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.
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 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