager that was able to help navigate the challenging regulatory and content-acquisition landscapes.

WVT’s go-to-market strategy has been to make price a non-issue. So, at a time when the competing cable MSOs have raised prices, WVT has held the line, believing it can accelerate its market share as a result. Other advantages mentioned by WVT include the fact that their set-top box allows them to serve three subscribers per home; an advantage against the cable operator, which has to place one box for each TV. Another advantage is the ability to display caller ID on the TV screen, which has boosted WVT’s revenue for that feature. Looking to the future, WVT is already evaluating the addition of video-on-demand, knowing that it’s just a matter of time before the cable guys have it.

So, here we have three service organizations, in three different parts of the country, with three different approaches to their markets and different network approaches as well. Yet all are meeting most of their business and technical expectations and are getting revenue from subscribers. All of them have been proactive in the face of emerging and present competition. The outlook is good for all of them; from the storm that continues to hang over the telecommunications industry at large, these companies only see partly cloudy skies.

By the way, after last month’s installment, I heard from a number of IOCs, one of which was my introduction to WVT Communications, but I have heard from nary an RBOC. Please write, especially if you represent a larger carrier. I’ll be happy to amplify your triumphs and tribulations to the industry in this forum, and I’ll respect your request for anonymity if you don’t want your name or your company’s name known. I look forward to hearing from you!

Steve Hawley is principal consulting analyst of Advanced Media Strategies. He may be reached via his Web site, http://www.tvstrategies.com.