Business Models: Television from the Telephone

Television from the Telephone

By Reed Majors

For the first time in history, telcos are beginning to lose telephone business. People are now buying cellular phones as an alternative to secondary and tertiary lines in the home, and the popularity of the Internet is forcing down the potential revenues from long distance.

Companies like Minerva Networks can simplify the transition for telephone companies that opt to offer broadcast and video services by offering IP headend solutions along with full-service integration.

In fact, traditional “plain old telephone service” (POTS) is the loss leader of the telecommunications industry. In addition to the influences of wireless and the Internet, cable companies are encroaching on telco territory, offering bundled voice, video and data over their networks. Telecommunications providers must offer value-added services or lose their market share to cable.

Studies have shown that subscribers are likely to opt for bundled communications, entertainment and information solutions from a single, trusted source – their telecommunications provider. IP-based solutions can help telcos and broadband service providers compete effectively with incumbent cable and satellite network operators, as well as accelerate the return on their network investments.

More than ever, telephone companies need to offer broadcast and video services to their subscriber base, not only to keep their existing customers, but also to stay competitive, gain new customers and increase revenue. Telcos are developing business plans that include services like live television and video-on-demand (VOD) because incremental data service and telephony alone cannot generate enough cash-flow to justify an xDSL network investment.

Is your network up to the challenge?

Like any business, the phone companies want to maximize their cash flow to a facility costs ratio, and they’re already deploying DSL for data and voice. Video revenue is the single largest source of potential revenue over these networks, and video over asynchronous DSL (ADSL) technology is readily available. By adding video over their existing infrastructure, telcos are able to add significant billable dollars to their bottom line.

Existing telco networks are up to the technical challenges of transporting high quality IP-based video. For most small telephone companies in the United States and telcos in Europe, upgrade requirements are minimal. These service providers have already built their copper plants in such a way that video deployment is only an issue of installing DSL access multiplexers (DSLAM) and other core network gear, with no need to upgrade the outside plant wiring.

IP or native ATM?

Most telcos use ATM as a transport protocol from their backbone to the DSLAM, with IP as the routing protocol. As an architecture, ATM is not a very elegant solution, with the inherent necessity of virtual circuits and the administrative overhead it requires to run. As a result, many companies are turning to IP routing technologies. They are ubiquitous, inexpensive and provide a much more elegant routing mechanism, along with an equivalent quality of service (QoS) for video on the network.

For those companies who have already implemented it in the backbone, ATM is a sufficient transport protocol for video over IP. Either way, IP television is an inherently carrier-class solution offering round-the-clock reliability and uninterrupted service.

What about HFC?

Although cable can offer some of these services today, they are expensive to implement using the solutions currently available. Hybrid fiber coax (HFC) is neither scalable nor flexible in terms of easily changing or adding new services, which forces the provider to maintain more than one type of network, and restricts the network provider to proprietary technology.

The open standards of IP, the growth of the technology, and the increase in the number of vendors offering solutions will drive down the cost of implementation and increase the capability of IP television solutions for everyone. Cable companies today must make use of an inconsistent hybrid of equipment, vendors and proprietary implementations to gain Internet access over IP and video over QAM. To the benefit of telcos with robust xDSL networks, IP offers one open platform for the delivery of all services.

The benefits of IP

Every user on an IP network can watch a different VOD movie concurrently. In the IP world, telcos have the flexibility to offer subscription VOD (sVOD), pay-per-view (PPV) and near VOD (nVOD) services based on changes in customer demand. Being able to quickly adapt to this demand means that a telco can easily implement and sell whatever services the customer wants to buy – and the available online self-provisioning can eliminate a costly truck roll.

For live channels, IP television offers the same quality and an easily customizable electronic program guide (EPG) providing the operator more flexibility in terms of enhancing the user experience with things like branding, interactivity and advertising.

As a result of the open standards-based architecture of IP set-top boxes, telcos are again dealing with added flexibility to deliver enhanced interactivity such as games, video mail, caller ID, t-commerce and other high-margin offerings.

Telcos can also offer personal video recording (PVR) more cost-effectively than their cable counterparts. A hard drive is not required in the subscriber’s STB because PVR is handled at the headend. Unless STB storage becomes more reliable and much less expensive in the coming years, PVR will continue to be accomplished more profitably in the network.

For a telco, making the decision to get into the video business is one not to be taken lightly. However, the barriers are far outnumbered by the compelling reasons to move. Strategy Analytics reports that 46 million homes will watch television delivered through the telephone line by 2008, representing more than 11 percent of worldwide digital television services, up from less than one percent today. The reasons for this growth are far-reaching. IP network architecture is flexible and open standards-based. The widespread availability and compatibility of IP-based hardware makes it easy to integrate. Healthy competition almost guarantees the reduction in customer premise equipment and other costs over time. When weighing these and other facts, it becomes difficult to ignore the vast revenue opportunity represented by offering video services over xDSL.

By maximizing the opportunity to bundle services including VOD, PVR, telephony, broadband Internet and e-mail over their existing xDSL networks, telcos will be well positioned for the long-term battle with cable, satellite and alternative service providers.

Reed Majors is the vice president of marketing and business development for Minerva Networks.

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