BBH Report Home Page
July 31, 2002 Provided by System Dynamics Inc.

Is It Time for Telco Video? -- A report on VDSL

Those watching US telcos over the last decade have seen multiple attempts to add video services to the bundle. Most of those forays ended for a variety of reasons. Earlier trials were based on technologies whose costs and capabilities did not match user willingness to pay. SBC has been quite clear in its disdain for video: it closed down video services at Pacific Bell, Ameritech and SNET after buying them. Qwest has been an exception, but with its "accounting irregularities" under examination, expanding video services is clearly not the top priority. Since we've given coverage to how cable operators are moving toward adding voice to their video and data services, we turned our attention to what is happening with the addition of video to the the bundle at telcos.

Manitoba Telecom

Our contact at Manitoba Telecom Services (MTS), Roy Sherbo, recently provided us an update on their progress toward adding digital video into their voice and data service bundle. MTS is the fourth largest telecom in Canada and has been on a push to make broadband services available in their region. They offer high speed broadband access to 96% of their urban centers and 76% of the population of Manitoba. Starting in May, they began a 200 participant trial of digital TV service, which will run for 6-8 months and lead to a decision whether to launch the service in Winnipeg next year. MTS has a loyal franchise whose customers are predisposed to taking a bundled service from them.

MTS is using Next Level Communications' (NLC) VDSL technology. It enables MTS to provide high speed Internet service plus three simultaneous video feeds through one set top box. The three digital video streams can serve three TVs in various rooms. The master set-top is located in the primary viewing area and connected over the internal coax to the other set-tops. Other features include an interactive program guide and the ability to view incoming call information on the TV screen if the customer has MTS's Call Display service.

Next Level Communications

The conversation with Roy raised a number of questions about the NLC technology. We visited NLC at their headquarters in Rohnert Park, California, to get an update on the technology, deployments and economics. Geoff Burke, Director, Marketing Services and Jeff Barnell, Senior VP, Marketing & Customer Care provided a tour of their facility and a description of their deployments and technology.

NLC has deployed over 100,000 video lines of which approximately 50,000 are at Qwest. Qwest's service, Qwest Choice TV & OnLine, is offered in Phoenix, Omaha and Denver. It uses existing fiber in the neighborhood, reaching within 4,000 feet of a customer's location, and allows the VDSL technology to deliver speeds of 26 Mbps downstream and 3 Mbps upstream. At the neighborhood, signals are converted and sent via ATM and MPEG2 technology through the existing telephone copper wire network.

Many of the other NLC deployments have been at smaller US ILECs such as Citizen's Communications, CenturyTel and Horry Telephone Cooperative. Our impression is that these companies have acted to add video because they have faster decision making than the RBOCs, are often well positioned in their communities (and thus expect good take rates) and may receive government financial incentives for updating technology in rural locations.

Outside North America, companies such as Telenor and China Telecom have run (respectively) VOD pilots and technical trials. Trials have also taken place at BT, Korea Telecom, TelMex, etc.

Although the first VDSL deployment costs seemed prohibitive because of high set-top costs, NLC indicates that the deployent cost per subscriber has dropped 50% over the last year. They say that the return on investment (ROI) yields a two-year break even. (We have not reviewed the models to understand what assumptions support this claim.)

NLC's current technology, which uses Metalink’s VDSL chipset, is promoted as allowing telecom operators to deploy VDSL-based services within the same copper cable binder groups alongside existing and new services. This results from Metalink’s implementation of the standards compliant band plan, transmission layer and power requirements required by the FS-VDSL specifications (see below).

In addition to providing digital TV service, VOD and IPGs, NLC has announced application partnerships with several interactive application vendors, including iMagicTV, Myrio and Orca Interactive.

NLC observes that US telcos are under attack from several perspectives:

  • RBOC access line growth has slowed dramatically and is now estimated on average to be negative
  • Increasing numbers of US homes have dropped wireline phone service and the trend is expected to continue
  • Cable has over 2 million telephony subscribers and DOCSIS 1.1 and VoIP voice services promise to significantly raise that number

These observations lead NLC to anticipate that the US RBOCs may start moving more aggressively to add video services to their bundles. The unanswered question is whether the RBOCs will focus resources on this market now with all the turmoil in the telecom industry.

It seems likely that RBOC strategists are focusing on how to best leverage their positioning as the long-term survivors who can be entrusted with telecom stability and getting increased regulatory relief. We would put our bets on RBOC expenditures going wherever they will best aid that regulatory agenda. After all, more can be obtained by changing the rules of the game than by simply playing the game well.

A footnote: Anyone living in or visiting the Santa Rosa area might enjoy seeing NLCs extensive exhibit of local artists (www.nlc.com/NewFiles/ArtGallery.html).

Full Service VDSL

In June, the Full Service-VDSL (FS-VDSL) Committee published a set of specifications for providing multiple streams of digital video programming, high-speed data and voice services over traditional phone lines - claiming "superior service quality to cable platforms." The Committee was formed two years ago and includes both service providers (most European carriers plus Bell Canada, Quest and SBC from North America) and vendors from ADC to Zhone.

This is a very positive step for the global broadband industry. While the cable industry succeeded in developing and deploying DOCSIS, a single global standard for cable modems, ADSL suffered from numerous competing specifications.

We have written previously about CableLabs' work in developing common specifications through a collaborative process with leading vendors (see BBHR April 23, 2002). The FS-VDSL Committee has adopted a similar approach and has published documents which appear very similar to CableLabs specs. As with DOCSIS, the FS-VDSL specs are being submitted to ITU-T for global standardization; ITU-T has created an FS-VDSL Focus Group under its Study Group 16.

CableLabs efforts resulted in a dramatic reduction in the selling price of cable modems - from $500 to well under $100 - and CMTSs. This reduction in cost, and standardization of systems from many vendors, played a major role in the North American cable industry getting the lion's share - still nearly two-thirds - of residential broadband customers.

We'll watch the FS-VDSL effort to see if it has a similar effect on VDSL. We'll also watch to see which organization takes responsibility for FS-VDSL conformance and interoperability testing, which CableLabs undertook reluctantly for DOCSIS after publishing the specs.

Finally, we were interested to note that SBC is hosting the first meeting of the FS-VDSL Focus Group. Maybe this is a signal that they're not opposed to video in general, but only to the ways others have done it.

( www.mts.mb.ca ) ( www.nlc.com ) ( www.qwest.com ) ( www.metalink.co.il ) ( www.fs-vdsl.net )