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Current Issue: June-July 2008
Next-Gen Broadband | IPTV
IPTV: The time has come, ready or not
by Jim Barthold
Women… can’t live with ’em; can’t live without ’em." That sophomoric logic elicited titters of laughter — and some sexist nods of approval — when uttered by the hapless pledge Flounder in the movie "Animal House."
A slight deviation, "IPTV … can’t live with it; can’t live without it," would be more politically correct and accurate in the 21st century telecom space because when it comes to IPTV, the stakes are high, the technology nascent and the content hard to get, but if a service provider can’t figure a way to deliver video over its telco plant, its business is in the dumpster.
"Unfortunately, that’s a good catch phrase," says Erik Keith, senior analyst for broadband infrastructure at Current Analysis. "All operators are going to have to implement IP video of some sort to compete effectively in the long term."
Competing with the incumbents is one thing; profiting is another.
Where’s the money?
"Don’t expect to make money on video," Phil Erli, executive vice president of Ringgold Telephone Co., told his fellow operators during a panel at the Telecom2008 conference at the National Association of Broadcasters (NAB) Show in Las Vegas. "Video is too expensive for anybody in terms of the content."
Erli readily and cheerfully admits his view is cynical, but stands his ground that "IPTV is the future; unfortunately the future’s not here yet."
Erli’s view is based on the notion that a small player like Ringgold, with 12,000 wireline customers in bedroom communities surrounding Chattanooga, Tenn., just doesn’t have the same advantages big telcos have to deliver a video package profitably.
"I listened to these guys from Verizon and AT&T talk today. God love ‘em; but it’s not the same for me," he says.
The guys from Verizon, which does a hybrid IPTV version using RF to deliver video over IP networks, and AT&T, which prides itself for being a pure IPTV play, figure video is a good business in which to operate. For one thing, video is the epoxy that binds the subscribers to the network.
TV = subscriber retention
"We continue to see a correlation between TV availability and line retention," says Doreen Tobin, Verizon’s CFO during the carrier’s first quarter 2008 earnings call.
A good part of that success comes from bundling voice, video and very high-speed data into an attractively priced, triple-play package. AT&T, as was emphasized several times during the NAB Show, is looking to add a fourth leg to that bundle with its wireless service.
"It’s more of a wireless-based world; that’s where we dominate, that’s where we lead," says Dan York, executive vice president of programming for AT&T. "It’s the bundle in action across all four of the screens."
All of that is well and good if you have fiber to the home like Verizon or a nationwide wireless network like AT&T or the deep pockets to do what you want to drive a new business plan and grab the attention of content providers. Small providers live in a different world.
Greg Hasse, senior product manager of HickoryTech, a small telco in Mankato, Minn., attended the NAB conference and came away with his own take on how a small telco with limited financial resources and no wireless platform can deliver an attractive bundle of services. HickoryTech has been doing it since 2001 and knows how to make money and please subscribers.
"We’ve been the local telephone company in Mankato for over 100 years and when we tell our customers we’re going to deliver a quality product, they just believe us," he says. "A lot of customers want to do business with HickoryTech because we are the local phone company, local customer service. I wouldn’t say it’s easier because of the technology. It’s easier because of the relationship we have with our customers."
The technology and the networks are something else. Big players like Verizon can use FTTH; AT&T is building a fiber-to-the-node (FTTN) play. Ringgold, on a smaller scale, is following the Verizon model with FTTH and HickoryTech is offering its video service over DSL lines.
Both small players, like AT&T, are using IP to transport video, which is kind of chancy, says Erik Keith, senior analyst for broadband infrastructure at Current Analysis, because "the current generation of middleware [isn’t ready]. Several operators I’ve spoken to have said they are much more comfortable with doing RF video for the next few years. They’re waiting for the middleware to be fully baked and fully developed."
That’s generous, says Erli, who drips disdain for the current state of middleware. "I would love to change middleware vendors; unfortunately there are not a lot of choices," he says.
Many small operators don’t have a huge choice on how they get the content to the end users, says Vince Vittore, senior analyst for Yankee Group. While FTTH is the best way to do it technologically, "from a financial real-world perspective, I think the market has pretty much spoken that they want to see a step-by-step plan as opposed to dumping lots of money in the ground and hoping for a payback somewhere down the road."
DSL, which "was developed so the telephone guys could offer television service," can fill the gap in the meantime, says James Heath, broadband research director for Dittberner Associates.
Bandwidth breaking point
One of DSL’s big problems is high definition television stretches its limits to the breaking point.
"HD is a bandwidth hog," agrees Scott Walter, director of network services for HickoryTech. That’s not necessarily a problem for HickoryTech because "it’s all about network design and technology that we’ve chosen to do that. A single stream of HD and a couple streams of SD [standard definition digital video] are not a problem for us."
Nearly everyone agrees consumers don’t really care how the video reaches them — despite the advertising dollars being spent by Verizon, Comcast and other players to emphasize the benefits of fiber. They do care about the type of content that reaches them and "some of the more savvy consumers are going to be concerned about multi-stream HD," Keith says.
Another problem small local telcos face that their big brothers don’t is getting content without having to mortgage the CO. A small player sometimes has to pay through the nose for what Verizon or AT&T get for a song.
"As a small provider we are very restricted as to how and what we offer in a channel lineup," Erli says. "As a small provider you can’t dictate to the content providers how you’re going to take content."
HickoryTech finds what’s available is more than sufficient, according to Hasse. "We really don’t have a problem getting content," he says. "There are aggregators out there, plenty of sources for the national content, the off-air content, retransmission agreements. We have to put all that stuff in place."
The best way to get the content viewers want — and to maintain local flavor — is to generate it yourself or have your subscribers do it for you, he says. That’s part of the promise of IPTV — user-generated content running on the local system — because it invites user participation and develops a spirit of community.
"To actually develop some of your own content, have people in the field with video cameras, is not that big of a challenge," Hasse says. "There are telcos a lot smaller than us doing that. It’s really a matter of your business focus at the time."
About the money
Part of that business focus should be on making money, and while the local Boy Scouts’ campout may draw a few eyes to the local origination channel, it’s not going to bring any extra dollars into the coffers to offset the costs of working with content providers.
"I think there’s a potential for these guys to do things with something I call ‘lighted path networks’ where they would have Web sites with advertisers and let people know if you go to the Web site all these accessible links are on our secured network," Heath says. "You could do that with an IPTV network. Rather than just video for television, you could start actually thinking about doing that for Web access and all sorts of capabilities."
That, Erli says, would fulfill IPTV’s unfulfilled promise. "This is supposed to be a more feature-rich technology and today it’s not," he says.
Today it’s a replication of cable and satellite and that presents a problem for small operators when it comes to filling those channels. IPTV, Erli says, can be so much more and will be so much different.
"The TV model we have, that we’re trying to build to, is not going to be here in the future," he says.
Hasse agrees, with a qualifier. People today don’t yet know what they want, he says.
What consumers want
"Most consumers just want good, clear video signals and they want it at a good price and they want to be able to pay one bill," Hasse says. "I think the consumer today is relatively early in their understanding of what IPTV really means. We’re going to have to grow into that and we’re going to see huge changes in the next decade of what the technology can give them."
Those changes will no doubt be influenced by what the major competitors — cable and satellite — do. Satellite’s already in the race with boodles of HD channels, and cable is working feverishly on its bandwidth answer with DOCSIS 3.0 and switched digital video "that will certainly enable them to compete against the Verizons and DirecTVs," Keith says.
No matter what you call it — a hybrid RF delivery method or IPTV — no telco can survive without it.
"IPTV is like a freeway you have to build so you might as well put cars on it until you can find a better use for it," Heath says. "You have to build this IPTV network to keep your broadband Internet customers from leaving … and there are going to be some new applications you can put on it and make some money. In the interim, you might as well offer IPTV because it helps defer some of the costs of building the network in the first place."
In other words, can’t live with it; can’t live without it.
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