The telco industry continues to see flattening of voice and data revenues and an associated drop in average revenue per unit (ARPU). The opportunity for telcos to use new technology to enter the market for entertainment video delivery using existing plant is still sound business sense, especially as IPTV, voice and data can be bundled to provide the triple-play offering. However, rather than being seen as a “killer application”, Internet protocol TV (IPTV) is being used as a strategic tool. The market Television is evolving, and subscribers are beginning to watch it in a different way; from linear to on demand, from primetime to widespread (the content is available all the time), from traditional broadcast to an IP-based mechanism that is switched and can therefore be personalized. Five years ago, TV services could only be delivered to traditional static TV sets, but can now move to other screens: mobile, PC and other handheld devices. This change in the TV landscape, combined with the analog switch-off in Europe and the desire for additional functionality, has ensured that the market for home video delivery is receptive to new offerings, and IPTV can deliver.

It’s often been stated that IPTV will not take subscribers from other platforms because no single killer application makes it attractive. However, a number of functions including video on demand (VOD), network personal video recorder (nPVR) or PVR might swing a subscriber from another service that doesn’t have these capabilities. Historically, telcos have been successful in selling in additional cost options such as caller ID to boost revenues from their voice services, so this appears a natural progression.

On the content side where service providers have less experience dealing with either the content providers or their customers as video subscribers, a potentially difficult process has been made far easier by content aggregators such as TPS-Canalsat in France who provide comprehensive bundles of services delivered via satellite. The process is further simplified as the delivery mode ensures minimal re-encoding is required before sending it out onto the network.

The long-tail content (see Figure 1) gives an insight into the areas that are only accessible via IP technology and where IPTV can best fit into the market. Consumers interested in accessing niche content are potential IPTV subscribers, but are doubly important because of the advertising opportunities. Niche content typically means “special interest,” and advertising is more effective if it touches the direct interest of the viewer, so IPTV could be used to tailor advertising to groups or even individuals. Technical issues To provide a commercially viable solution, network operators need to achieve a certain scale so that they can reduce total cost of ownership, but this is achievable considering the size of the potential IPTV audience. One of the biggest challenges is managing video within the scope of triple play and the move to convergence. Video is a bandwidth hog, and any loss in packets has a dramatic effect on the viewing experience, so building and managing a network that can support high quality video is vital. Use of suitable key architecture is important to ensure that IPTV can deliver the quality of service demanded by consumers to be comparable with other delivery platforms.

Noteworthy has been the ability of VOD to drive revenue in the United States. (See Figure 2.) It took some time, but demand is growing, especially with switched VOD (SVOD), and the increasing library of content will help enhance the offering and increase user numbers. Similar demand can be expected in Europe. The IPTV network However important it is to get the business model right, it is even more important for an operator to provide uninterrupted, high quality service to its customers. There is a fundamental need for reliable, cost-effective network technology that allows for a competitive service. (Details of a typical network are shown on Figure 3.) A good IPTV case is difficult because all the blocks need to be adapted to serve video, headend, core network, edge network and aggregation going into the access piece. Key points include:

• There are three possible types of access for IPTV; digital subscriber line (DSL), fiber to the X (FTTx) and switched IPTV over HFC. FTTx gives the option of an analog overlay, which allows a cheap analog TV service that can serve multiple TV sets in the home without additional set-top boxes. This is particularly important in Europe considering the terrestrial analog switch-off. True switched IPTV over HFC plant can be implemented by using the broadband connections over cable modems. This is the concept behind the so-called V-DOC (video over DOCIS) idea, which would let cable operators offer IPTV just as well using their existing plant.
• Because of the need to provide high quality video, voice and data services either in a defensive or offensive business environment, the design and implementation of the IPTV network is of vital importance. However, this is complicated by the need to use existing service provider infrastructure in many cases.
• IPTV headends are based on MPEG-4, so there is a need to convert the feed. (See Figure 4 on page 34 for headend detail.)
• At the edge and core, multi-protocol label switching (MPLS) is used to ensure quality of service. MPLS is a standards-approved technology for speeding up network traffic flow and making it easier to manage. Performance of the access network will depend on the architecture deployed, and in many cases, the legacy infrastructure. The fiber options (PON/FTTx) give the most bandwidth potential with up to 1 Gbps/home using gigabit Ethernet (GigE); however, the cost is higher because of the complex manipulation and jointing of the fiber itself. The performance of xDSL and available bandwidth will depend on the line length, but 2 Mbps/home to 25 Mbps/home (using short lines and VDSL technology) should be achievable, although the length of copper line from exchange to home is the deciding factor. However, xDSL is far cheaper because of the ease of manipulating and jointing copper cable.

IPTV relies heavily on high performance software to provide most of its functionality. Contemporary set-top boxes use a system-on-chip (SOC) architecture that relies on dedicated onboard software to drive the advanced algorithms needed to produce superb video quality from streams as low as 8 Mbps for high definition (HD) and 1.6 Mbps for standard definition (SD).

The operations support system/business support system (OSS/BSS) application programming interfaces (APIs) are handled centrally and are part of the application and subscriber management platform, which handles electronic program guide (EPG), PVR and VOD mainly as a billing and customer relationship management (CRM) function. The security key management function is handled by entitlement management message (EMM) and entitlement control message (ECM). Software handling content either via the headend or via VOD using file transfer protocol (FTP). (See Figure 5.) Surprisingly, the IPTV network and a comparable cable network are very similar. The headend is virtually identical, the only major difference being use of MPEG-4 by IPTV to maximize bandwidth and MPEG-2 for the cable network. In the cable network, there is no need for further encoding because many sources are MPEG-2 based and a DCM can manipulate the encoded content. The MPLS core and edge would be the same for both networks while there will be some differences in aggregation with edge QAM devices feeding the HCF network.

Already a high level of standardization of protocols exists in the IP network, which bodes well for future development. Where proprietary standards exist, they do not create “bottlenecking” or issues with inter-operability. However, as the market develops further, there will be a need to ensure that new standards are adopted or developed. How is IPTV faring? Despite the negative outlook from some quarters, IPTV is being successfully rolled out in Europe and the United States, although the business model used and chances of success or failure depend on the market landscape in the territory being developed. A major factor influencing IPTV business strategy is the existence of competitive multi-channel TV systems, which make trading conditions difficult. Not surprisingly, IPTV’s major successes to date have been in markets such as France, Italy and Spain where the copper telco infrastructure is in place, but customers don’t have the option of using cable or digital satellite. (See Figure 5.) Putting these figures in a global context, it’s interesting to compare with PCWW’s 500,000 subscribers in Hong Kong and Verizon’s 100,000 (increasing to 175,000 by calendar year end) in the United States. While Hong Kong may not be a good indicator because of its unique characteristics, the figures indicate that IPTV is being received well globally.

There is a school of thought in the market driven by some analyst reports that suggests triple-play will not make money for at least five years. This may be a red herring; if you consider total investment in a triple-play service, this will include investment in network infrastructure. A service provider that invests in increasing bandwidth from 4 Mbps to 20 Mbps will not only benefit from improved IPTV capability but also from having the capacity for higher speed data services, which will also produce additional revenues.

There is genuine subscriber interest in triple play, but mainly because of cost savings. While not a good tactic to increase revenues, triple play does reduce churn as subscribers are attracted to the offer. It also fits the strategy of defence where retaining the subscriber is the safest way of ensuring potential for revenue growth. In this instance, the investment must be assessed against not the possible revenues but the cost of recovering a customer after you’ve lost him. Reality or myth The reality is that IPTV is a powerful tool, which, if used properly, can lead service providers to reduce churn in the short term, increase subscriber numbers in the medium term and provide increased ARPU in the long term. As such, it could pose a threat to competitors. However, to achieve thse results, providers must ensure a quality experience for their subscribers and create differentiation. Without this, successful IPTV might be a myth. Nick Fielibert is VP and CTO (Europe and Asia) at Scientific Atlanta, a Cisco Company. Reach him at Nick.Fielibert@sciatl.com. This paper draws from a presentation delivered at this years’ IBC.

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