MULTIPLE CHOICE

When SBC Communications Chairman and CEO Ed Whitacre announced the details of the company's U-verse brand of services, which will include IPTV, at the International CES event in Las Vegas early this year, he noted that it only made sense given the respective reputations of his company, himself and Sin City. Bad jokes aside, SBC's entry into IPTV will mark a significant milestone in a market that barely existed 24 months ago.

Indeed, throughout much of the boom and bust cycle that telecom went though in the early part of this decade, about the only telco-related video was coming from small independents that also owned the local cable franchise, were experimenting with VDSL or had a fiber-to-the-home project. And in most of those cases, the video was being sent to the home using traditional RF. Over the past two years, however, IPTV has developed into something that holds some of the greatest potential for telcos to offset declining revenue from traditional voice services. Yet, IPTV also forces carriers to make numerous technology choices and deal with business models that are largely foreign. Centralized headend or distributed? How much on-demand content will you offer? Do you put IP set-tops in the home with recording capability or keep that within the network? MPEG-2 to save money or MPEG-4 to save bandwidth?

All these choices not only will have an impact on the speed at which IPTV service is rolled out, but also on take rates, the architecture chosen and ultimately, profitability. Moreover, IPTV also brings a whole new set of operational challenges and decisions that don't typically have a corollary in the voice and data world.

“The first lesson for most operators is that IPTV may be digital, but it's not a data service,” said Frank Weiner, vice president of field marketing for Calix. “There are practices and standards for doing things for DSL that often are not sufficient for IPTV. It's everything down to splitter designs. There are a thousand subtle lessons that we've found through 30 different deployments.”

Among the most significant decisions to be made revolves around the ultimate goals of the IPTV service providers and what type of service is best for reaching their goals. For U.S. carriers, the goal has quickly become to stanch the flow of revenue from access-line loss. In many cases, executives at smaller telcos that have deployed IPTV admit they don't necessarily expect the service to turn significant profits, but instead to keep residential consumers from cutting their ties to the carrier altogether. With the emergence of cable operators offering voice-over-IP service, that fear factor is playing a significant role in the decision to move forward with IPTV. In those rare markets where telcos aren't facing looming competition, IPTV becomes a relatively inexpensive way to move into the triple-play world.

Depending on the situation, carriers can opt to roll out an IPTV network that essentially mimics cable TV offerings with a cleaner signal, load in boatloads of applications such as interactivity and gaming, concentrate on local programming (see story on page 20) or create a hybrid. SBC, which has spent much of this year promising that its U-verse IPTV service would be available by the end of the year, appears to be leaning heavily toward loading up on applications to go with the standard linear and on-demand programming.

“There are going to be a lot of things that set IPTV apart from cable and satellite,” said Ed Graczyk, director of marketing for Microsoft TV, which is providing the middleware elements for SBC.

Among the first noticeable differences will be an instant channel change capability and a much richer programming guide that provides better information, he said.

“Then you have the cool picture-in-picture capability,” Graczyk said. “You will see the single PIP navigation when you're scrolling through the guide.”

While that won't make the marketing department excited, it's the type of baby step that Microsoft is advising its clients to take.

“There was one European operator that had some absolutely incredible services,” Graczyk said. “It looked great on paper, but what they found out when they rolled it out to consumers was that it was too much, too new, too soon.”

Arjang Zadeh, a partner in Accenture Communications' high-tech operating group, is telling his telco clients to go even more simplistic and concentrate only on offering high-quality video but as the low-cost provider.

“If they are looking at this as a way to reduce churn, that is a valid view,” he said. “If that is the case, you need to have the simplest possible TV service. The best thing to do is to launch a very simple service, and second, bring the cost as low as possible. You don't need a set-top box that does everything. This idea of putting huge amounts of money into a set-top and planning for all these future services, in my view, is a wrong strategy.”

Zadeh said the danger for carriers trying to put out a service that relies heavily on advanced applications is the cost and the potential for customers to jump ship once competitors offer similar services. In addition, the history of interactive TV is littered with too many disasters.

“People are, at this moment, in this euphoria that there's going to be all this revenue coming from interactive services,” he said. “They're nice to have for churn reduction, but they're not the main reason that people buy your service. The killer application is linear TV programming.”

At the other end of the spectrum, there is a camp that believes the best way for telcos to differentiate video is through interactive services such as gaming, video telephony integration and Web-like browsing. Among the first services that has met with a surprising amount of success is caller ID on TV. Deployed largely by independent telcos, the service doesn't require video to be delivered in the IP domain and is one of the first concrete examples of how seemingly disparate applications can be blended.

“Everyone is amazed at the type of response they have to caller ID on TV,” said Geoff Burke, video solutions marketing director for Calix. “It's a great example that is small but is powerfully attributed to the telephone company. Moving forward with all-IP networks, the telcos are actually going to have the advantage. We're going to see a real difference between the 50% of folks who have analog relationships with their cable companies and these people who have an all-IP network.”

Burke also used the example of recipes popping up into separate video windows and the ability to be sent to an e-mail address during a cooking show as something that provides an enhanced TV experience.

Thinking further into the future, some vendors see a day when carriers provide a video service that is enhanced with so much meta data that a user would, for example, be able to select a shirt worn by a character on their favorite TV show and then be sent to a Web site to buy it. However, such services are still many years into the future, most agree.

Initially, the first deployments of IPTV have tended to focus more on the number of channels available, the electronic program guide and perhaps the basic communications integration with caller ID and voice mail accessible via TV.

“There is so much work going on just to make the network suitable to IPTV, I don't know how many interactive services you're going to see at first,” said Fabrice Beer-Gabel, senior director of product marketing for telecom video at BigBand, which has won most of its initial contracts in the European market. “They're trying to enhance the user experience to differentiate. IPTV alone is really only a transport mechanism.”

While there is still wide disagreement on how far out the IPTV applications will go, the vast majority of the market has come around to the idea that high definition (HD) will be a required option. That's somewhat of a change from two years ago when BellSouth, SBC and Verizon issued a joint request for proposal on fiber-to-the-premises, which was largely prompted by a need to offer video and triple-play packages. The increased importance placed on HD can be attributed to a number of factors, including a significant drop in the cost of HDTV sets. In addition, the development of MPEG-4 compression has given telcos a technological answer for HD (see sidebar on page 8). Perhaps most important is the increasingly common HDTV offerings from incumbent cable operators.

“The more cable is able to keep promoting high definition, the harder it gets for telcos,” said Matt Cuson, director of product marketing for middleware vendor Minerva.

Cuson, not wanting to pass up a shot at a competitor, said any delay in the delivery of Microsoft TV's software just ups the ante even more.

“The longer it takes for Microsoft to deliver on their vision, the longer cable has time to counter and undermine Microsoft's strategy,” he said. “Cable has it easy now. They know Microsoft can't deliver, but they know Microsoft's road map, so they just copy it. They just take all the things that sound interesting, and all of a sudden they've shifted the story so it's all about cable and not all about Microsoft.”

The software giant, naturally, has a significantly different view of the world. Graczyk said the company absolutely is on time with the delivery of its software, with version one in carriers' hands in a matter of weeks. If there has been any delay, it's because the company has become much more than a middleware provider. With Microsoft's leadership often sketching visions of how it plans to dominate the home environment, the company has taken on a slightly different role.

“One of the roles we play has been the company that has more or less set the vision for IPTV or even just next-generation television,” Graczyk said. “I do think it's fair to say that we're doing more than just our piece of the software. The pieces of the puzzle have come together.”

The company also is playing a major role in the continuing integration work among various vendors, something not uncommon for middleware providers (see story on page 12). However, it's also become more of a factor in moving from deployments with thousands of customers to deployments with millions of potential users.

“What's called middleware in this market touches almost every element,” said Jonathan Beavon, director of marketing for the broadband group at security vendor NDS. “I think it's more of being able to deliver large projects in an end-to-end fashion. From a telco point of view, they like to have a lot of control in the network, and they like the client to be thinner and dumber. That has caused some middleware deployments scalability issues. You've seen some of the middleware companies move from very thin clients to slightly fatter clients.”

That move to set-tops that don't fall into the very thin client category also coincides with some new business models that put a heavier emphasis on revenue from video-on-demand (VOD). Just as important, IPTV also opens up the door to advertising revenue that telcos don't traditionally receive. Beyond being able to sell the local ads that cable operators can, telcos deploying IPTV will have the ability to monitor and quantify viewership like never before. Using IP set-tops and middleware, IPTV service providers will be able to identify specific locations within the home, giving advertisers the ability, in theory, to send ads only to set-tops in, for example, in the bedrooms of parents.

Also, because IPTV systems are based on multicast, and channel changes actually occur in the network (as opposed to on the set-top for traditional cable systems), carriers will be able to get a very accurate read on exactly what programming users are watching.

That likely will bring up legal questions over such issues as privacy concerns. Among independents that can capture the information, most don't just yet.

VOD, however, tends to be bit more of a predictable revenue stream — and not just traditional pay-per-view. Because IP is the transport mechanism, service providers offering VOD will be able to offer services such as movies for different prices, depending on the time they are viewed or popularity, said Eran Wagner, vice president of IPTV for Amdocs.

“People are realizing that selling VOD for $6.99 where everyone is equal is changing,” he said. “Today, when [studios] price an asset, no one is allowed to discount it. It's going to require a cultural change. To implement it, there also has to be a new level of automation throughout the value chain. If you look at how settlements work between content providers and service providers, there are some very strong dynamics in that link when they realize that there's going to be an amazing volume of transactions. If you don't automate, you're going to be lagging behind.”

The upshot of that also will be the ability of carriers to give content providers more accurate statistics — and in theory get cheaper programming, said Kevin Wade, director of product marketing for Turin Networks.

From an architecture perspective, VOD as well as most other content is coming from a centralized source. In the case of large carriers such as Verizon and SBC, video will be centralized at large headends that will operate in tandem and can serve national footprints. While one facility feasibly could serve several million users, both operators will use two locations to provide redundancy.

Fiber connections will link the central headends to regional facilities, where local off-air channels as well as local content and ads will be added (see figure). In the case of a fiber cut anywhere along the way, recovery and rerouting is accomplished in less than 50 milliseconds, said Stuart Bennington, director of portfolio management for Tellabs, which is acting as the primary supplier for Verizon.

Ultimately, regardless of architecture and the decisions being made, IPTV services must be seen as part of the larger triple-play bundle, particularly for U.S. carriers, according to most of those involved in early deployments. Some European telcos, notably BT, have indicated they would launch IPTV that offered only VOD, though that strategy simply won't work in the U.S., said Steve McKay, CEO of Entone, which is providing VOD platforms to Hong Kong's PCCW, the largest current IPTV deployment, and SBC. Entone also has a number of deployments in the independent market, including Consolidated Communications in Mattoon, Ill.

“The lesson learned from early deployments is that the telcos that play for keeps cannot only gain market share, but eventually gain dominant market share,” he said.

Finally, the one decision that telcos must make that overrides all other technical issues is one of mentality, Calix's Burke said.

“I think one of the main stumbling blocks is that unless the whole company, including top management, is committed to IPTV, it's not going work,” he said. “You have to utilize everybody in the community as ambassadors. Once you get that done, you can start to carve people out of the organization. It's a challenge, but it's a heightened challenge. There's a renaissance that develops in these companies. It's pretty cool to be the guy that brings the Super Bowl to your neighbor in February.”

ARE WE THERE YET? MPEG-4 STUMBLES INTO PRODUCTION MODE

In theory, MPEG-4 is supposed to be a major factor in the progression of IPTV from nifty science experiment to feasible technology solution for telcos. The compression technology, which is the successor to MPEG-2, which has been in use for a decade in the cable industry, takes a video signal and squeezes it down so it can fit into a narrower bandwidth space.

MPEG-4 can squeeze a standard definition signal down to 2 Mb/s and a high-definition stream down to around 8 Mb/s. In order to do that, the technology must be in place at both the headend, where signals are encoded, and in the set-top, where signals are decoded.

Like most technology rollouts, though, theory and reality have diverged just slightly with the initial rollouts.

“It's not that there's any technical concerns about MPEG-4 or technical quality concerns,” said Derek Kuhn, chairman of the Broadband Content Delivery Forum. “It's that the first implementations of MPEG-4 hardware don't reveal the same quality as the spec states.”

That lower-than-anticipated quality is causing some concern among some cable networks, he added.

“Some of the content providers are really sticklers,” Kuhn said. “The Disneys and ESPNs are very protective of the whole user experience. It's not just the coding, but the whole IP network that serves this as a mission-critical service.”

Many of those with intimate knowledge of compression say people shouldn't be surprised by quality concerns in the initial implementations of MPEG-4. MPEG-2 had almost a decade to be improved upon while MPEG-4 is essentially brand new.

“The key for us in the MPEG-4 Forum is to set people's expectations correctly,” said David Price, vice president of business development for Harmonic. “There are some operators that simply want to increase their quality of MPEG-2. Going to MPEG-4 will allow them to take that step up, but it's rare. A lot of people think this transition between MPEG-2 and MPEG-4 is going to be a nightmare, but it's not.”

The cost of set-top boxes also will play a significant roll in the speed at which MPEG-4 improves. For operators just getting into the market, the cost difference between boxes still exists, but most are opting for MPEG-4 because of the bandwidth savings. Those economics are about to improve even more, Price said.

System-on-a-chip set-top boxes will come in at about the same price as MPEG-4 boxes this year, Price said. “During the course of 2006, it will hit the exact same price.”
— Vince Vittore

IS INTEROPERABILITY ALL THAT IMPORTANT?

Like most new technologies going into the telecom network, IPTV is being put through a cycle of standards formation followed by interoperability testing. The Alliance for Telecommunications Industry Standards has taken up the cause in a big way this year, forming an IPTV Interoperability Forum with the purpose of producing a set of standards for carriers by the middle of next year.

Under the auspices of the forum, ATIS also has created four task forces: architecture, which will develop a reference architecture to identify where ongoing work fits in and identify places where additional work is needed; digital rights management, which will develop standards acceptable to both operators and content producers to ensure security and quality of video signals; quality of service (QOS) and metrics to create a reference design for end-to-end QOS testing that takes into account all traffic, including IP video; and testing and interoperability, which will develop an interoperability standards and testing regiment.

The goal is to write specifications that will gives carriers a sort of playbook to develop IP-based video services that can be expanded beyond traditional television. Further down the line, there is some sentiment that the forum develops a certification process for IPTV, which would fit in line with other ATIS efforts, said Kevin Schneider, chief technology officer of Adtran and co-chair of the forum.

“There's a lot of interest in building out networks that are in line with wireless network evolution with [IP multimedia subsystem],” he said. “The hope there is to leverage applications that are developed for that environment.”

Such efforts get plenty of lip service around the industry, and most of the largest vendors have created eco-systems and partnership programs to further interoperability. However, not everyone agrees that interoperability should be a goal. UTStarcom, which has its largest IPTV deployments in China, is going to market with a strategy that relies heavily on its own equipment instead of the equipment's ability to work with others. The goal of early IPTV deployments should be to get to market fast, and mixing vendors that haven't interoperated in the real world before is a recipe for delays, said Daniel Marcus, broadband marketing manager for UTStarcom.

“We have some very specific reservations about the teams of vendors forming identifiable deployment regiments,” he said. “We're highly skeptical about this based on our own trials. None of this stuff is standardized, and we expect to see a lot of finger pointing. We actually have displaced multi-vendor offerings, and the reason [telcos] have made that move is that in trials, when the rubber meets the road and they've committed to their own subscribers and investors, they need to deliver.”

The company, however, will interoperate with certain elements, but it's not a priority.

The vast majority of vendors, though, are opting for a strategy that includes plenty of partnering. Microsoft, which certainly has the resources to put together an end-to-end IPTV system, is in many ways typical. Its eco-system includes a strong attachment to Alcatel on the access side but also includes a roster of set-top box vendors such as Scientific-Atlanta, Thomson, Motorola, Cisco Systems' Linksys-KiSS division and Tatung.

“We try to focus on what we do best,” said Ed Graczyk, director of marketing for Microsoft TV. “We're huge believers in a big, competitive market for the big, expensive elements for an IPTV market. If we only supported one set-top vendor, then that's not a very competitive market. You just don't have the innovation and the price curves decreasing. Our goal was to go out and build this eco-system so our customers have a broad choice of vendors. We think that will drive much more attractive economics than in cable or satellite.”
— Vince Vittore