SAN JOSE, Calif. -- IPTV 2005: Technology and Strategy -- The last thing telephone companies need to have, going into the IPTV market, is a phone company mentality, according to SureWest Communications (Nasdaq: SURW) CTO Bill DeMuth, who spoke here Tuesday.

“You need to look at your own market; it’s not like the old days of the telco when you would get 99 percent of the market,” DeMuth says. “You will get just a small subset of the market, so choose your capital expenditures carefully.”

DeMuth, speaking to a crowd of mostly hardware and software vendors, says that Tier 2 and Tier 3 carriers, despite their incumbency, face challenges every step of the way when offering IPTV.

First, there's the challenge of getting along with all the solutions providers in the IPTV production chain. Sure, it's nice not to be wed to one vendor, but sometimes that makes things harder. “We wanted the ability to mix and match different solutions throughout the network -- the challenge is integrating it all together,” DeMuth says.

DeMuth downplayed the emergence of large, dominant suppliers that control too many parts of the distribution chain (a Microsoft exec sat next to him on stage), adding that players like Microsoft Corp. (Nasdaq: MSFT) and Alcatel (NYSE: ALA; Paris: CGEP:PA) “drive interest in the industry.”

When it comes to content protection software, DeMuth is leery of how much control carriers are giving up. “I do think there are people on the digital rights management side who would like to lock up the content at the studios then unlock it again at the household, and make us just a dumb pipe."

SureWest has 16,000 fiber-to-the-premises (FTTP) customers, but the carrier can't sit on its lead (see SureWest Doing FTTH). It has offered the triple play of voice, video, and data since July 2002, and began offering IPTV in January 2004. DeMuth says 30 to 40 percent of SureWest’s customers buy a triple-play bundle, while 60 percent go for a “double-play."

True competition, however, is not far behind. SureWest’s triple-play offering now competes with Comcast Corp. (Nasdaq: CMCSA, CMCSK) and will soon face SBC Communications Inc.'s (NYSE: SBC) Lightspeed offering (see Inside SBC's IPTV Factory). While SureWest has incumbency in the regional sense, its competitors are in a better position to cut premium content deals with studios and other providers, thanks to their statewide reach.

Comcast serves more than 700,000 cable customers in central California, while SBC has more than 18 million access lines throughout the state.

DeMuth acknowledges the challenge of acquiring fresh content and enough of it. Larger providers like Verizon Communications Inc. (NYSE: VZ) and Comcast “can tie up content with exclusive agreements with studios and other content providers."

Still, big pipes to consumer homes are the table stakes. “Enabling technologies fiber to the premises is a critical tech for us. We can deliver 100 Mbit/s of Ethernet to each house," he claims, although he estimates that a symmetric connection of only 10 Mbit/s is necessary to deliver two streams of standard-definition IPTV and 1 Mbit/s of Internet access.

And, even after the customer is hooked, the carrier's challenge isn't over. DeMuth says the task of wiring a home for IPTV is, and will continue to be, a major expense for telecom carriers. “If you have to go into a house and wrap it with CAT-5, that takes about four hours to install."

SureWest is anticipating new technical solutions to the CAT-5 challenge, according to DeMuth. “We see a lot of new products heading down the road; we just wish it would get here a little sooner.”

Help, indeed, is on the way. Later in the session, Entone Technologies Inc. CEO Steve McCay piped up that his company has developed a hybrid RF/IP set-top box designed especially for FTTH deployments. It leverages the existing coaxial wiring in the home, to avoid having to use old copper or new CAT-5.

Finally, what would a carrier IPTV discussion be without some regulatory griping? DeMuth said that because of the kind of carrier SureWest is -- it has ILEC and CLEC properties -- it has to wear a lot of different hats: “One day we are being regulated as a television provider, and the next day we are being regulated as a data provider, and the next day it is something else.”

SureWest, like Verizon, is entering traditional franchising agreements with municipalities, but, DeMuth says, this aspect alone can put up a considerable barrier to entry for new players.

“Municipalities have 'level playing field' rules, where you have to build out [service to] the entire city in a reasonable amount of time, and that is a real challenge for new companies."

— Mark Sullivan, Reporter, Light Reading