The triple-play gamble

Despite optimistic forecasts of worldwide IPTV subs hitting 53 million by 2009, few companies expect a substantial impact on their bottom line from IPTV alone in the short term. Given the high investment costs, most telcos would rather avoid the IPTV trail - but in most markets they have no choice

Telcos and broadband companies around the globe are jumping like crazy onto the IPTV bandwagon. According to a recent analysis by Infonetics Research, these adventurous corporate souls are on target to invest $26 billion by 2009 in building systems to grab a slice of service revenues predicted then to be worth $38 billion.

In trying to parlay current IPTV trials, pilots and small-scale networks into major money-spinning businesses, though, this would-be new breed of content distributor faces formidable challenges on the technology and commercial fronts. Meanwhile, the resident TV market champions - the free-to-air, the cable operators and the DBS companies - aren't sitting on their hands as the arriviste telecom industry begins to circle their birthright source of revenue. What's odd, though, is the feeling that many telcos would probably rather not be heading off down the IPTV trail at all: it's just that they have no choice.

World at their feet‾
IPTV in its various forms is currently occupying the thoughts, if not necessarily the affections, of senior telco and broadband service provider managements across the globe, from Italy to Iceland, and from Canada to China. A number are already reasonably far down the IPTV learning curve and, unsurprisingly, tend to loudly sing the praises of their investments. One such is Belgacom which says it signed up 50,000 viewers in the space of 12 months.

'For tele-viewers, Belgacom TV is a genuine revolution,' claims Jean-Charles De Keyser, Belgacom TV manager. 'With today's television, you can watch what you want, when you want and for the right price, whereas before, the station imposed the schedule. In addition to offering more channels than its competitors, Belgacom TV allows customers to watch movies and programs on demand - the ycan still watch television like they did before, but they can also program 'their own' television by choosing from a large catalogue of content.'

And while other IPTV ventures are less well developed, Infonetics is predicting that the number of IPTV subscribers worldwide will rocket to 53 million by 2009.

Other industry voices have more modest expectations of the size of the IPTV user population. For example, the Diffusion Group predicts around 34 million worldwide by 2010. And then there are those who are less than sanguine about the short-term profitability of the service in its own right. In this vein, one of the conclusions of recent research conducted by Accenture and the Economist Intelligence Unit was that few companies expected a substantial impact on their bottom line from IPTV alone in the short term. Rather, most saw the larger impact being on top-line growth; network operators also expected IPTV to drive the take-up of broadband access connections and help reduce customer churn.

It's also worth remarking that there may be little correlation between subscriber numbers and IPTV profits. In a survey of Western Europe, Gartner predicted that the number of households subscribing to new IPTV services offered by telecom carriers would reach 3.3 million in 2006 and rise to 16.7 million in 2010. Despite this robust growth, Gartner said that IPTV would struggle over the next five years to become a mainstream revenue opportunity for telecom carriers.


Bundles of fun
Regardless of uncertainties such as these, it's likely that some putative players - and especially those found among the ranks of the larger incumbent telcos - have little choice about grasping the IPTV nettle if they are to staunch the haemorrhaging of their traditional revenues, cap customer churn and in general increase their sex-appeal in the marketplace.

As chief network architect at the Detecon consultancy Dr. Patrick Pfeffer points out, many 'big beast' telcos around the world are currently losing thousands of customers on a daily basis. 'I would say you need to look at IPTV as part of a bundle. That bundle will allow you to curb the loss of POTS lines,' he reasons.

In the US Dr. Pfeffer believes IPTV is positioning the RBOCs to better compete with what the MSOs are offering. In Europe it's about beating off the challenge from the LLU newcomers. But in neither geography are the bona fides of the standalone IPTV business case beyond debate.
'Last, and maybe least, IPTV allows the operator to increase its ARPU. But if you consider it alone, you probably shouldn't do it,' he contends. 'I've done a lot of spreadsheet work and trying to come up with a business case is really difficult. But you can do the opposite and ask, what happens if I don't do it‾'

Interestingly in the context of the do-or-die IPTV scenarios facing some of the large telcos, a Detecon-authored white paper calculates that of the many successful existing deployments of IPTV across the world most are by small or medium size operators.

In principle the telecoms network - particularly the access network - and the ownership (albeit dwindling in some cases) of the end-user are two trump cards in a telco's IPTV hand. The missing parts that have to be assembled are media infrastructure - the head-end equipment, with a video acquisition system, digital rights management (DRM) capabilities, application and video servers and so on - and the home network - gateways, set-top boxes and one or more networking solutions.

Getting your IPTV ducks in a row
In practice, some of the existing telco network infrastructure may turn out to be not entirely fit for purpose in the IPTV case.

Modern core networks are probably up to the job in bandwidth terms, but Dr. Pfeffer observes that some SONET/SDH/ATM metro networks are over-subscribed and that a move to Ethernet will be required. He also believes that a change in viewing patterns from broadcast to on-demand could cause the metro network some non-trivial problems in the future.

'Today the IPTV networks designed and implemented by the telcos really rely on a lot of video being sent via the broadcast model versus the on-demand model,' he notes.

In the access network, it could be argued that ADSL2+ is an entry-level minimum in terms of bandwidth -- VDSL2 and pair bonding are also currently deployed. Whether all of these will continue to be useful when the content delivered is high definition (HD) IPTV is moot. 'With ADSL2+ and VDSL2 the numbers in the lab look great, but in the field, in the real world with temperature differences and not knowing exactly how healthy the twisted pair is, things can quickly start falling apart' points out Dr.



Always assuming sufficiently deep pockets, a committed management board and sympathetic shareholders, a telco might consider running fibre-to-the-home/building (FTTH/B) to make up any shortfall in copper-based IPTV bandwidth. There are two basic options here: the active Ethernet approach favored by some municipal and utility operators in Europe and the passive optical network (PON) strategy adopted by some of the larger telcos around the world.

Unfortunately, the PON deal does not have the hallmark of a no-brainer. PON flavors - which are not necessarily mutually exclusive - appear in several forms. These currently include broadband PON (BPON), Gigabit PON (GPON), Ethernet PON (EPON), wavelength division multiplexing PON (WDMPON) and something dubbed next generation EPON (NGEPON). Each has its pluses and its minuses, and its own devotees and detractors.

Either way though, FTTH/PON is not within the capex or inclination 'reach' of that many telcos. And even for those for which it is, pumping up the access volume may not remain a priority forever.

'Service providers expect huge returns from IPTV, and they are investing heavily in IPTV infrastructure to ensure those returns,' observes Jeff Heynen, directing analyst for IPTV at Infonetics Research. 'Right now they're focused on transport infrastructure, upgrading their access networks with higher-bandwidth ADSL2+, VDSL2 and FTTH platforms, and adding IP edge routers, Ethernet routers and switches to handle the expected traffic demands of the escalating numbers of IPTV subscribers. Over the next four years, though, their investments will shift a bit to content infrastructure, so they'll spend more on things like video-on-demand servers, encoders, content security platforms and head-end equipment.'

Head buts, and home truths
'Virgin' IPTV telcos have, of course, to build and operate the media infrastructure at one end of the IPTV delivery chain, and (at least) get involved in the home networking business at the other extreme.

According to Detecon, one head-end possibility is to use best-of-breed middleware from suppliers such as Minerva Networks, Orca Interactive and Kassena to 'glue' the various subsystems together. The alterative is the vertically integrated offering supplied by Microsoft. However, Dr. Pfeffer believes the software here may be in danger of becoming too complicated, and he and his colleagues urge telco IPTV players to put pressure on suppliers for more simplified architectures and open interfaces.

Home networking initially becomes an issue in IPTV simply because, as noted by Scott Reeves, technical director EMEA for home networking specialist Ruckus Wireless, the likelihood is that the DSL or fibre connection won't enter the home at the point where the content is consumed. Thereafter, there's the possibility that the broadband connection will need to be shared by multiple TV sets or other terminals.

There are a number of home networking technology possibilities - among them coax, powerline, telephone cabling, Ethernet and Wi-Fi, as well as the future IEEE 802.11n and possibly UWB. Not all of these may be equally relevant everywhere - a reflection of the circumstance that there's massive variety in how dwellings are designed, built and equipped in different parts of the world - and each has its limitations as well as its strengths. Again, nor are these solutions mutually exclusive.

There is some consensus that the IPTV home networking environment is a tough one when the technical requirements are stacked up against the user expectations.


A particular bugbear, according to Dr. Pfeffer, is the set-top box.

'It's still some nasty little device that has to perform like a $500 machine and has to cost less than $120,' he ventures. 'In all the trials and deployments of IPTV, surveys of the feedback from users shows the set-top box is either too noisy, too hot or re-boots too often. On the operator side, every new load of set-top boxes behaves differently from the one before.'

Prepping the home and turning up service is no slam dunk either with, says Reeves, who notes a rejection rate of about 20% for installation on traditional cabling. Meanwhile, Sanjay Castelino, automation software company Motive's executive VP for strategic planning, reports that it costs one US telco around $1,500 each to turn up some IPTV subscriptions. Which is to say nothing of the man hours involved. 'We're seeing some of the early providers of IPTV send a technician to a house, and the technician might only do one install in a day,' he says. 'If you work out how many installs they can do in a year, it's pretty capacity constrained. Many of those companies are maybe thinking that as part of the early trials it's okay to have that cost, but most of them are also looking at new ways to automate the installation of IPTV to the point where they'd like it to be plug and play.'

Notwithstanding the problems, Castelino sees telco participation in the IPTV home networking arena as a major opportunity to tap into new revenue streams.

'The ability to manage devices remotely in the home opens up a whole realm of possibilities,' he says. 'You can start to imagine network-attached storage being put in the home. So now you have the ability to deliver different kinds of video rentals or just data back-up services. You can start to put other devices in the home, whether for home healthcare or monitoring services. You're really starting to put in place the infrastructure to manage all those services today with IPTV. My hope is certainly that they do see that infrastructure and technology that they're investing in as really infrastructure and technology for multiple services, not just technology to support IPTV.'

While there may be new business opportunities on the back of IPTV inside the home, there's perhaps a more prosaic reason why telcos will get involved in on-premise networks. 'They have to,' concludes Reeves. 'If they want to sell more than bandwidth, then I'm afraid they're going to have to take responsibility for what happens between the place where the bandwidth comes in and where the TV starts producing pictures.'

In short, no choice. Which is where we came in.

Tuning up
Always supposing that the technical and investment challenges of rolling out IPTV can be mastered, market acceptance of the service will be influenced by a number of variables that are likely to differ from location to location. Chief among these might be: what IPTV content is made available at what price; the level of competition from other IPTV providers; how well established the alternative pay TV service providers are; how good is the content provided by the free-to-air broadcasters; and how IPTV-friendly is the local regulatory regime.


Thus, for example, an analysis from Gartner calculates that the UK will remain a weak prospect for IPTV given the existing pay TV landscape and the dominance of Sky TV, while France will become a major European IPTV market thanks to an aggressive (low entry price) push from competitive players including Free and Neuf as well as France Telecom, combined with the fact that all the major pay TV services are willing to embrace new distribution channels.

Telco and other IPTV providers have a number of ways they can differentiate themselves from the non-IPTV competition. One is interactivity. Others, as explored in the Multimedia Research Group (MRG) study 'Winning IPTV Content Strategies Report 2006' include: a strong content offering that does not require the forced buy-through common in cable markets; new services such as Network Personal Video Recorder (NPVR), video on demand (VoD) and games; premium programming in a subscription VoD (SVOD) format, tiered and a-la-carte services; and Internet video which could be both a competitor and a source of content for IPTV operators.
But none of the above is likely to operate in a vacuum. In its recent study 'The Worldwide FTTH Market, and IPTV: How IP Video Will Drive BPON, EPON, GPON and Active Ethernet Deployments' ABI Research notes that selected cable operators in specific markets are starting to build fibre extensions to their core networks, allowing them to offer more interactive services and get around the limits of coaxial networks. Examples include Cable Bahamas, Japan's City Cable Shunan and Cable One in the U.S.

'On-demand environments for cable TV networks are not particularly robust compared to what the telecom operators can roll out,' says ABI principal broadband analyst Michael Arden. 'Looking to the future, some cable companies see fibre as a means to offer advanced video services that they are hard-pressed to provide today.'

- John Williamson