Driven mainly by a need to cost-effectively deliver high-definition (HD) television, many telco TV providers are now preparing to use the more cost-efficient MPEG-4 video compression standard.

Tut Systems Inc. (Nasdaq: TUTS) and Harmonic Inc. (Nasdaq: HLIT) each claim the first working deployments of the advanced codec, but if industry sources are correct they will soon be in good company (see Tut Deploys MPEG-4 Headend and VNL Doubles Speeds).

The MPEG-2 compression standard is widely used and works very well for standard definition (SD) television. But many, if not most, telco TV players find themselves playing in markets where they must win over cable and satellite subscribers who have come to expect at least two high-definition channels. So they too must deliver the HD channels, which of course require much higher bit rates.

For those carriers that don’t yet have fiber-to-the-premises access, advanced compression standards like MPEG-4 are seen as the only business case-friendly way of delivering HD, vendor sources say.

Tut Systems says it has deployed the first MPEG-4 headend in North America at Farmers Telephone Cooperative, a 60,000-subscriber operator in South Carolina. Farmers’ IPTV service is not available commercially yet, Tut officials say, but the telco is already streaming a “limited number of channels” in MPEG-4 to "a limited number of people.”

“They are surprised at the results; and the quality and bit rates that they’re seeing [are] pretty impressive,” says Tut’s VP of marketing Craig Bender.

But Bender says the work doesn’t end even when Farmers’ commercial deployment begins. “It’s going to take a few years to use and tune all the tools in MPEG-4 to get the best bit rate and all the improved quality that you can get with it.”

MPEG-4 video streams require about half the bit rate of MPEG-2 streams yet deliver comparable picture quality. To deliver two HD channels via MPEG-2 requires a bit rate of 16 to 18 Mbit/s, while the same two channels would use only 6 to 8 Mbit/s using MPEG-4 compression.

Harmonic also claims to have the first encoder streaming MPEG-4 in the real world. The company’s director of telco solutions Thierry Fautier says Video Networks Ltd. (VNL) began streaming Turner’s Toonamichannel (featuring the hit shows Dragon Ball, Dragon Ball Z, and Dragon Ball GT) in MPEG-4 to subscribers in suburban London April 18.

“We... are creating a world first with the first ever broadcast channel to switch to MPEG-4/AVC encoding,” says the operator’s CEO Roger Lynch in a statement released by VNL.

Harmonic’s Fautier says VNL is working toward the complete conversion of its 80-plus channels to MPEG-4 by the end of this month.

Harmonic is a Microsoft Corp. (Nasdaq: MSFT) partner, so its encoders support Microsoft TV’s preferred codec, Windows Media 9 (see Microsoft, Harmonic Team for IPTV). But so far, encoder vendors report a clear preference among North American telcos for the MPEG-4 codec. In fact Alcatel America (NYSE: ALA; Paris: CGEP:PA) CTO Kenny Frank told Light Reading that Microsoft TV customer SBC Communications Inc. (NYSE: SBC) doesn't plan to use Windows Media 9 in its IPTV network, preferring MPEG-4 instead (see Alcatel & Microsoft Going Steady). European operators, sources say, are split evenly between MPEG-4 and Windows Media 9 (see Europe Tunes In to IPTV).

And there are other encoder vendors just a step or two behind Tut and Harmonic in deploying MPEG-4 encoders.

“We’re shipping them as we speak,” says SkyStream Networks Inc. CEO Jim Olson. The encoders, Olson believes, will begin streaming MPEG-4 in the networks of several Tier 2 carriers beginning next quarter (see SkyStream Wins IPTV Deals and Progressive Picks SkyStream for IPTV). Olsen says virtually every telco that is doing video is now actively looking at adopting the MPEG-4 codec.

Tandberg Television says it is now shipping MPEG-4 encoders to one European telco, which Tandberg says wants to remain anonymous. Tandberg marketing director Lisa Hobbs isn’t sure if the carrier is actually deploying the MPEG-4 encoders yet (see Tandberg Talks Up IPTV).

Many in the industry expected the move to MPEG-4 to happen much sooner than it actually is (see Conexant, Tandberg Demo MPEG-4). But that movement has been slowed considerably because the set-top boxes needed to decode the MPEG-4 HD are largely unavailable.

The problem is the chipsets that go in the set-top boxes. Sources say set-top box manufacturers are only now beginning to take shipment on the chipsets needed for their new MPEG-4, HD-ready set-top boxes (see Broadcom Demos HDTV Over ADSL2+).

Harmonic’s Fautier says his company has deployed MPEG-4 encoders at several of its carrier customers, but the absence of the souped-up set-top boxes is preventing conversion to the advanced codec.

Light Reading has heard varying explanations for the delayed chipsets. Fautier believes chipmakers like STMicroelectronics NV (NYSE: STM), Broadcom Corp. (Nasdaq: BRCM), and Conexant Systems Inc. (Nasdaq: CNXT) have needed more time than expected to “work the bugs out” of the chips.

Entone Technologies Inc. co-founder Mark Evensen believes the delays have been caused by the chipmakers taking a pragmatic approach to telco TV in general. He explains that the chipmakers have so far been unwilling to alter production schedules to accommodate the set-top box makers because of a reticence about the sustainability of the demand.

Whatever the real cause, the slow delivery of the chipsets is having its consequences. Sources say it’s another reason IPTV deployment targets at places like SBC and Swisscom AG (NYSE: SCM) are being pushed back (see SBC, Microsoft Defend Lightspeed and Swisscom IPTV Stall Sends Shivers).

— Mark Sullivan, Reporter, Light Reading