Toledo Telephone's view from over the top

Toledo Telephone, an independent local exchange carrier serving Toledo, Wash., was one of the first to experiment with IPTV. In 2001, chief operating officer Dale Merten participated in testing a shared headend to distribute IPTV among several telephone companies on a shared network. The concept worked, but the hefty investment made the undertaking less than desirable. In 2008, Merten realized IPTV wasn't the path Toledo would take.

“I could not make the business plan work where we could break even — even if we had 10,000 customers,” Merten said. Toledo Telephone, with its 2300 customers, set its sights on over-the-top (OTT) video instead. A longtime user of Joost, a provider of video content over the Internet, Merten looked for a product that could utilize the existing network to deliver the content, but to the TV screen. When Apple didn't return calls, Vudu became the front-runner. It took some convincing, but Toledo now partners with Vudu to bring OTT video to its DSL subscribers.

“[Vudu's] business model hadn't considered telecom providers as an avenue to distribute their product,” Merten said. “One of the things a telecom company can bring to the table is the technical support, the installation of the product and a one-on-one commitment to service for the customers.”

Vudu is part of a growing list of peer-to-peer OTT video providers that also includes Apple TV, Blockbuster, Microsoft Xbox, Netflix Roku and 2Wire. Vudu's offering uses an STB to stream a catalog of 10,000 standard- and high-definition movies. The STB costs $299, with downloads starting at 99 cents to rent and $4.99 to buy.

None of these services has yet to gain a significant footprint, but the market as a whole has received a lot more attention lately. The business model many independents were counting on for IPTV — SES Americom's IP-Prime content aggregation service — is set to shut down by summer, and telcos are seeking alternatives. Many OTT providers such as Vudu hope to position themselves as this alternative, rather than as an interloper on the network.

Vudu won't announce subscriber numbers, but Tony Miranz, co-founder and executive vice president of sales and business development, puts it in the five digits. While Vudu may have been reluctant to partner with telcos in its early stages, Miranz said the company is more than willing to team up now. It's not a service that resonates with the large providers such as AT&T and Verizon, but there has been a tremendous amount of interest from Tier 2 and 3 incumbents across the U.S., he said.

“They see Vudu as an alternative that doesn't require any capital expenditure,” Miranz said. “It is pretty much plug and play, drop as you go. It requires no geographic planning, and they can bundle it with their broadband offering. It is something that differentiates their service from that of cable. The telcos are really resonating with our value proposition, so I expect the number of deals we do to increase dramatically in 2009.”

The business model is straightforward and lucrative. Vudu provides its STB in bulk at a discount. Toledo then bundles the service into its DSL package and provides it as a bonus to consumers who upgrade to DSL Premier, which costs $54.95 per month for up to 5 MB/s service. Toledo installs and tests the service, helps consumers rent their first movie, throws in a bag of popcorn and is out the door.

Thus far, the service — marketed through flyers and direct mail — has been extremely popular with Toledo's customers, even those who already subscribe to linear TV partner DirecTV's on-demand and pay-per-view services. Merten said consumers like the à la carte plan and instant gratification, and Toledo likes the return on investment IPTV could never deliver.

Merten estimates Toledo's total savings are in the millions. “Our payback is 14 months,” he said. “That is a model that I could not come anywhere close to with IPTV.”

Source: Vudu