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The February 17, 2004 Issue Provided by System Dynamics Inc.
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Consumer Video Telephony--Has Its Time Really Come?

Dave has a favorite saying: "A good idea at the wrong time is not a bad idea--it's just a good idea at the wrong time." I (Sandy) was musing on that the other day while reading an article in Communications Daily which said "Four decades after the 1964 World's Fair in New York unveiled the first picture phone, cable operators, equipment manufacturers, other tech vendors and independent phone providers are gearing up to introduce broadband videophone service to consumers."

AT&T Picturephone at 1964 World's Fair --> Click for larger pictureThe minute I read the words "consumer broadband videophone service", lots of cautionary history immediately popped into my head. In my almost 20-year career at AT&T, I lived through multiple incarnations of the consumer videophone and the time had never been right. I hadn't yet arrived at AT&T during the time of the original Picturephone, but that first incarnation was widely promoted at the 1964 World's Fair, and evolved through "improved" models until it died. At prices of $21 for a three minute PicturePhone call (about US$120 in today’s dollars), the videophones in public buildings in New York, Washington and Chicago were hardly within most people’s budgets.

The problems with that very first videophone have been the same ones that have plagued the category over time. The impediments included:

  • Affordability of both the service and the equipment needed to use the service.
  • Sufficient bandwidth to the home to carry synchronized audio and video.
  • Perceived quality: this is a function of many things; at lower bandwidth, the user experience becomes unacceptable.
  • Community of interest: there must be enough other people who have the product and service for you to communicate with. This generally implies the need for standards.
  • Usability: the product/service combination must be easy for placing and receiving calls.
  • Desirability: it must serve some consumer wants and/or needs.
  • Behavioral acceptance: the more a product requires consumers to change their behavior, the harder it is to accept it. It must also address and overcome fears about privacy: users not wanting to be seen by certain people or not at certain times, etc.


In the late 1970s the Picturephone was reborn as Picturephone Meeting Service (abbreviated PMS--those initials later came to have another meaning). It was positioned as a business-oriented, conference-room based system, since affordability by individuals was still far out of reach. Even for businesses, the prices of transmission and systems in the 1980's made this a niche business application: room-based video systems cost upwards of $30,000 each; the systems required multiple megabits to function and 56 kbps transmission across the US cost about $100/hour.

AT&T Videophone 2500 from 1992 --> Click for larger pictureIn 1992, AT&T introduced the Videophone 2500, a color, motion videophone that worked over regular telephone lines. Although aiming to be a consumer device, it failed to adequately address most of the impediments. It used proprietary technology so you had to buy them in pairs to have someone to talk with. Since the value of the product depended on the number of customers already owning that product, the use of a proprietary technology was not a good formula for success. It was still way too expensive--originally costing $1500 and then $999. It used regular telephone lines since everyone had them, but the resulting low frame rate made it a pretty poor experience. Potential customers were worried about intrusions into their privacy and insisted on having a mechanical cover over the camera lens, even though there was an off-switch which blocked video transmission when the user did not want to be seen.

Some lessons were learned about early applications and these are seen repeatedly in the history of consumer videophone. They were always most successful in the "heart-tug" applications: maternity wards in hospitals showing new grandchildren to distant grandparents; soldiers overseas connecting with family back home; bone marrow transplant patients in isolation staying in touch with loved ones. A current example from the Freedom Calls Foundation is headlined "Logitech Donates Web Cameras and Headsets... to Enable Video Communication Between U.S. Troops in Iraq and Families at Home".

These are all nice stories, but hard to grow a business from. The issue remained: Even if the technical and cost problems were eliminated, what were the compelling applications and the behavioral changes needed to go from having video as a novelty to a natural and welcome communications enhancement?


Fast forward to 2004 and let's see how we are doing on overcoming the impediments.

Cost of Residential Bandwidth

With broadband services deployed to over 20% of households in the US and much higher in countries like Korea, affordable bandwidth to the home is no longer a major issue. Any consumer who has broadband has the basics for getting started with video telephony. Broadband connections with low-speed upstream connections might be problematic, but as service providers join the race to up the bandwidth ante, we expect problems will subside.


Next, let's look at the elements making up the phones themselves, starting with efficient codecs for compression/decompression. The H.264 standard, the next in a succession within the MPEG series (MPEG 4 - part 10) is enabling a new generation of Internet video applications with high video quality, great compression efficiency and resilience to packet and data loss (the types of network impairments typically found on the Internet). Another advanced codec is found in Windows Media 9. Previously, implementing these complex codecs required special chips. However, with the huge increases in processing power of today's PCs, increasingly complicated codecs can be implemented as software-only, thus eliminating the expense of special purpose hardware.

Videophone Components

On the camera front, Webcams are readily available and consumer-priced. Using one of these with a PC (whose residential penetration is now very high) and a microphone is a low-cost way of creating a videophone. A quick Web search yields Webcams selling for as little as $17 which come with USB connectivity for simple installation, are Windows compatible and claim 30 frames per second; of course the resolution on these low priced units is also low (352 x 288). By paying a bit more--but still less than $100--you can get USB 2.0, 1024 x 768 resolution, digital zoom, built-in microphone and high-quality VGA CCD sensor. Many of these cameras have been sold to instant messaging users of Yahoo! Messenger, MSN Messenger and AIM, so familiarity with them is growing. These services are one low-cost way to get consumer videotelephony; many of these provide choppy video and dropped frames, akin to the early experiences of Internet telephony.

i2eye usage example from D-Link's Web site --> Click for larger pictureAnother approach comes from familiar consumer networking companies like D-Link. This approach depends upon the growing deployment of consumer home networking and the availability of the user's TV set. The D-Link approach uses the TV--rather than a PC--as the display device. Their i2eye DVC-1100 Wireless Broadband VideoPhone connects to the user's TV and also connects to their broadband network using Wi-Fi. [Historical note: Projects using the TV as the display, employing camcorders and cable bandwidth for transmission date back (at least) to work done at AT&T in the early 90s.]

Another approach comes from Vibe Phone, which provides proprietary software for download to broadband users and charges based on a cellphone-like model. Users need to have a broadband connection, a Web cam, and Vibe Phone's software. The subscription, which is available on a yearly contract, costs $4.95 per month for 100 Vibe Call minutes, $9.95 per month for 250 minutes, or $19.95 for 650 minutes; if you go over your plan minutes you are billed 10 cents per minute. Call charges apply only to calls initiated; there is no charge for receiving calls. We have not yet tried it, but a commitment to a service contract, even with a free trial first, seems like an impediment for easy adoption.

Communications Protocols

For communications there is no question that the world has settled on IP as the unifying communications fabric, providing interconnection of WANs and LANs of diverse characteristics and able to support any application. On top of this there is currently a choice for how to establish the video connection. Both SIP and H.323 protocols are being used and many VoIP devices (such as snom's IP phone) support both. Microsoft provides SIP support on PCs with Windows XP and Windows Messenger, on smart devices with Windows CE 4.0, on the server with Windows Server 2003 and in other embedded devices with Windows XP Embedded. Thus to the extent that new Microsoft operating systems are installed on consumer PCs and other devices, they are ready to support SIP.

Another technical component which now exists within the cable industry is the PacketCable specification, parts of which were first issued in 1999. PacketCable addresses one of the potential problems not necessarily solved by raw broadband: providing quality of service so that communications packets have higher priority than other packets. Although it is closely associated with cable telephony, its goal has always been multimedia communications, including videotelephony. In 2003 it was augmented by the PacketCable Multimedia Specification.

Assembling the Pieces Into a Service

So it seems that most of the technical and cost obstacles have been eliminated. What has not yet happened is for all these available piece-parts to be assembled into a widely available, consumer-oriented and consumer-priced service--at least, not in North America.

In Italy, FastWeb rolled out their video communication service starting in October 2002, using a Radvision device with the consumer's TV set. Even if you don't understand Italian, their brief video about it is pretty clear.

One of the interesting unknowns is how much consumers might be willing to pay for such a service. Over the past few years, consumer willingness-to-pay for telephony has tumbled dramatically. We don't really know how much consumers would be willing to pay for adding good quality video to their voice services, especially since at least rudimentary services are available via IM services for free. We hope FastWeb will share some of their data on how well the service has fared.

The Remaining Question

But the big question remains in some ways the least amenable to science and most subject to environmental conditioning--are enough people ready to adopt and embrace video communication and has it been made simple enough for them to do so? Can video telephony differentiate one service providers' VoIP service from competing IP telephony offerings? Can consumers be assured they won't inadvertently be observed when they don't want to be?

We don't have good answers to these questions, but hope to get real world data to assess where we are on the path to "readiness". If you or others you know in the industry can shed light on the readiness question, please email or call us.

Has videotelephony's time finally arrived? Our verdict is not in yet.

VTech's Call & Learn (TM) Videophone --> Click for larger picturePostscript: Meanwhile, our grandson will have to make do with this simple VTech model we found on the Web, complete with scrolling video screen, voice mail button and speed dial, plus voice activation. Too bad it's just a toy!

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