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IPTV – Internet Protocol Television – may have been the buzzword for 2006, but the current video picture isn’t really about IPTV – it’s about

competition. The major telcos are finally starting to give the cable companies notice that they are serious about entering the market for video services. This competi-tion has been brewing for several years, beginning with Verizon’s January 2004 announcement of its FiOS initiative, a hy-brid RF/IP solution to start. In 2006, Ve-rizon, with its FiOS TV, and AT&T, with its aggressive rollout of U-verse IPTV and the less publicized Homezone (a hybrid satellite/IP solution), proved definitively that video is a key part of their long-term strategy.

Despite early hype about potential fea-tures, the actual deployments of telco TV have featured products that are roughly equivalent to the offerings of cable and satellite competitors, with some incremen-tal improvements. That’s because content, rather than technology, is the key to a suc-cessful competitive television offering. As Christine Heckart, general manager for marketing at Microsoft TV, pointed out at the 2006 iHollywood Forum, “The killer application for TV is TV.”

In terms of content, however, these new telco competitors are going beyond the typical cable television approach and beginning to embrace “over-the-top” video services. Verizon’s recent announce-ment of its partnership with YouTube is an example of how it is beginning to blend Internet-based content with its television and mobile distribution networks. Simi-larly, AT&T’s announcements of its rela-tionships with companies such as Akimbo

(for long-tail content) and MobiTV (for mobile and Internet-delivered content) point to a future in which consumers can choose to view tens of thousands of chan-nels from virtually any device.

Television Challenges for Independent TelcosIndependent telcos were the pioneers of telco TV, and of IPTV in particular. But the entry of the major telcos into this space has made it harder for independents to provide service profitably.By Ken Pyle ■ Viodi.com

INDEPENDENT TELCOS

RBOCs Slow the Independents’ IPTV Rollouts Unfortunately, the entry by these big op-erators may have slowed or, in some cases, stalled deployments by independent tele-phone companies. Many of these rural operators were pioneers in building fa-cilities-based triple-play networks shortly after the Telecommunications Act of 1996, at first using hybrid fiber coax, then turning to ATM and later adopting Internet Protocol. The independent tel-cos have always been pragmatic and still deploy whatever technology makes sense for their particular application.

With more than 100 IP deployments

in place, the independent telcos have been the earliest supporters of IPTV in the United States. They have been gener-ally successful at signing up customers, with many achieving between 40 and 50 percent penetration of homes passed. By providing better service, customized packages and locally produced content, they are able to make television better for their customers. And, because the addition of a third service helps pay for the broadband network, these television offerings are also helping to drive broad-band penetration in rural locales.

But the independents face many challenges, both technical and content-related, in making IPTV economically viable. Because technology vendors and content providers are now scrambling to meet the needs of the major telcos, the small independent companies, whose needs are different, have more difficulty in meeting these challenges than they might have had without the entry of Ve-rizon and AT&T into the field.

Technology Challenges The independent telcos face several sig-nificant challenges. One is integrating the various pieces of the technology. Unlike the cable industry, which has support from CableLabs, the telco TV industry has no single entity – aside from IP standards themselves, and Ethernet, to set standards and interoperability. As a result, a simple change like a vendor’s in-troduction of a new version of firmware or software can bring a working IPTV system to its knees.

The industry has also been waiting for the availability of MPEG-4 set-top boxes that support high-definition televi-sion and personal video recorders. These capabilities have been on vendors’ road-maps for years. In the past two years, many of the vendors have focused on the needs of the large carriers. As a result, AT&T, which jumped into the business well after many of the independent tel-cos, has been able to roll out high-defi-nition television via MPEG-4 while the independent telcos continue waiting for vendors to provide production quantities of MPEG-4 set-top boxes.

Another area of uncertainty for inde-

Despite early hype about

potential features, the

actual deployments of

telco TV have featured

products that are

roughly equivalent to

the offerings of cable

and satellite competitors,

with some incremental

improvements.

JANUARY 2007 | www.broadbandproperties.com | BROADBAND PROPERTIES | 29

INDEPENDENT TELCOS

pendent telcos is whether the FCC will require their legacy ATM deployments and newer IPTV deployments to support CableCARD as of July 1, 2007, the date by which televisions must incorporate digital TV tuners. (The CableCARD, a device that plugs into properly equipped digital televisions, is intended to allow cable subscribers to receive program-ming without a set-top box.) Operators that deployed television service several years ago have products with no upgrade path to CableCARD. And again, the in-dependent telcos do not have a group like CableLabs to negotiate with consumer electronic manufacturers to create televi-sions and other consumer electronic de-vices that integrate directly with IPTV networks. Content Challenges Content is another huge challenge for independent telcos. As small entities, they have no leverage in dealing with the major cable television networks. The National Cable Television Cooperative,

once an effective vehicle for operators to acquire content relatively cost-competi-tively, was closed to new members earlier this year. It is alleged that antitrust con-cerns are one reason NCTC is prohibit-ing new members. There have also been suggestions that one of the major telco carriers attempted to gain membership in NCTC, and that this was the real trig-ger for NCTC to close its membership

Many interesting alternatives to NCTC, including offerings from Au-roras Entertainment and NRTC, are in formation and promise to give indepen-dent telcos alternative ways to acquire content in the future. However, due to the technical challenges described above, these entities have not been able to com-mercially launch their services as of this writing.

Programmers are aware that because IPTV delivers only one channel at a time to a television set (unlike cable, which currently delivers all the channels in the lineup), it allows operators to offer an

unlimited choice of channels. As a result, many programmers are trying to bundle as many channels as possible into the “basic tier.” This increases the cost to the operator and makes independent telcos’ entry-level cable television packages ex-pensive relative to the competition.

Smaller entities simply do not make money on video as a stand-alone service. The cost of programming, and the lack of control over the rise in programming costs, was the chief complaint among in-dependent telcos in a survey conducted by OPASTCO and Viodi in December 2006. While the large telcos have clout provided by large subscriber numbers and large geographic reach, independent telcos struggle to negotiate retransmis-sion consent and other content deals. Sometimes content is just not available to the small telco, as the major content providers focus their resources on the larger providers.

At least one independent telco re-ported that a cable operator–controlled

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30 | BROADBAND PROPERTIES | www.broadbandproperties.com | JANUARY 2007

regional sports network was willing to provide content contingent on the telco’s insertion of several hundred advertising spots per month for the cable operator’s cable service. For an independent telco that cannot afford ad insertion capabil-ity, this can be a particularly onerous provision. (An excellent summary of this challenge is provided by John Goodman, President of the Coalition for Competi-tive Access, at http://judiciary.senate.gov/testimony.cfm?id=2454&wit_id=5927.)

Many of these content challenges go unreported to the FCC and FTC due to independent telcos’ limited resources. This is evidenced by one operator’s re-sponse to the Viodi/OPASTCO survey [specifics have been omitted to protect the privacy of the operator]:

“… [sports network] is owned by one of our major competitors and they pro-vide the service along with … Sports … for an extremely high price (approx. dou-ble what Time Warner is paying accord-ing to Multichannel News. In order to be competitive we have to carry this ser-

vice…. The negotiation process to renew the contract for these channels is a simple “take it or leave it” and to date have not been successful in having the rate re-duced even though they lost the [one of the sports teams] programming last year. We have considered filing a complaint with the FCC, but have refrained from doing so due to the legal expense.”

One area where the independent tel-cos can differentiate their services is in the production of local content. Viodi, in its workshops, surveys and market re-search, has identified at least 75 indepen-dent telcos involved in the production of local content. This probably understates the actual number producing local con-tent; a Viodi survey of independent tel-cos performed in January 2006 indicated that more than half were already produc-ing local video content. This content is important, since telcos said their primary motive for producing local content was to help strengthen their communities.

For many independent telcos, IPTV has been here for a few years. The chal-

lenge for them has been to offer all of the features, such as HDTV and PVR, that their cable competitors offer. At the same time, the challenge of acquisition and the cost of programming has made it virtually impossible for the independent telcos to make a profit with video. The major telcos, however, have been able to use their size to influence both technol-ogy and programming suppliers to create products that are competitive with the incumbent cable operators, while provid-ing a platform that will allow the devel-opment of new features. BBP

About the AuthorKen Pyle is the cofounder of Viodi

(www.viodi.com), which provides infor-mation, marketing materials and content acquisition services for the iTV and VOD efforts of independent telcos, and assists them in sourcing and producing local con-tent. He is also the managing editor of the Viodi View newsletter.

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