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IPTV: Reducing total cost of ownership

by Hemang Mehta

IPTV technology has experienced tremendous growth in the past four years. The technology has evolved from an initial concept to the brink of commercial deployments. There are several reasons for this progress. First, tele-communications service providers understand that they must provide a competitive offering to counteract declines in landline subscriptions. Second, consumers are demanding more interactive and personalized television services. Third, the technology required to make IPTV a reality has come of age.

Now that IPTV has become a reality, the industry chatter has shifted from “this will never work” to “how soon can I get it?” But little has been said yet about the different approaches to constructing IPTV platform architectures and the resources to operate and maintain them. It’s time for the industry to address the total cost of ownership (TCO) of operating and maintaining an IPTV service, as well as fully understand the different IPTV options available and the TCO associated with each.

IPTV service models

In today’s market, there are basically two IPTV service approaches. First is the heterogeneous approach, in which multiple vendors provide different components of the solution, often with one or more systems integrators providing the services that bind these heterogeneous solutions into a single service delivery solution. In this approach, operations management is typically layered on top of the service delivery system after the fact. Second is the homogenous approach, in which a single solutions vendor designs, builds, tests, validates and supports the IPTV service delivery and operations management solution.

There is a perception that both approaches can deliver IPTV subscribers a similar service experience. However, the TCO associated with each service delivery approach differs greatly. There are a few factors that affect the TCO of an IPTV delivery platform, including:

  • content acquisition costs to deliver the best of TV programming to consumers ;
  • operating expenses (OPEX) for the development, ongoing delivery and maintenance of the service delivery infrastructure; and
  • capital expenses (CAPEX) for the service delivery hardware, software and network infrastructure.

Content acquisition

Content acquisition costs vary based on revenue opportunities that a service provider can offer a content provider. Typically, the content costs are based on the number of subscribers. However, the expanded service delivery opportunities afforded by IPTV may change this. If the IPTV service offers subscribers a chance to select alternate camera feeds from a sporting event, for example, the content provider that owns these feeds may charge a higher fee for content.

There may be some variations in pricing for content delivered over IPTV. However, service providers will likely pass along these additional content fees in the form of higher subscription fees, so the net effect of any content cost variations will be negligible on TCO. Consequently, content costs are not a critical component in the calculation of TCO for the purpose of this article.

Hidden just under the surface, and often overshadowed by the licensing costs, are the costs for setting up and operating the delivery of content. A digitized stream or a file is inconsequential unless it is associated with sufficient metadata that describes it.

For example, let’s say a service provider pays a specific fee to license the use of a channel. The program information — such as the start time, end time and the program description — are the more obvious elements of the metadata that must be managed. Associating the digital stream generated by the encoder to a multicast address, assigning network identifiers to transmit this stream across the network, and connecting license keys that allow subscribers to access this channel are all metadata elements that must also be managed. Collectively, the digital file and all the metadata required to deliver this channel is referred to as a service. There are costs associated with maintaining and operating services.

Operating expenses

Certain OPEX will be startup costs, such as the costs associated with initial deployment and with the integration of the IPTV infrastructure with existing business support systems (BSS) and operations support systems (OSS). Other OPEX are ongoing, including the expense of day-to-day monitoring and managing the infrastructure.

In addition, OPEX will arise as a result of decisions to change or evolve the service delivery network. These expenses are project-related expenses, but upfront decisions about how the service provider will deliver the IPTV service can lead to higher operations costs and more complex projects when it is time to upgrade or evolve the service delivery network. These downstream costs must be factored into the TCO equation.

Capital expenses

To offer IPTV as a subscriber-oriented service requires investment in a platform to deliver and manage the service. The service provider must acquire systems for encoding and delivering live content as well as systems for encoding, storing and delivering video-on-demand (VOD) content. The service provider must deploy systems to manage this content and its delivery. It must also deploy systems to monitor and maintain the network, the content delivery and the management systems themselves. This is just a high-level description of a central headend installation. There are multiple metro headend configurations that involve local content delivery servers, local VOD servers, local management servers and more.

TCO for such a network infrastructure depends in part on the service delivery approach selected by the provider.

Heterogeneous approach

The heterogeneous approach typically involves the integration of different systems, such as billing, operations support, VOD and content ingestions, from various vendors. Each system performs a specific task in the delivery of the IPTV service. To perform these tasks as well as they do, the systems often rely on specially tuned or proprietary technologies that can be costly to acquire and support.

Integrating these systems requires that a service provider engage a systems integrator. The work involved with integrating, testing and validating the solution can be complex, costly and time-consuming. No single party is responsible for the entire solution, so problems arising at any stage of the integration effort can be difficult to resolve — particularly if the problem involves hardware and software from different vendors.

Take the case of content acquisition costs. Besides the fixed costs of encoders, there is a real cost (operations) for ensuring a service is correctly delivered. A service is more than the digitized file (or stream), and it is more than the program descriptors. It includes delivery provisioning and can effect not just the encoder, but also service delivery components and the subscriber management components. Making a change in one area can often result in a cascading change through the platform. The number of touch points and different systems involved in a heterogeneous approach make this a costly task.

Due to many years of building voice networks, telcos may be familiar with the heterogeneous approach. It offers certain attractions, because it enables a service provider to build a service delivery solution based on best-of-breed components that may have been fine-tuned for the delivery of IPTV. At the same time, telcos are familiar with the downside of this approach: Best-of-breed products are so focused on doing one thing well that they are often built on specialized or proprietary architectures that are costly to acquire and support. Moreover, individual component vendors are unlikely to have built their products to interact with precisely the collection of components in a given heterogeneous service delivery configuration. There are simply too many possible configurations and variations.

No single solutions vendor has tested and validated the entire solution prior to the service provider’s acquisition of these separate components, so the creation of a heterogeneous solution requires a costly and time-consuming systems integration and testing effort.

Homogeneous approach

The homogeneous approach emphasizes the creation of a comprehensive IPTV service delivery and management platform based on a single integrated architecture. Wherever possible, the homogeneous approach relies on cost-effective, industry-standard hardware and software components. Where industry-standard components are unavailable, the vendor developing the solution offers the service provider a choice of specialized components that have already been integrated, tested and validated to ensure proper service delivery.

Operations management is incorporated as a core component of the complete solution — not an afterthought. The vendor developing the homogeneous solution has already identified the operations management needs at every point from rollout to routine maintenance. It has identified, tuned and validated the operations management tools as part of the development of the service delivery solution. Even operations management costs are lower because everything a service provider needs to build and maintain the IPTV service is provided as part of the platform.

This approach has caused the industry some concern. Some claim the homogeneous approach represents a closed architecture that does not give the service provider a complete choice of vendors or best-in-class technologies. However, the homogeneous approach does allow for third-party technologies and applications to be built on top of the main platform, while ensuring accountability when problems arise.

Operations and maintenance costs

TCO involves more than the cost of deploying the hardware and software associated with the core service delivery platform. Maintaining the highest QoS across a distributed network demands 24-hour support. Given that the annual cost (fully-loaded) of a well-qualified support technician can run between $100,000 and $150,000, recurring OPEX costs can be among the most important to consider when calculating TCO.

Reducing TCO requires an IPTV approach that enables a small operations management team to work efficiently. If the service provider chooses a heterogeneous systems approach, OPEX costs may be higher than if the service provider selects a homogeneous systems approach.

There are two key reasons why this is true. First, the individual components in a heterogeneous solution are typically specialized or proprietary, so they typically require the attention of support personnel with specialized training and experience. These personnel usually command higher salaries in the marketplace. Second, operations management in the heterogeneous approach is typically layered on top of the solution as an afterthought. As a result, the operations management component may not provide the levels of automation and efficiency that would enable the service provider to support a large distributed network with a lean operations team.

An approach to operations and maintenance that enables a service provider to rely on a leaner and less costly support staff can have a dramatic impact on TCO. Reducing the size of the operations team by seven or eight positions can reduce annual costs by $1 million or more.

Upgrading or adding to a service package

It is clear that television services will evolve. Often the thrust for evolving TV service is based on competitive pressures. A competitor offers a VOD package that includes unlimited use of a popular television serial. The service provider facing this competition will have to respond, not just to replicate the offer, but to ensure that there are valued differentiators that they can offer. Service providers have to give their subscribers strong reasons to sign up and stay with them.

A heterogeneous platform will require multiple rounds of negotiations to ensure that the various systems can all support the new service. In direct contrast, a platform is just that — a platform on which consumer packages can be created and can evolve. There is a monetary cost involved with both approaches, but there is a notable difference between the two.

The best approach to IPTV service

An ideal IPTV service merges the best of the homogeneous and heterogeneous approaches. This platform would take a homogeneous approach insomuch as it is a complete solution that is architected, validated, delivered and supported by a single vendor. It would rely on industry standard hardware and software to facilitate the delivery of an IPTV service at lower capital expense. It would include operations management tools and approaches that enable a relatively small team of operations professionals to manage a large distributed service delivery environment.

This IPTV service would preintegrate specialized service delivery components where preintegration would reduce risk, cost and complexity. At the same time, it would be open and tending toward heterogeneity where such an approach enables the service provider to make choices that reduce cost and increase its ability to innovate. Taking this open yet homogeneous approach would enable a service provider to deliver a powerful IPTV service at a significantly reduced TCO.

Hemang Mehta is product management director for the Microsoft TV business for Microsoft.