March 2008 | Volume 11/ Number 3
IPTV – Money Maker or Loss Leader?
By Richard "Zippy" Grigonis
The IPTV business reminds one of the airlines of the 21st century or the railroads of the 19th – you know they’re big and customers love them, but somehow few companies actually make any money selling the basic service.
At Oracle (http://www.oracle.com) Rajeev Tankha, Director, Product and Solutions Marketing Communications Global Business Unit, says, “I’ve been involved in IPTV for about three years. I’ve been involved in about 20 different projects with IPTV providers in Europe and the Americas. My focus was in provisioning and later assurance issues, since the two areas are really linked.”
“We were originally treating provisioning like any other service,” says Tankha. “Our approach was that automation was necessary and all that, and we were involved with a large IPTV project for Bell Canada. They asked us to help them with configuring Microsoft applications servers. We helped them build their APIs into the Microsoft server, which was fairly immature at that particular point in time. We delivered our project in about three months’ time, and yet to this day what we did hasn’t been launched. The biggest challenge we found was that most phone companies have taken the traditional approach to launching IPTV – to go and configure the networks and then think about other operational issues afterward as the service matures. However, IPTV gives service providers a slightly different challenge. All service providers say they’re trying to differentiate themselves from cable TV providers or satellite providers. It doesn’t matter if the person is selling their IPTV service in Hong Kong such as PCCW or in Spain like Telefonica, or in the U.S. like AT&T. Everybody wants to be different. But that’s not the point.”
“IPTV by its very nature has three major issues which people are addressing,” says Tankha. “First is content. How does the provider get the right content? In North America the challenges are: How do you secure the content? Why would a company such as Disney send content to a phone company when they may already own such things as cable companies? The way providers have successfully dealt with content is to go and acquire the expertise of getting this content and packaging it. They’re still learning how to do this, but they’re fairly well on their way.”
“The second issue, which is very well understood by most phone companies, is the network in which they have made major investments,” says Tankha. “Some of those DLS technologies, IP DSLAMs, and Verizon’s fiber-to-the-home are all very well understood by providers. They know how to deploy networks. Most companies involved in IPTV have given themselves about six months to a year to launch their services. But in fact these services take an average of about 24 months to launch.”
“The third challenge for all these phone companies is not about being different, but rather about being the same,” says Tankha. “We all grew up watching TV. You can go to your local store, buy a TV, bring it home, plug it in and turn it on. Cable, satellite and terrestrial TV companies have had 40 years to become expert in the delivery of content and service. And they’ve moved on to offer PVRs and digital content and digital interactive TV. Some times to compete you must look like everybody else.”
Tankha elaborates: “So the first thing we ask phone companies is, ‘Hey guys, can you be just like an existing TV service and stop thinking like you should be different?’ When we talk about being different, it’s not about content. Can they deliver a service of the same type with which users are already familiar? In many cases the phone companies are stumped. Look at AT&T. They made major announcements on the U-verse project three years ago, and it took quite a while for AT&T to get its whole system up to the proper speed and levels of acceptance. They discovered they needed to coordinate activities across various groups and various systems to deliver a TV service. So the big challenge today is that it doesn’t matter whether you’ve already launched a service or are planning to launch. If you dig underneath the surface of a phone company, you’ll find that customers abandon these services rapidly. The CEO of Belgacom stood up at an IPTV event in 2006 and said, ‘We launched a TV service and we garnered 40,000 customers in six months.’ But what he said later was that they needed six to seven truck rolls per customer to get the service working.”
“I held a workshop in March 2006 and spoke to Telfonica,” says Tankha. “Their marketing manager had proudly proclaimed that they had 200,000 subscribers. But in talking with their operations people, people who do DSL provisioning, people who handle content delivery, people who are responsible for getting the service out to customers, the real picture emerged. The first people I met did DSL-related provisioning. They told us that it takes approximately seven days to deliver a standard definition DSL-based service which is appropriate for a TV service. That’s funny, because in Spain and many other countries, everybody can get TV service for free over the air immediately. If somebody wanted two IPTV-based TVs in the same home, they couldn’t do it. They found that within seven days’ time, 50 percent of the orders were cancelled, because they couldn’t deliver the service fast enough, or they couldn’t tell the customers when exactly the service would be delivered.”
“A Canadian provider I know of launched their service in 1999,” says Tankha. “It was also taking them six to eight truck rolls per customer to get the service up and running. The provider charged $50 a month for their TV service. They spent between 50 and 60 percent of that on content providers. The service provider was left with at best $25. Each truck roll in Canada was costing $250 to $300, just in terms of manpower. Thus, every truck roll cost a whole year’s worth of profitability. That doesn’t count the investment in the IT system, the network, and other aspects of the infrastructure.”
Adds Tankha: “These challenges have not gone away. I discussed them a few months ago with providers from India and Brazil. We have a customer in Czechoslovakia that wanted to try self-provisioning by subscribers as a solution. That actually doesn’t work because, unlike a phone company, the network now extends into the home. When trying to do self-provisioning, you find that you still need several truck rolls. A small CLEC in North America we know of with 3,000 IPTV customers had to send out trucks time and again, but it wasn’t because the service wasn’t working or things weren’t provisioned properly. Instead, the company couldn’t understand what the home environment looked like – where the TV was going to be installed, whether there was a phone plug near a power socket, did they need a power cord or extension cord, was a new set-top box going to be provided, and so forth. Without a necessary extension cord, a whole new truck roll had to be scheduled. Other issues involved a disconnect between what provisioning was happening in the network and what services were actually required in the home. Several set-top boxes had to be changed. Then you have people who change orders while waiting for the service to arrive. They may decide to buy more than one HDTV, for example. Obviously the business cases of the phone companies delving into IPTV can easily erode.”
Set-top Box = Residential Gateway
Bureaucratic and logistical snafus haven’t stopped the technological march of IPTV, which promises to bring exciting (not to mention churn-reducing) services to the masses.
It now appears that, in an IPTV world, the formerly humble set-top box is becoming a sort of super-residential gateway.
Take Amino Communications (http://www.aminocom.com), for example, which designs and supplies electronic systems, software and consultancy for IPTV (telco triple-play applications), on-demand video and in-home multimedia distribution. Amino supplies the AmiNET series of set-top boxes and gateways for deployment in the telecommunications, broadcast and hospitality markets. The offer MPEG-2 and MPEG-4 encoding, standard and HD TV, personal video recording (PVR) and home networking. AmiNET products are typically supplied with the Amino IntAct IPTV software stack pre-loaded. Under its IntAct brand name, Amino licenses hardware designs together with the IntAct IPTV software stack to OEMs.
They see today’s TV in terms of two basic environments: Internet TV and Telco TV. Their set-top boxes can bring Internet TV from the PC to TV using Microsoft Windows Media 9 and the Opera Internet browser, which satisfies the burgeoning world of niche or ‘long tail’ content. The box plays streams directly from standard Window Media servers and supports an expanding range of features including WMDRM 10 and Orb networks’ MyCast software (the world’s first integration of the Orb technology in an IP STB). MyCast software on a PC can broadcast video, audio and picture files that the AmiNET boxes can then play on the TV screen. Thus, the Amino Internet TV solution can both deliver live streams direct from the Internet and play downloaded content stored on the home PC. Moreover, the AmiNET125 set-top box can be used with coax-to-Ethernet home networking adapter products such as Readylinks SmartFoot to bring Internet TV to any room in the home.
In terms of the slicker Telco TV, IPTV and Video-on-Demand (VoD) applications are supported. The AmiNET set-top boxes now enable such additional services such as videoconferencing, gaming and VoIP.
Rick Sailor, Amino’s Vice President of Sales for the Americas, says, “The industry has been doing MPEG-2 encoding for the past three or four years, and we’re seeing a migration to new customers running MPEG-4. We at Amino have been doing MPEG-4 standard definition for about two years with our AmiNET124, and now we’re brought to the market the AmiNET125, which has a bit more horsepower and a different chipbase than the 124. The 125 does both MPEG-2 and MPEG-4 standard def, and the box can now run Windows Media 9. We’re even going to put Flash capability in it later in 2008. So we’re looking to give the consumer the ability to watch his ‘basic’ service channels that he gets from a service provider, as well as to jump to the Internet to look at other videos and bring those to the TV as a monitor-type function. We showed it at the IBC last fall and we won a ‘CSI Product of the Year Award 2007’ in the category ‘Best IPTV technology’, ahead of the Microsoft Xbox360 solution for IPTV, and Packetvision’s IPTV Addressable Advertising Service.”
“Another new set-top box we debuted in June 2007 is the AmiNET130,” says Sailor, “which was released as an MPEG-2 device, capable of both standard def and high def. We’re just getting the software stack finished on that, to do MPEG-4 standard def/high def. So again, you’ll have a combination box, and we also plan to add Windows Media 9 to it later in 2008 and then Flash. Until now I’ve been talking about our single-stream set-top boxes. We’re also currently testing our AmiNET530 which is an MPEG-2 or 4 standard def/high def box supporting PVR.”
“Supporting MPEG-4 at high def has certainly been a challenge for everybody in this industry, both the encoders as well as the different set-top box manufacturers,” says Sailor. “They’ve had to come up with a software stack that can do MPEG-4 HD as well as the MPEG-2 HD encoder.”
“I’ve got one of the AmiNet125’s running Windows Media 9 and I’ve been visiting different websites with it,” says Sailor. “I’ll go out on a limb and say that there’s no such thing as a standard Windows Media 9 website. They’re all different. When you visit some sites with a laptop the first thing the site asks you is if you want to download a component to watch videos from the site, because they’ve configured it a bit differently than other sites. With the set-top box you don’t have the ability to perform that kind of download. We just put standard Windows Media 9 in the box. As a result, some websites I can view perfectly, and others I get video and no audio, and others I get audio but no video. It all depends on what they’ve done to the encoder.”
“So that’s where we are from a hardware perspective,” says Sailor. “The different encoder manufacturers are getting their equipment configured and we’ve worked with them on a weekly and almost a daily basis to ensure that things such as MPEG-4 high def are working.”
“Many service providers have divided up their network between Internet and video delivery,” says Sailor. “Let’s say you’ve got a service provider that’s doing video over copper-based DSL. They’ve giving the consumer, say, 1 Mbps of Internet traffic on the VLAN, and the other 12 or 13 Mbps of bandwidth is on a VLAN to the video. So you can watch three streams of video at the same time, yet you only get one VLAN of Internet traffic. The question then becomes, ‘Does the consumer have enough bandwidth to watch Internet video?’ Some providers may only give the consumer a 512 Kbps pipe, which means you can’t watch 600 to 700 Kbps of Windows Media 9. So it will be interesting to see how bandwidth gets delivered and apportioned.”
“You’ve probably heard that AT&T will be reducing the amount of Internet traffic their customers can access because they’re consuming too much of the backbone capacity,” says Sailor.
“The other caveat concerns the content providers.” says Sailor. “The content has to go through the qualification stage, to convert it or reduce it down from an MPEG-2 to an MPEG-4 format and yet still maintain the video quality. Then you’ve got to deal with encryption, transmission, and the set-top box has to do the decoding successfully at the other end. We’re all just a link in the chain and the MPEG-4 chain is still in the process of being forged.”
“The video, in all fairness, is probably a break-even in triple-play situations,” says Sailor. “At the end of the day, by the time your pay your content providers, your encryption company and all other ‘mechanics’ in the chain, video is not a big money-maker. However, video-on-demand does bring in some nice revenues. But a provider’s Internet connection is a real breadwinner in triple play. And of course they’ll get their standard 12 or 14 percent POTS return, because that’s a state issue, from a tariff standpoint.”
“Interestingly, of triple-play customers, you’ve got about a 20 to 25 percent uptick in the number of those subscribers who go ahead and order not just the full triple-play service but also upgrade their Internet to the ‘enhanced’ features, if you will,” concludes Sailor. “This of course results in better revenue generation for the service provider.”
So perhaps the saving grace of IPTV isn’t its money-making capability, but the sheer glamour that it offers to service providers, which keep the paying customers happy. IT
Richard “Zippy” Grigonis is Executive Editor of TMC’s IP Communications Group.
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