Video services

Nortel Eyes IPTV Prospects

Nortel Networks Ltd. has some catching up to do in IPTV, but the company is convinced it can find plenty of customers for its end-to-end offering.

That might not seem to be the case at first, with so many of the big carriers apparently sewn up. Alcatel-Lucent (NYSE: ALU) has won quite a few big IPTV integration contracts. Cisco Systems Inc. (Nasdaq: CSCO) has its hand in the pot, too, with its Scientific Atlanta division being named the IPTV integrator for AT&T Inc. (NYSE: T).

"The bigger Tier 1s that are financially stable, and the bigger Tier 1s that want to do innovative things for their customers -- it's pretty safe to say they've made their decisions," says Joe Seidel, director of the Worldwide Partner Ecosystem for the Microsoft Corp. (Nasdaq: MSFT) TV division, Alcatel-Lucent's software partner.

Nortel, though, has built up a web of partners for an end-to-end IPTV offering, and it's reportedly considering some acquisitions to help jump-start the business. (See Sources: Nortel Planning IPTV Acquisitions.) CEO Mike Zafirovski has pegged IPTV as a key target for Nortel, but the question is whether Nortel is too late to make a dent. (See John Roese, CTO, Nortel.)

Nortel has announced only one IPTV integration win, with Telus Corp. (NYSE: TU; Toronto: T). (See Nortel Helps Telus With IPTV.) Light Reading has learned Nortel is also part of a triple-play offering for French service provider Completel S.A.S. (Paris: CPT).

Early on, Nortel will have to deal with its skeptics. "Investors at NXTcomm may have come away unconvinced that the company can be a meaningful player in IPTV, considering that most of the large architecture wins have already gone to Alcatel-Lucent, Cisco, and to a lesser degree Ericsson AB (Nasdaq: ERIC)," analyst Mark Sue of RBC Capital Markets wrote in a research note last week.

But Nortel thinks there's still business to be had among the Tier 1s, because IPTV is a concept still in flux. "The IPTV market has been through three waves. The first two didn't take off," says Sameer Sheth, head of Nortel's IPTV strategy.

By Sheth's reckoning, the first wave tackled basic problems like slow channel changes. The second wave added functions including video-on-demand. For the third wave, vendors will create new applications to help carriers stand out against one another, maybe even tapping user-generated content.

Sheth thinks a lot of carriers remain stuck in that first wave of IPTV and will consider turning to new vendors that can help them develop advanced services. "A lot of those customers are coming back and saying, 'That didn't work for us. Can you get us differentiation?' " he says.

A key Nortel weapon along those lines is the Entertainment and Communication Convergence Module (ECCM), described in company literature as a "converged services gateway," a mediator between application servers and IPTV middleware. Sheth won't say whether ECCM is being tested out at any carriers.

Even if the Tier 1 market doesn't work out, Nortel sees a swath of Tier 2 operators that haven't made their IPTV choices yet. Microsoft, which has 18 IPTV customers compared to Nortel's one, concurs. "Underneath the Tier 1s, the Tier 2s and Tier 3s get interesting," Seidel says.

The problem is that the smaller carriers equate to smaller business; it takes a lot of wins to make the revenues worthwhile. And many of the Tier 2s aren't Nortel's bread and butter.

"Nortel's right that there's a decent market in the Tier 2s," says Alan Breznick, an analyst with Heavy Reading. "I'm just dubious about their ability to go into these little guys and round them all up."

Given the nature of the Tier 2 market, Microsoft plans to be a little picky. The company has gone through the list of Tier 2s and selected a fraction of that market for its sales team to target, Seidel says. Of course, he notes, Microsoft would also accept any Tier 2 business that comes in through the reseller agreement with AlcaLu.

— Craig Matsumoto, West Coast Editor, Light Reading

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