Video Over Déjà Vu

Video? From the local exchange carriers?

It’s beginning to sound a lot like 1994: No competition in the local exchange, and LECs saying they want to provide video. A number of RFPs for video-over-DSL are out on the street now, mostly from the smaller independents, but the big guys are also talking.

Eight years ago “video dialtone” was all the rage, with the Federal Communications Commission overseeing a number of trials of LEC video delivery; Time Warner (NYSE: TWX) running its infamous video-on-demand trial for the wrinklies of Orlando; and Bell Atlantic proposing a huge merger with TCI to create a super-carrier for all manner of entertainment and telecommunications services. All of it failed. The merger was called off; Time Warner rolled up the Orlando network (recycling its gold-plated set-top boxes into funerary urns?); and video-over-DSL vanished into the dustbin of history.

Then came Enron Broadband, which inked a 20-year joint venture with Blockbuster video back in 2000 to provide video on demand to DSL subscribers on Covad, Qwest, SBC, and Verizon networks. Blockbuster was to provide the content, which Enron would then encode, store, and stream to set-tops, once a customer ordered it from the Blockbuster Website. Enron made quite a fuss about it in the press, claiming they would ultimately make more money from telecom than from energy. Everyone who saw the technology liked it and even bestowed kudos on Enron for putting together a workable streaming video solution. But there was a catch: Enron said Blockbuster stank at getting content deals with studios and called the deal off. Then the SEC said Enron stank at accounting and called Enron off.

Today, as if by magic, video-over-DSL is back, with lots of people starting to say it’s ready for prime time. So dust off that dustbin – the reasons are these:

  • Costs associated with video (MPEG2, ATM, DSL) are falling rapidly, and carrier experience with ADSL (asymmetric DSL) as an Internet access technology is strong enough now to allow them to take the plunge into video.

  • VDSL (very high-speed DSL) technology is much more mature and affordable, allowing the delivery of around 16 Mbit/s per home, which is enough to support three televisions at 5 Mbit/s of digital video each.

  • Loop lengths are getting shorter as LECs deploy fiber into their feeder plants and employ next-gen digital loop carrier equipment that supports DSL and VDSL. This allows them to get to the magic number of 15 Mbit/s to each home over copper – which, again, gets them three set-tops at 5 Mbit/s each.

  • Business video applications are maturing, and many folks are looking into video-over-DSL as a way to supporting multicast and streaming video to desktops and LANs for business communications.

  • Competition: The incumbent LECs have won the battle against the upstart CLECs for the business customer, so they’ve retrained their sights on the consumer. They’ve done just about all they can wringing revenue out of enhanced calling features, so the only way to grow is into new services. Cable TV operators are starting to talk about “bundles” of video, data, and voice – so it’s time the LECs come up with bundles of their own. Video is the missing element, and video over DSL is the cheapest way to get there.
The stage is certainly set for LECs to begin dabbling in video again, yet this all sounds too easy to me. My time spent researching video dialtone back in 1993 and 1994 taught me that there was much more to getting into the video business than simply adding the right boxes to the network to support video. Rather, in those days it was the carriers' inability to get compelling content – providing all the same channels and more than the incumbent multiple system operators plus good movies for video on demand – that got many of them into trouble, while others simply couldn’t market video with the same élan (not to say panache) as their MSO rivals.

At the time, the LECs were focused on providing switched video on demand, either over a DSL access line or a coax drop from a hybrid ONU (optical network unit). The idea was that LECs would become providers of a “video dialtone” in much the same way they provide a voice dialtone. You pick up the phone and dial any user or service you want by pressing the appropriate buttons. With video, you’d turn on the tube and select any programming you want, from local broadcast to stored video. It had a lovely ring to it, but it’s not easy. Here’s why:

  • You need a big library of content: good content, not old episodes of Taxi, but movies before the video store gets them, which is very tough to negotiate when you have a market presence of zero. Has that changed for ILECs? Not really. This is what Enron was supposed to get via the Blockbuster deal. But the film studios wouldn’t play.

  • This is the ultimate unicast model, so you need an incredibly robust network, because every channel is accessed from the central office, not tuned to from the set-stop. That creates annoying delays when switching channels. It’s also a huge software management undertaking, because the set-top needs a rock solid operating system, and the network needs an even more robust OS.

  • You need an extraordinary amount of network capacity, since each home or business user will require dedicated bandwidth. Compared to broadcast models of video delivery, unicast is orders of magnitude more bandwidth hungry. Also, think of the DSLAM: It now has to have a massively scaleable backplane to support multicast and unicast video. None of the DSLAMs out there today can do it.

  • You need affordable set-top boxes. Today, the set tops most MSOs provide cost them a couple hundred dollars, and that’s for the digital ones. If a set top is going to support IP video (which it must if this is a video-over-VDSL network), then that box is probably going to cost a hundred dollars more than what MSOs are paying, so LECs begin their foray into video with a cost disadvantage.

  • Inside wiring. MSOs have the advantage of coax, which is already in everyone’s home, has ample overhead to support hundreds more channels than already broadcast, and holds up fairly well over time. LECs do not have that luxury. After the FCC changed the rules around inside wiring recently – handing ownership of it to the consumer – a LEC has no way to “certify” inside wiring for its ability to support video unless they ask to come inside your house and test all the jacks. That’s a pain, since they won’t know if you can get service to a particular jack until you’ve ordered it and they send someone out there to test it. Or they send someone out to put in new wiring that you have to pay for. That doesn’t seem like a very good way to run a business.

  • Marketing. You’ve got to market video as the MSOs do, with real flash. LECs haven’t really blown anyone over with their ads for three-way calling or voice mail. The LEC answer is to provide a bundle, but those always seem to sound better on paper than they do when implemented. It may provide the benefit of one bill, but it almost always requires multiple customer service contracts and confusing pricing schemes. Not sure the bundle is enough. Folks are switching to digital satellite not because there is any bundle, but because of better programming and better quality than MSO offerings.
So where will LEC video show up, given that these challenges seem awfully steep? It will likely happen among the independents (those like Frontier, Alltel, and CenturyTel) first, since they are often much more willing to try out new technologies in their smaller communities and can work closely with vendors to get a working solution up and running. In many of those communities the LECs don’t face very tough competition from the local MSO, so digital satellite is the main threat. To compete, the LEC can offer a discounted bundle of voice, video, and data, something satellite can’t.

So the question remains: Can video over DSL rise out of niche status? I doubt it. There are major hurdles that don’t have obvious solutions. The technology is catching up to vendor requirements and getting more affordable, but is technology enough? Sometimes it is, because it changes the economics of service delivery enough to make a move into video worthwhile. But in most cases, technology is just one element of a service’s success: The real challenges lie in the marketing, the fulfillment, the brand recognition, and customer faith.

Back in 1994, many surveys were showing that consumers were more than happy to bag their MSO and go over to Bell Atlantic or Ameritech for cable. But MSOs have gotten a lot better since 1994, and satellite is getting even better than cable, so the choice isn’t so clear. If I were an ILEC, I’d stick to wireless/mobility as a growth area and let video pass me by for the time being. It’s not a great era for big gambles, especially on those that have come up losers in the past.

— Scott Clavenna, Director of Research, Light Reading
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jsegel 12/4/2012 | 11:52:08 PM
re: Video Over Déjà Vu HD-NET writes "A single (modern)television channel with MPEG-2 compression is 19Mbits/sec."

Er... not really. Try a lower order of magnitude.

State of the art MPEG2 compression brings a channel down to below 3.2Mbit/s.

MPEG4 more than cuts that bandwidth in half again.

The challenge is not getting a single good-quality channel to the home, as this is easily within the capability of must subscribers' loops. It is getting multiple channels simultaneously and evolution to HDTV that are the problem.

batu 12/4/2012 | 10:34:58 PM
re: Video Over Déjà Vu Good report.

A few additional thoughts
- don't underestimate the copper infrastructure problem. The vast majority of homes are still connected by old, poorly maintained copper. Inventory may or may not be up to date. The plant may or may not be able to support ADSL and VDSL.

- Installation is very expensive. One study I saw said that British Telecom had to make an average of 5 trips to each home to install DSL and get it working.

- Set top boxes have to be replaced every 6 months or so because of the advances in technology.

- Pricing for Video on Demand has to competitive with the video store and cable.

Check out Kingston in the UK. They've been providing VoD for sometime. What is their success record?

MP_UK 12/4/2012 | 10:34:57 PM
re: Video Over Déjà Vu Batu - good post, Scott - good report.

Couldn't agree more, I just don't believe that DSL is the right medium for video delivery, one of the main problems being the inconsistency in the network i.e. the rate vs reach issue. It sounds like a real pain trying to sell a service when you can't provide it to all your customers because some loops are too long - so what's the solution - only advertise to the subscribers you know can get 3.5Mbps + connections?

Also one of the problems with VoD is that (I believe,) the studios are tied into the video shops - see Blockbuster, owned by Viacom which is tied into Paramount. If you want to talk to studios about taking business away from their video shops, you need to offer something in return - some of your profit - which is when the bottom drops out of the business case.

Lastly, one correction. Fujitsu make, and have shipped, IGMP controlled ATM multicast capable DSLAM's. I suspect there are others...
cfaller 12/4/2012 | 10:34:47 PM
re: Video Over Déjà Vu Good column, and good posts. One other thing to keep in mind...demand!

Demand for VoD has always been low, and sadly, it is often overlooked by analysts (it was even glossed over in this column). Average households only rent 2-4 videos a month, at $3 per rental. Can telcos make a business case for a massive network overhaul, all for a few dollars extra per month?

Just like in 1994, the answer is no.
rjmcmahon 12/4/2012 | 10:34:45 PM
re: Video Over Déjà Vu Demand for VoD has always been low

This is incorrect. Napster and other peer/peer networks reveal that the latent demand for content made conveniently available is huge.

The problem is that the distribution networks lose market power when the deep catalog is made directly available to consumers. Imagine if your local computer retailer was able to prevent Dell (or others) from selling PCs direct by controlling UPS. PCs wouldn't have flourished.

That is the situation we have today with bit distribution, i.e. there is no competition. The distributors maintain their monopoly position and its in their best interests to do this.

In a free market, a business consolidating via monopoly distribution is the ultimate win for any businessmen. History reveals that the those that take the most GDP for themselves figured out how to monopolize distribution of mass consumer demand.

We are moving into an information society. We can achieve our peak potential, but first we need a basic infrastructure without monopolists' control.
opt_dhogan 12/4/2012 | 10:34:43 PM
re: Video Over Déjà Vu It sounds like these providers are working on ways to deliver 16 Mbps of data (just happens to be video) to a home. Why not deliver that great data rate and forget the whole video thing? If they can deliver a true 5 Mbps service, that would beat cable modems. It would for now at least.

Let's not worry about taking video signals off a DSL line and sending them to a TV until any user can get a video stream from the source itself. That would give the hardware manufacturers more time to improve on the wired and wireless systems that basically use a TV screen as a monitor and it should kill enough time until the economy has improved enough to support a larger buildout.

MP_UK 12/4/2012 | 10:34:41 PM
re: Video Over Déjà Vu RJ:

This is incorrect. Napster and other peer/peer networks reveal that the latent demand for content made conveniently available is huge.


With you on that one rj. I've always believed there will be a video version of Napster one of these days. The problem for video is b/w though, a DVD being ~6GB...? Plus say 10% for transport headers etc, that's many hours downloading even on a 2.5Mbps connection - maybe this is the killer app to drive 100 Mbps FTTH...! Sadly I suspect not though. Cheers,

tsat 12/4/2012 | 10:34:36 PM
re: Video Over Déjà Vu When Microsoft is working so hard to make
your PC the center of your home entertianment


If you already have DSL to your PC, all you
need is Video Out to your TV, and "just

Any old PC should be able to take 5-10mbits of
a video stream, and send it to your TV's Video

kbkirchn 12/4/2012 | 10:34:33 PM
re: Video Over Déjà Vu Broadwing's ZoomTown is doing Video on Demand over DSL.


Great deal if you're living in Cincinnati...
ThinkAboutIt 12/4/2012 | 10:34:25 PM
re: Video Over Déjà Vu Telcos no good at commercials??? Has anybody seen this one for *69 (that identifies the last caller)

Scene opens, it's a bedroom, camera is focused on a phone on a bedside table. In the background, a woman's moaning can be heard. Phone rings, moaning continues. Phone stops ringing. Scene fades to black. Then the TV screen reads:

"For those times when you are in
no position to answer the phone"
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