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Telcos Prep Internet TV

By Michael Grebb wired.com Aug. 03, 2005

When it comes to video services, the children of Ma Bell have taken their hard knocks.

A flood of ventures by telephone companies designed to compete against entrenched cable TV operators received much fanfare in the early 1990s, only to fizzle out as failures before the new millennium passed.

But don't count them out just yet. As cable operators increasingly target their data and voice customers, the telephone companies are crawling back from defeat, reinvigorated by a perfect storm of network convergence, broadband technology and the good ol' IP infrastructure.

Coming soon to a screen near you: IPTV.

"It's one of the hot topics in telecommunications," said Steve West, director of product marketing for fixed solutions at Alcatel, a network infrastructure provider. "We've been actively pushing the space since 1999 or 2000. It is absolutely ready for market."

While traditional cable systems devote a slice of bandwidth for each channel and then cablecast them all out at once, IPTV uses a "switched video" architecture in which only the channel being watched at that moment is sent over the network, freeing up capacity for other features and more interactivity.

"The real advantage is that it's very bandwidth-efficient," said Gary Arlen, president of Arlen Communications in Bethesda, Maryland. "It's catering to the on-demand future, which is what TV will be."

Arlen said other interactive applications, such as multiplayer gaming through a set-top box, work "best in an IP network."

In the United States, big telephone companies like SBC Communications, BellSouth and Verizon Communications plan to start launching IPTV systems as early as this year. But their strategies vary.

For example, Verizon plans to adopt a hybrid model combining traditional cable and IPTV technologies while SBC and BellSouth want to launch full-fledged IPTV networks.

"The IPTV platform allows for very compelling future features that will help us deliver a better TV experience," said SBC spokesman Marty Richter. "It can change the way customers watch TV."

IPTV enables features such as multiple pictures-in-picture, remote programming of digital video recorders, and access to caller ID, digital photos or personalized stock, weather and sports information right on the TV screen. IP technology also can allow various devices in the home to work together more seamlessly.

"We think the true winner here will be the company or companies that integrate services and pull it all together for customers," Richter said. "We plan to use internet protocol to connect these devices in a way that gives customers seamless access across devices virtually anywhere they go."

One global driver of IPTV is Microsoft, which has been pushing its Microsoft TV IPTV Edition software in hopes of dominating the nascent IPTV market. Microsoft has been trying to break into the TV business for years with limited success.

So far, Microsoft has stuck IPTV deals with carriers around the world, including Bell Canada, British Telecom, Reliance Infocomm, Swisscom, Telecom Italia, Deutsche Telecom's T-Online France, as well as SBC, BellSouth and Verizon in the United States. (It's providing a customized version of its Microsoft TV platform with both digital-cable and IPTV features for Verizon.)

According to Microsoft, its telecom IPTV customers (including some yet to be announced) now represent 26 percent of the world's residential fixed-access phone lines (75 percent in the United States) and cover 28 percent of the world's DSL customers.

Carriers seem to be banking on Microsoft's stability as a vendor. "When you're head of procurement at SBC, you want to make sure that your vendor is there in two years," said Hervé Utheza, principal analyst at The Diffusion Group. "They know that Microsoft will be there throughout the deployment."

The carriers also know they need to get IPTV right or risk creating a bad first impression with the public -- so they have moved cautiously.

For example, Australian carrier Telstra and Swisscom both dropped out of Microsoft's early adopter program to work out technology problems. SBC also recently delayed its launch plans.

But Microsoft said that, considering the infancy of IPTV, the pace remains frantic. "We've gone in 24 months from ground zero to commercial launches," said Ed Graczyk, director of marketing for Microsoft TV. "It's not like one day you flip a switch, and 5 million people have it."

Experts said delays and problems are inevitable with brand-new technology. "A lot of these things have never been tested in the field," said Utheza. "They're having to deal with a complex set of systems."

"The technology, like anything else with IP, is not that simple when you're the first one doing it," said Arlen Communications' Arlen.

Graczyk said hardware issues -- not Microsoft's IPTV software -- were behind recent delays, despite "misinformation" in the media blaming Microsoft. In the case of Swisscom, he said the carrier wants to wait until IPTV set-top devices with DVR capability are available. "In software terms, we're considered code-complete," he said.

Meanwhile, the incumbent cable industry has watched the telephone companies' IPTV moves closely. But cable operators have spent roughly $100 billion since the mid-'90s upgrading their networks, according to the National Cable & Telecommunications Association, and they face a conundrum of sorts.

"Cable has not been shy about talking about delivering everything in IP," said Graczyk. "The challenge cable has is that they have this huge investment in other technologies. The telcos have a green field."

During a panel on IPTV at a recent cable-marketing conference in Philadelphia, Dallas Clement, senior vice president of Cox Communications, said cable operators are struggling to determine where IP fits into their strategies, with proper prioritization being one of the company's biggest challenges.

Because of their existing investments, Arlen said it could be a decade or more before the cable industry widely adopts IP-based video delivery. But as telephone companies look to launch IPTV in various markets by next year, cable operators may eventually have no choice but to upgrade their networks all over again.

"The entire world is going IP," said Alcatel's West. "If the cable operators don't start investing in IP, they're going to have some significant cost issues over the long haul."

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F.C.C. Eases High-Speed Access Rules


WASHINGTON, Aug. 5 - Federal regulators on Friday eased rules governing high-speed Internet services offered by phone companies, saying they hope it will speed Internet growth.

Handing a significant regulatory victory to the Bell companies, the Federal Communications Commission said the carriers no longer had to provide rival Internet service providers with access to their lines at reduced rates.

The commission said the move would foster competition by putting phone companies on an even footing with cable companies and other sellers of Internet service and would provide more incentive for phone companies to upgrade their networks and offerings.

The change, however, was criticized by consumer groups, which asserted that it could lead instead to higher prices and reduced competition from independent suppliers.

The decision is the latest in a series of victories by the Bell companies in their regulatory march over competitors that had tried, under the Telecommunications Act of 1996, to gain a stronger industry foothold through the low-cost use of the extensive Bell telephone network.

Under the Bush administration, the Bells have prevailed in the regulatory battle. As they have been relieved of their obligations to offer low-cost access to their phone lines, they have pushed aside competition from local carriers as well as long-distance companies like MCI and AT&T.

Still, the Bell companies have complained that they face far greater regulation than cable companies in areas where they compete - including high-speed Internet access and, increasingly, television service - and the commission's decision on Friday aimed to reduce some of those differences.

The rule change was the first major action under the commission's new chairman, Kevin J. Martin, since his appointment by President Bush in March. It was approved with unusual unanimity by the four members after Mr. Martin fashioned a compromise with the agency's two Democrats that limited some of the impact of the ruling on other areas.

The compromise set a one-year transition before the new rules take effect. It also required the telephone companies to continue their contributions to universal service funds, which pay for phone and Internet services in underserved areas.

Critics of the deregulatory action taken on high-speed Internet service - by making new distinctions between such service from ordinary telephone service - had raised concerns that it threatened to undermine the financing of the universal service funds. The commission on Friday imposed a nine-month moratorium on any changes to the contribution rates to allow time to devise a new set of contribution rules.

In a companion decision, the agency adopted a measure requiring providers of Internet-based telephone service, like conventional phone companies, to make their systems accessible to law-enforcement authorities to monitor suspected terrorists and criminals.

The measure, which sets an 18-month transition period, was enacted over the objections of some Internet phone companies, which have said the regulations will impose burdensome costs.

The commission also adopted a policy statement that, while not enforceable as a rule, commits the agency to promote unfettered public access to the Internet - so that no provider can, for example, block certain sites for commercial reasons.

The decision to relax the rules mandating access for rival Internet services was hailed by the Bell companies, which have been pressing for the changes for months. Their cause got a boost five weeks ago when the United States Supreme Court ruled that cable companies do not have to allow rivals to offer high-speed Internet access over their systems.

That decision, a victory for the commission, prompted the agency to move with unusual alacrity so that the cable rules would also apply to the phone companies' technology for high-speed Internet service, known as digital subscriber line, or D.S.L.

"The order that we adopt today is a momentous one," Mr. Martin said. "It ends the regulatory inequities that currently exist between cable and telephone companies in their provision of broadband Internet services. As I have said on numerous occasions, leveling the playing field between these providers has been one of my highest priorities."

His prediction that the decision would lead to increased competition and lower prices was sharply disputed by some consumer groups.

"The Federal Communications Commission continues down the wrong path on deregulation, allowing giant phone companies to tighten their stranglehold on competition, stifle innovation and reach even deeper into the pockets of consumers," said Gene Kimmelman, public policy director at Consumers Union. "Consumers will be forced to pay higher prices for Internet access."

Executives at the Bell companies offered a different perspective.

"The benefits of this ruling will ripple across our communities by encouraging greater investment in and a wider rollout of broadband networks," said James C. Smith, a senior vice president at SBC Communications. "Discarding decades-old requirements and regulatory assumptions that are out of sync with today's competitive broadband marketplace will also spur more innovative products and services for consumers."

Susanne A. Guyer, a senior vice president of Verizon, said the decision "will help accelerate deployment of broadband networks, enabling greater choice and increased access for consumers."
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