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Viodi View Newsletter - October 4th, 2006

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Fair Weathered Friends?

By Ken Pyle
ken.pyle at viodi.com

[Telco friends: Let me know whether this article should be made available to the general public - maybe it would be instructional for some of the vendors.]

Way back in the beginning of this century, ATM was the dominant way to deliver video over DSL. Pioneered by Next Level Communications (NLC, now Motorola), the initial customer-driver was the Regional Bell Operating Company, Qwest. With a roll-out of approximately 50,000 homes in the Phoenix, Arizona area, Qwest put NLC on the map. With Qwest’s decision to forgo any other significant video deployments, it was the more than 200 installations and more than 250,000 set-tops deployed by independent telcos that really established NLC’s dominant market position in the video over DSL space.

As way of background, the independent telco market space is characterized by the approximately 1,000 companies that, according to the National Telecommunications Cooperative Association (NTCA), serve more than 40% of the U.S. land mass. These telcos were formed to serve the most rural serve areas that the larger telephone companies ignored. Independent telcos have always been pragmatic about the implementation of technology and, as a result, have been among the first with commercial deployments of digital switching, fiber to the premise and video over DSL.

NLC provided a set-top, in the form of a multi-stream residential gateway, the access network and the provisioning system that included a very capable interactive program guide. By tightly controlling the ecosystem, NLC ensured the operation of external equipment, such as video encoders, with its end-to-end system. The only downside, from a telco’s perspective, was that the NLC approach was proprietary and so there were no alternative suppliers for any of the piece parts.

In 2003, Motorola acquired the portion of Next Level Communications it did not already own and integrated it into its operation. By that time, the number of ATM deployments had peaked and the industry focus was on the use of Internet Protocol to transport video since IP promised a long-term lower cost structure than ATM and its open nature allowed for the potential of mixing and matching of equipment from best of breed vendors. With the big telcos moving to IPTV, the market for ATM wasn’t enough to justify the development of proprietary set-tops/residential gateways and Motorola shifted their plans to the larger potential volumes associated with IPTV.

There seems to be a general frustration level with Motorola for how they are implementing the transition from ATM to IP. It is not a stretch to suggest that some of the customers feel abandoned by Motorola. This frustration is translating into opportunity for other vendors, as there are several access vendors that have buy-back programs that cater to the Motorola/Next Level customer base.

Motorola’s transition also provides a golden opportunity for middleware suppliers, such as Conklin, Kasenna, Minerva and Myrio, to provide software to control the IPTV networks, whereas the Motorola/Next Level product handled most of the middleware functions in an ATM environment. Encryption, largely unnecessary with a proprietary ATM approach and broadcast-only networks, is a requirement in IPTV, Video On Demand enabled networks. It has also been necessary, in some cases, to upgrade headends to allow for simultaneous IP and ATM feeds.

The Motorola/Next Level customer base is a pragmatic group and they are finding ways to maximize their existing investment in their existing video infrastructure. They have also been monitoring IPTV deployments and have seen that the integration is not as smooth or quick as promised by some of the vendors. Thus, the transition to IPTV by the Motorola/Next Level group is occurring on a piecemeal basis, as opposed to forklift upgrades, and the transition from ATM to IP networks is slower than what some had hoped.

The lesson many telcos have learned from the early rollouts of video over DSL is that they must be much more critical of their vendors. Many are looking beyond just product comparisons and are looking at intangibles that would indicate the level of long-term support and development the vendor will be able to provide to the independent telco market. They are examining financials to determine whether suppliers can survive as a stand-alone entities and whether they have the financial wherewithal to implement their roadmaps. Some telcos have begun to include financial penalties in contracts with vendors to ensure performance.

Another lesson for Independent Telcos is the importance of picking solutions that will have enough critical mass in the overall marketplace, such that the solutions do not get orphaned by the vendor community. The take-away for vendors is that, if they are going to offer a product to the independent telco market, they must plan to be in it for the long-haul if they want to gain the long-term loyalty of the independent telcos.

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