Back Office - Balancing Act

Carriers Sticking Neck Out With Entertainment Services Must Watch Their Backs, Too

As ever more LECs experiment with and, in a few cases, launch consumer entertainment services over DSL links of one kind or another, the question of whether this is a business they want to be in is rapidly giving way to the question of how to make the business work within the existing network infrastructure.

Making it work that way entails an intense juggling act between the risks associated with doing nothing and those that come of trying to do too much--as in trying to run a combination voice, data and video services business over completely incompatible voice and cable infrastructures. The uselessness of trying to do too much is painfully apparent in the efforts of Verizon Communications (www.verizon.com) and SBC Communications Inc. (www.sbc.com) to sell the cable properties they inherited from GTE and Ameritech, respectively, at a moment when the market is considerably below the equity values that drove per-subscriber cable property sales into the all-time high range of $4,500 to $5,000 earlier this year.

But the risks of doing too little when it comes to adding entertainment services to the consumer package, if not quite so obvious at this stage, are widely recognized as cablecos and a new generation of cable "overbuilders," ranging from CLECs to utilities and municipalities, pursue the Holy Grail of low-cost packaged broadband services in the residential markets. The intensifying LEC pursuit of DSL-based entertainment services options, including some that are web based and avoid traditional cable altogether, "is definitely a competition-driven phenomenon, as you can see in Phoenix," says Michelle Abraham, senior analyst with the research group Cahners In-Stat Group (www.instat.com).

In Phoenix, Cox Communications Inc. (www.cox.com) has mounted a serious threat to the core voice business Qwest Communications International Inc. (www.qwest.com) inherited with its purchase of US WEST and is challenging the telco on the high-speed data front as well. In response, the carrier launched its new very high-speed DSL (VDSL) service platform last year and now is serving several franchises in and around Phoenix. But with only about 100,000 customers presently receiving TV services over VDSL and other DSL variations throughout all of North America, it will take a tremendous push on the telcos' part to get to the deployment levels Abraham anticipates for the future. By 2005, she predicts, there will be 75 million homes passed by video-over-DSL services, 20 million of which will be in the United States and Canada.

Conflicting Signals

The industry's uncertainty about how to proceed is evident in the mixed messages emanating from Qwest concerning its plans for "Choice TV," the digital service the carrier is delivering in Phoenix over a VDSL facility supplied by Next Level Communications Inc. (www.nlc.com). While the carrier has put a hold on planned expansion of VDSL services into Denver and other regions, and is widely seen as lukewarm at best about pursuing the US WEST strategy, it would be wrong to conclude that the VDSL plan is dead at Qwest, according to John Kelley Jr., a former US WEST official who is now executive vice president for local networks at Qwest.

Discussing Qwest's local service strategy at the recent National Fiber Optics Engineers Conference in Denver, Kelley said the broadband service offering in Phoenix, which now has over 39,000 customers "with 50,000 more subscribers in queue," represents "an exciting opportunity" for Qwest. The VDSL platform allows the company to offer digital TV to up to three TV sets simultaneously together with voice and high-speed data over a 25mbps copper conduit that extends about 3,500 feet from fiber nodes, Kelley said, adding that Qwest is discovering that "customers really like the service."

"We're discussing ways to make the service more widely available," he added. "We're evaluating it heavily as we speak."

Most other LECs are looking at the entertainment service options as well, including Verizon, through a continuing test of VDSL-based services in Clearwater, Fla., and SBC, in conjunction with its commitment to implementing a higher-speed, more widely available version of asymmetric DSL (ADSL) than it has been offering. These carriers recognize the need to offer some level of entertainment service, but they're torn over whether they must commit to the VDSL scale of investment or can provide something sufficiently compelling over ADSL to help them build gradually in the direction of next-generation interactive services. Many players believe ADSL offers a means by which a web-based version of consumer entertainment, using highly compressed streaming audio and video technology, can be delivered to TV sets through specialized set-top boxes, thereby providing a relatively low-bandwidth means of offering an entertainment service that is distinct from cable TV and not nearly as bandwidth-consuming as cable fare.

VDSL Standard in Limbo

In fact, uncertainty over how to proceed has slowed the emergence of VDSL as an industry standard, notes Ken Krechmer, technical editor of the Communications Standards Review (www.csrtds.com) and a long-time consultant to participants in the standards-making proceedings of the International Telecommunications Union (www.itu.int). "Carriers are concentrating on rolling out ADSL and aren't ready to make the decisions about VDSL that must be made for the standards-setting process to move forward," Krechmer says. "Until carriers decide how they want to use VDSL--for example, whether there will be an emphasis on web hosting that requires more symmetric configurations--it will be difficult to reach agreement on the modulation technology."

SBC is eager to exploit the expanded ADSL platform on which it is spending $6 billion over the next three years as a means of supporting web-based video services rather than traditional TV fare, says Ed Reisner, managing director for technology and product planning at SBC. Eventually, territory-wide installation of fiber digital loop carriers to remote terminals that will help SBC shrink the length of its ADSL lines to a maximum of 12,000 feet will put the company in a position to move fiber even closer to end users for a possible transition to VDSL, Reisner says. But, he quickly adds, "We're not going to do anything that isn't standards-based."

Meanwhile, the goal of reaching 80 percent of its subscriber base with the shortened ADSL lines will put the carrier in a position to guarantee customers a 1.5mbps minimum downstream rate, in contrast to the 384 basic ADSL data service it offers today, Reisner notes. In fact, he adds, with an anticipated 60 percent of the customer base within 9,000 feet of the DSL access multiplexers by the end of 2002, the data rates will go as high as 6mbps.

The 1.5mbps rate floor will allow users to access the expanding body of broadband-enhanced web content that's designed to deliver MPEG-1-level video, which is to say full-screen, 30 frame-per-second VHS-quality entertainment at data rates of 1mbps or lower, Reisner says, noting that there will be enough bandwidth left over to carry multiple-line packetized voice services as well. "We haven't decided whether we'll offer the video package through our ISP or another entity," he adds.

To Traditional Tube

This video content won't just be targeted to the PC, he notes. "We're looking very closely at the whole CPE side of the business to figure out how to get video to the TV," he says.

This effort includes thoughts about a home-based network controller which would receive the ADSL data stream delivered in ATM format and translate it to native IP or other formats for distribution to PCs, TVs and other appliances. "We have teams of people looking at these possibilities," Reisner says.

SBC's new video-friendly platform will benefit other service providers as well, opening what promises to be a floodgate of consumer Internet access packages from ISPs that highlight the entertainment as well as the always-on and high-speed aspects of broadband. For example, America Online Inc. (www.aol.com), which is contracted with SBC and other telcos to use ADSL to deliver a broadband version of its service, has taken several steps toward developing IP-based TV service under its "AOL TV" initiative, including release of version 5.0 of its operating software with modifications that support access to its services via new ADSL-configured set-top boxes. The new software also comes with a data rate "sniffer" that automatically tells the ISP which customers can receive broadband content.

Sandwiched between the cable TV-over-VDSL and the web video-over-DSL options, another video delivery option involving transmission of digital cable channels over ADSL is capturing interest in some telco quarters. Here the drawback is that the ADSL lines must be short enough to carry MPEG-2, which typically operates at 3mbps to 4mbps vs. the much lower bit rates used in web-based MPEG-1 and other compression formats; and, even then, the available bandwidth is only enough to support delivery of service to one TV set vs. the multiple set capabilities of VDSL and traditional cable.

"The model in the U.S. is you need to be able to serve three televisions," acknowledges Ronald Durando, CEO of mPhase Technologies Inc. (www.mphasetech.com), a supplier of MPEG-2-over-ADSL video technology. But, he quickly adds, telcos will have the option of using two lines to serve as many as four TV sets once mPhase institutes the next version of its technology with a combined MPEG-2 and MPEG-1 two-channel delivery capability per line.

"Only two TV sets will get MPEG-2 [in this future iteration]," Durando says. "But the MPEG-1 feed will open a lot of options, including video on demand and web-based content."

'Outstanding' Service

Early users of the mPhase system say it is delivering outstanding TV service over line distances of up to 12,000 feet. Companies deploying the system include Hart Telephone Co. (www.hartcom.net) in Hartwell, Ga.; Kansas-based Pioneer Communications (www.pioncomm.net), TelMex (www.telmex.com.mx) of Mexico, and an Atlanta-based wireless operator, Sanswire.net LLC (www.sanswire.net), which is using the platform to distribute services inside large apartment buildings that are served via the provider's wireless broadband system.

"Our plan is to roll this product out just as fast as the supplier can have it manufactured and we can get it installed," says Ron Anderson, executive vice president at Hart Telephone, where a test of mPhase's system has been under way for several months. "The people here who have seen this system in operation are very excited about it."

Hart, like many small independents, runs a cable system, which it must either upgrade to remain competitive with the other local cable operator, Comcast Corp. (www.comcast.com), or replace using the mPhase platform. "We'll offer the [mPhase-based] service everywhere, which means we'll be competing with ourselves as well as Comcast," Anderson says. While many observers believe ADSL will never be able to deliver services that can compete with cable, the issue of whether or not the DSL-based video quality measures up appears to be going away. One source of what appears to be an objective assessment of the comparative quality is Tom Vick, engineering director at Pioneer Communications in southwest Kansas, which has just finished building a state-of-the-art 750 MHz hybrid fiber/coax (HFC) plant serving 17 towns in the region.

"We're very happy with what we've got here, but we still have a need to reach customers that are outside the range of the cable system," Vick says. "We've been looking at the mPhase system and others, where we would use fiber to deliver the signals to remote locations and then send the video out over the telephone wires."

Pioneer has been running the mPhase system over a single 10,000-foot copper connection between one of its switches and the pilot's lounge room at Grant County Airport near Ulysses, Kan. "We're delivering all of our 85 channels--one at a time, of course--along with a 480kbps Internet connection and POTS over the line," he says.

'Dismaying' Success

"It's hard to explain how good this is until you see it," Vick adds. "We've had some of our cable construction people in here, and they've come away pretty disappointed that it works so well."

The mPhase platform, which can operate in asymmetric or symmetric mode, employs technology developed by Georgia Tech Research Institute (www.gtri.gatech.edu) to compile and format all incoming video feeds from satellite, broadcast stations, servers and other sources for delivery in MPEG transport frames to the customer premises. "We're delivering services in real time, avoiding the delays, costs and bandwidth-consuming steps of using ATM or MPEG over IP," Durando says. Presently the system allows individual users to select from a lineup of up to 192 channels, which Durando says will be expanded to 400 channels with release of version two of the system before the end of next year.

The mPhase set-top box, which uses MPEG chips supplied by IBM (www.ibm.com), serves as an "intelligent network interface" that also hands off the Ethernet-formatted high-speed data signal to the PC and the POTS signal to standard telephones. The system costs about $1,500 per port (customer) and is projected to drop to $1,200 by the beginning of 2001, Durando says.

Another ADSL-based cable TV-like platform that's been gaining ground with carriers and which can also be used with VDSL is one that delivers MPEG-2 over IP in the multicasting mode, using hardware developed by PixStream Inc. (www.pixstream.com ) and a digital TV operating system developed by iMagicTV Inc. (www.imagictv.com). NBTel (www.nbtel.nb.ca) in the Canadian province of New Brunswick and Kingston Communications (HULL) plc (www.kingston-comms.com) in the East Yorkshire region of England have launched digital TV services commercially using the platform.

"Besides the deals with NBTel and Kingston, we have trials under way with five carriers, including one large incumbent in the U.S.," says David Caputo, vice president of marketing for PixStream. Caputo says the activity surrounding telco use of DSL technology to deliver video services is just the tip of the iceberg as carriers gear up to do battle with cable giants led by AT&T Corp. (www.att.com). Relating a recent discussion he had with a senior U.S. RBOC official, Caputo says, "He said that, based on the new competitive situation and their current service capabilities, they were projecting an annual loss on [net operating] margins of 6 [percent] to 8 percent and a falloff in the customer base of about 4 percent per year."

Offering a package of bundled, discounted services including TV entertainment appears to be the only way to go in combating this trend, Caputo says. "The message I got [from the telco executive] is we're going to see a lot of activity in the year ahead," he adds.

Bridge to Digital TV

While ADSL doesn't represent the ultimate answer to meeting the cable TV threat, it is proving to be a more viable bridge to digital TV than many had thought, says Marcel LeBrun, president and CEO of iMagicTV, which is owned in part by Aliant (www.aliant.ca), the parent company of NBTel. In NBTel's case, for instance, the carrier is offering the full slate of government-approved TV services, representing 76 channels, along with 30 digital audio channels over full-rate ADSL links, and could go to hundreds of channels if the services were available, LeBrun says.

"The data rates on their ADSL lines range from a minimum of 4mbps to 8mbps, so there's enough capacity to serve multiple TV sets in the home," LeBrun notes.

PixStream and iMagic simplify the use of ADSL as a delivery mechanism through use of IP multicasting between the video headend and the DSLAMs that typically reside in CO switch enclosures. The PixStream headend takes in any type of video signal, whether analog or digital, from any source, converts it to MPEG-2 and then encapsulates the MPEG frames into IP packets for routing via the IP multicast protocol.

This protocol allows all the channels to be streamed to all the DSLAMs and offers a means of channel tuning that is key to keeping costs down and the process simple, Caputo notes. This channel tuning, which results in one channel going to any given TV at one time, is accomplished through the IP multicasting protocol known as Internet group management protocol, or IGMP, which is a means by which users join a multicast session over the Internet, he explains.

At the client end of the link, signals, which can be delivered as IP over ATM or IP over Ethernet, pass through the ADSL modem and are handed off to the TV set-top box supplied by Pace Micro Technology plc (www.pace.co.uk), which uses the iMagic software to manage authorization, tabulation of usage for billing purposes and other administrative aspects of the system. Caputo says the system also supports an all-ATM option, where, rather than using IP multicast, high-level protocols of the ATM hierarchy can be used to handle distribution and channel changing functions.

"By employing very dense, integrated processing technology we're able to do in a single module what it takes 10 to 20 seven-foot racks to do in an analog cable headend," Caputo says. "So telcos only have to spend $1 [million] to $2 million for our gear compared to the $20 million or more they'd have to spend on traditional headends."

The downside for telcos, of course, is that full-rate ADSL can't be delivered on a ubiquitous basis without major upgrades. But the full-rate ADSL option offers a low-cost transition into the video business for telcos, to the extent that the ADSL systems they're deploying can be operated at full rate, LeBrun says. "You can reach enough customers to build a business now, and then, as demand increases, you can begin taking steps to ensure full coverage," he asserts.

Starts Making Sense

"This is where VDSL starts to make sense, because you have a revenue stream that justifies the costs of the upgrades."

But what if the upgrade costs are such that the incremental costs of taking fiber further, to a neighborhood pedestal or all the way to the premises within another year or two, would make VDSL unnecessary? "Those are the kinds of questions that are making it very hard for carriers to decide how to proceed," notes Krechmer.

Clearly, the LECs will have to make some choices soon if they are going to meet the competition head on. With Verizon exploring VDSL in Clearwater, Fla., SBC moving to higher rate DSL and Qwest weighing what to do next, the ADSL-to-VDSL migration path may begin to make sense, assuming mPhase and the PixStream/iMagic team can deliver on their early promise.

"It's a very complex set of issues you have to go through," says mPhase's Durando. "But all the activity we're seeing tells us the carriers are ready to make a serious attempt at sorting them out."

Getting It Into the Home, Economically
By Fred Dawson

Vendors are hoping to add to the appeal of the entertainment services option with the launch of new initiatives aimed at lowering costs and simplifying entry into the business over DSL platforms.

For example, Next Level Communications Inc. (www.nlc.com), the supplier of very high-speed DSL (VDSL) and CPE to Qwest Communications International Inc. (www.qwest.com) and other telcos, has entered an agreement with chip manufacturer Broadcom Corp. (www.broadcom.com) to codevelop a residential broadband gateway platform using next-generation VDSL silicon from Broadcom. This open platform will provide Broadcom's customers with an economical solution for delivering broadband services--including multiline digital IP voice, video and data for phone, fax and Internet connections, high-definition television (HDTV)/MPEG-2 video graphics and 3-D game-quality graphics over existing telephone lines, says Henry Nicholas, president and CEO of Broadcom. "This development supports Broadcom's mission to accelerate the delivery of high-quality video services, voice and high-speed Internet access to consumers over existing telephone lines," he notes.

A key component in the mix of integrated chips that will lead to a more cost-effective business model is Broadcom's "no-new-wires iLine10" home networking technology, which exploits the HomePNA protocols to facilitate whole-house distribution of interactive content through a single point of interface with the outside network. Where, today, accomplishing all the functions in the Next Level N3 Residential Gateway requires about 10 chipsets costing $10 to $50 each, the new platform will require only a couple costing in the $20 to $40 range, says Bill Weeks, senior vice president and chief strategic officer at Next Level.

Presently, the N3 costs about $700, which, in cases where multiple TV sets are involved, can still be competitive with cable's digital TV services. But, with digital cable set-tops deploying at well under $300 per unit, the cost parity only applies in a small percentage of homes.

Weeks says the reduction in chips required to create the "whole-house" video, data and voice capability for VDSL will put it ahead of cable when it comes to cost-effective platforms for bundled service offerings, though he declines to say how soon the N3 costs will fall to $400 or lower. "That's a question of volume once you've achieved the integration," he says.

Adding to the business case for telcos is state-of-the-art encoding, insertion and multiplexing technology supplied by companies like the DiviCom unit of Harmonic Inc. (www.harmonicinc.com), PixStream Inc. (www.pixstream.com) and VideoTele.com Inc. (www.videotele.com), a recently created unit of Tektronix Inc. (www.tektronix.com). All have taken action to ensure compatibility with the Next Level VDSL system, thereby affording telcos the same cutting-edge capabilities for manipulating and customizing MPEG-2 signals that cable has.

VideoTele.com, for example, has tweaked systems Tektronix has been offering for many years in broadcast production and digital TV transmission to capitalize on the emerging telco market, says Lee Rainey, director of marketing for the company. "VDSL appears to offer another revolution of the sort we've seen in TV with first cable and then DBS [digital broadcast satellite]," he adds.

The company is supplying Qwest with the encoding system used to import local off-air and other signals into the digital channel stream, allowing a mix of variable-bit-rate encoded inputs to be delivered in a constant-bit-rate format over the ATM transport layer used in Next Level's VDSL system. "A couple of years ago, it cost telcos about $3.5 million to add a digital headend, and now that cost is down to under $1 million for a 100-channel system," Rainey says.

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