Entries in Broadband TV (2)

Thursday
Jan122012

For ILEC with 210k-Mile Network, IPTV Just "Another Application"

It appears CenturyLink didn't want to miss making an announcement at last week's Citi Entertainment and Media Conference, going with a "me too" approach to IPTV services. The "announcement" was modest, as CenturyLink revealed that they would be extending their IPTV services to one or two new markets in the former Qwest territory. Currently CenturyLink's Prism IPTV service passes 1m homes in select markets and, as of 3Q11, had 50k subscribers. For a telecom provider as large as CenturyLink, however, those numbers are relatively small—but what's interesting is how CenturyLink executive vp and cfo Stephen Ewing characterized IPTV: as just “another application.”

Ewing said, “The incremental cost of us rolling out IPTV is not significant. Once you get a 20 Mbps service out there to a customer the incremental cost of layering IPTV on top we view it as another application.” These sentiments, of course, square with what we've been saying for a while—that since so many providers spent so much time and money on network build-outs and improvements, this was the year to capitalize on those networks with new services, content, and applications.

But CenturyLink's "announcement" seems pretty modest, and offering IPTV in only two markets seems like a paltry "expansion," considering that the company has 210k miles of fiber. With its acquisitions and its expansive network, rollouts like IPTV appear to be an obvious next step. For now, Ewing said that, “The (IPTV) customer base is still small, but we did increase the customer base 25% during the third quarter.”

CenturyLink's network design also makes IPTV easier to distribute, as all of its video content is put into a head end in Missouri and, from there, distributed to each of the 8 markets currently served with IPTV. Each market also has its own mini-head end for local content, and all content is delivered over CenturyLink's fiber network.

Last fall, the company denied speculation that it would expand its Prism service to former Qwest markets. CenturyLink had just inherited Qwest's 1m DirecTV subscribers and was committed to satellite TV. But now the Louisiana-based ILEC says it's following a two-pronged approach to video services: satellite and IPTV. It's a strategy that allows CenturyLink to hedge its bets, capitalize on the satellite subs it's already inherited, and continue to anticipate consumer trends, as greater numbers of Americans access over-the-top video services like Netflix. Ewing said, “If over the top eventually takes some of the traditional TV market, we think we'll be well positioned with the bandwidth with have to our customers to participate in that.”

What is surprising, however, is that CenturyLink does not seem to have an overarching strategy to build out broadband to former Qwest markets. So far the company has just said, vaguely, that it plans to "expand its broadband footprint." Broadband has been a key component to the ILEC's business strategy for a while now, and in 3Q11, the service provider added 57k high-speed Internet subscribers, versus only 12k in 2Q11. Part of these gains, however, come from Qwest's FTTN initiative, which CenturyLink has continued after the acquisition. By the end of this year, CenturyLink estimates that it will pass 5.4m homes with FTTN.

In FTTN service areas, 75% of customers enjoy 20 Mbps speeds, while the remainder of subscribers have speeds of 10 Mbps or higher. As for CenturyLink's big picture, about 20% of subscribers can get 20 Mbps, over half can get 6 Mbps, and two-thirds can get 6 Mbps or higher. According to Ewing, “The speeds will continue to improve over 2012 and future years as we continue to build out the IPTV footprint and the Fiber to the Node footprint in the Qwest markets primarily,” he said.

Of course, CenturyLink will find itself increasingly in competition with LTE services (which we will look into more next week), but for now Ewing said CenturyLink seemed to have an edge, due to its increasing bandwidth. Ewing said that average customer usage is continuing to rise to about 18 Mbps, double where it was a year ago.

Friday
Sep302011

Mindshare: Filling the Video Value Gap: The Case for Broadband TV

New White Paper by TDG and Entone Asserts There's Room for Telcos "In the Middle"

This new whitepaper, forwarded to me by Entone, caught my attention because it addresses something I’ve been writing a fair bit about: the very high cost of cable video service relative to OTT offerings like Netflix’ streaming service. It’s a frightening situation for telcos, many of which have either recently or were planning to enter the video fray for significant cost.

But without a compelling video offering, I’ve argued, telcos are increasingly relegated to the position of trying to earn an acceptable return by simply providing the “dumb pipe.” I’ve opined that a telco’s best chance of survival in the next decade revolves around providing the best, fastest pipe in the market, but we all know that for many rural companies, especially given the uncertain situation with regard to Universal Service Funding and the Connect America Fund, there is no clear path to a reliable return on investment. My intention here isn’t to throw my support behind the Entone solution necessarily, but I think the concept of “Filling the Video Value Gap” makes a lot of sense. The paper was authored by consumer technology research firm The Diffusion Group (TDG), and I’ll summarize the pertinent points here.

TDG says that, “The consumer value gap exists for consumers who want more than just OTT video, and yet do not attribute full value to premium PayTV services.” I’ve railed against my cable company and threatened to cancel service repeatedly for this reason—I have hundreds and hundreds of channels and nothing to watch. But because I like the ability to DVR the handful of shows I do like, and VOD service for movies, I have yet to follow through on my threats. Still watching my options, however…

That said, TDG argues (rightly) that “The operator value gap exists for operators who want to offer a subscription video service without taking the plunge into IPTV.”  It adds, “…providing IPTV PayTV services is an expensive proposition that involves network upgrades, TV head-end facilities, middleware, settop boxes, DRM software, VOD servers, and ongoing operational costs to maintain the network. Although many telcos have launched IPTV service and reaped considerable success, all would agree that the costs involved are considerable.

“Content costs for telcoTV services can also be high, particularly for small operators that lack the bargaining power of larger MSOs. Combined with large upfront capital costs, this can lead to pressure on the business case for IPTV services. Satellite resale, while alleviating the hassle and expense of network upgrades and content negotiations, provides little in the way of additional revenue or strategic value.”

All true. So what’s a telco to do? The whitepaper argues that “These gaps can both be filled with the launch of Broadband TV services while delivering strong economic value to both consumers and operators.”

The authors state that “A new service category called BroadbandTV (BTV) has emerged that appeals to consumers who want more for less, providing operators with a way to deliver new revenue-generating services without the full infrastructure costs that come with IPTV. Whether an operator has delivered TV services or not, BTV can become an important new service tier for telcos. Providing a home media gateway as part of the BTV service is a simple pathway to enable a number of new services with very high consumer appeal including: 

• Live HDTV

• Broadband VoD services

• Whole-home DVR

• Integrated personal media

• Personal media sharing through social websites

• Integration of Internet radio

“Since the gateway is IP-enabled, it can easily be updated to provide additional resources, features, and services. This means an operator has a platform that can keep up with the fast pace of innovation on the Internet, as well as deliver a wide range of other IP-based services such as home security, home medical monitoring, digital storage and backup, and VoIP. The consumer value gap provides some great opportunities for you, the telco, and the operator value gap shows the economic incentive to leverage broadband for new services.”

Unfortunately, the whitepaper doesn’t get into the expenses associated with Entone’s (or any other vendor’s) “BVT” solution, but it does describe some interesting ways for the telco to marry on-demand content with Internet content and over-the-air and/or cable content as well as using the service to move subscribers onto a higher speed/tier broadband service:

“For example, subscribing to broadband TV services with a broadband-enabled DVR could require a special tier of broadband service. Some operators are currently testing this approach. Virgin Media in the UK has launched a DVR that includes a 10 mbps dedicated broadband connection. The DVR uses this “through-the-middle” broadband connection to deliver a blended PayTV and Internet video home media service.

“TDG asked a group of 2000 PayTV+broadband subscribers about their interest in a broadband TV service that included their favorite TV channels, on-demand movies, and a mix of Internet content. Given such an offering, survey participants were asked to rate their interest on a 7 point scale from “definitely not interested” to “strongly interested…there is broad interest in such a supplemental service, with 34% of PayTV+BB users expressing interest at a price of $25 a month…This suggests a total market potential in excess of $8b a year for such a broadband TV service…Importantly, this approach gives the operator a platform in the consumer home over which additional value-added services can be offered. There is evidence of major revenue potential for such services.” The paper goes on to describe in more detail how companies both with an existing video service or without can leverage the “BTV Gateway” to fill the “value gap.”

The study was sponsored by Entone, and of course the point of a whitepaper is to generate sales leads and calls to the vendor (hence the lack of equipment pricing information).  But it does (rightly) point out that this so-called "video value gap" will eventually be filled by other service providers if telcos don't move to do so.  If you want to read the entire white paper, click here.