The unique requirements of small telcos have driven a flurry of new software development

Round one of IPTV deployment has left many Independent telcos bruised and wary of continuing the fight. But a new round is getting under way, and network operators may find that they have more choices than they thought when it comes to delivering the service.

Recently, some Independent operating companies (IOCs) that were early adopters of IPTV have gone so far as to say they wish they had never deployed the technology. Many of those frustrated telcos have blamed middleware vendor Myrio, a division of Nokia Siemens Networks, for their problems. Although NSN denies it, telcos say Myrio is abandoning them for larger markets, leaving them unable to get the features they need to stay competitive — namely high-definition TV (HDTV) and digital video recorder (DVR) services.

But middleware is only part of the problem. Telcos also are discovering that IPTV is much more expensive and complex to deploy than they thought, and many of them simply do not have enough bandwidth to the home to offer the HD and DVR services necessary to compete with cable and satellite providers.

So what's a telco to do? Some new middleware options, a push by wholesale IPTV providers to woo IOCs and an alternative compression technology designed to make better use of existing copper mean there is still hope for Independent telcos to succeed with IPTV.

This month middleware designed specifically for the IOC market is set to make its debut. Operations support system vendor Innovative Systems is completing beta tests of its IPTV system, which retools OpenTV's IPTV middleware. OpenTV has one of the most widely used middleware platforms in the cable and satellite industries. The company recently reported that its middleware has been deployed in 100 million set-top boxes (STBs) worldwide.

“The fundamental problem with IPTV is that the IOC industry is so small that doing middleware just for the Tier 3 U.S. market is just not a business case that is survivable for the vendors,” said Roger Musick, CEO of Innovative Systems. That's why Innovative Systems opted to partner with a company that has mature technology, he said.

“We're trying to take their technology designed for very large customers with multiple millions of end users and scale it down to the very small Independent companies,” Musick said. To do that, Innovative Systems has spent the past 18 months writing new software for the headend, which communicates with OpenTV software in the STB. “OpenTV has headend software, but it's designed for large customers and is way too expensive for this market,” Musick said. “So we have written that from scratch.”

Innovative Systems' headend software runs on two redundant servers and is integrated with the company's other software products that handle voice features such as caller ID, voicemail, conferencing and call control. The company also has partnered with Verimatrix for conditional access and Amino for STBs, in order to offer an end-to-end IPTV system.

From the outset, Innovative Systems wants to provide features that integrate voice and video, Musick said. Within a few months of its initial launch, Innovative Systems plans to introduce features such as voicemail on TV, click-to-dial, address book on TV, and the ability to view and pay phone bills.

“We think the additional features are most important, and we've been working on these kinds of applications in our other software for many years,” Musick said. Innovative Systems is in the process of completing beta tests with three customers and has more than 50 customers waiting for the solution to be commercially available, Musick said.

Two European middleware vendors, Quative and Thomson, also have begun marketing to the U.S. IOC market. Rather than focusing on selling to small telcos individually, however, these vendors are adding an indirect approach. Quative is selling through wholesale IPTV providers, while Thomson is marketing its solution through a systems integrator.

“The key question is what is the critical mass needed for a stand-alone IPTV system to make sense?” said Sebastian Kramer, CEO of Quative. He suggests a good rule of thumb is that if the telco does not have enough customers to support its own central office switch, the company is probably too small to deploy IPTV on its own.

A better option for some small telcos may be to work with IPTV wholesale providers. “The category of wholesale/programming providers that deliver via satellite — like SES Americom, Avail Media and Falcon — is finally mature to the point where they can start to come to the rescue of IOCs,” wrote Steven Hawley, principal analyst and consultant for Advanced Media Strategies, in an e-mail. “All of them have trials or deployments, and all of them have gone through the same middleware frustrations as the IOCs that built their own services.”

Through Iowa Network Services and its centralized digital MPEG 4 headend, Quative is providing its middleware to INS system operators. INS is a consortium of Independent communication companies that primarily serve rural Iowa. In the past, INS provided a centralized IPTV headend for system operators, but these companies had to contract with their own middleware vendors. Most INS operators that launched IPTV early on used middleware from Myrio or NextLevel, a now-defunct vendor purchased by Motorola in 2003.

INS has 17 operators using its centralized headend with their own middleware, but most of those companies will be using the Quative-based service for new installations and to deliver HD, said Judi Langholz, vice president of product support for INS. At some point companies also may decide to migrate to the Quative middleware for their existing installations, she said. Another 17 companies are set to launch this year using the Quative IPTV solution.

“We decided to go with Quative because it lets us provide a centralized middleware solution,” Langholz said. “This allows our system operators to offer IPTV with less capital investment.”

For a telco, the cost of deploying an IPTV system can range from $5 million to $10 million, depending on the number of subscribers. But that cost can be reduced by about 95% using a wholesale service, said Bill Squadron, president of IP-Prime, a division of SES Americom. “It is far more cost-effective to outsource the service, especially if you don't have the expertise you need,” he said.

IP-Prime, which launched its services in September, has about 30 customers today, Squadron said. Some of those customers subscribe to a fully managed IPTV service that uses middleware from Myrio or NDS, while others buy only transport or HD-overlay services.

“There is no question that with this new technology, delays arose and bumps in the road appeared,” Squadron said. “But our service has gotten through that, and we think the market is beginning to respond.”

Like Quative, French middleware vendor Thomson — which has 1.3 million subscribers, including France Telecom, on its middleware platform in Europe — also recently announced its intent to play in the U.S. IPTV market.

Mark Marinkovich, director of market development for North America for both IPTV and mobile TV for Thomson, said his company is aware of the complaints that U.S. IOCs have about IPTV middleware, and Thomson is talking with some of those telcos about replacing their existing middleware.

“The biggest obstacle is that most of the companies don't want to have to replace the set-top boxes,” Marinkovich said. “We are working to support Amino set-top boxes there.”

Although in some cases Thomson is marketing its IPTV middleware to U.S. IOCs on its own, the company is relying on a relationship with systems integrator Falcon IP/Complete as well.

“We are Thomson/Grass Valley's only U.S. distribution partner for its IPTV solution, along with our total MPEG 4 end-to-end IPTV system,” said Donald Cook, president and CEO of Falcon IP/Complete. “Falcon has been around for 40 years working with Tier 2 and Tier 3 telcos, so we have a lot of experience.” The Falcon IP/Complete Bird to Box IPTV solution has been deployed at Adak Cablevision in Alaska and Magazine Telephone in Arkansas.

Falcon competes with wholesale IPTV providers such as Avail Media, EchoStar and SES Americom, but the company does not provide its own transport services. Instead it contracts with Avail Media for transport.

Avail Media's strategy is to provide options for telcos when it comes to middleware, conditional access and STBs, said Jon Romm, chief operating officer for Avail, which claims 46 customers. Today, the company supports middleware from Espial and Minerva Networks, conditional access from Verimatrix and Widevine Technologies, and STBs from Scientific Atlanta, Thomson and Tilgin, but it is always looking to add new partners.

“There are benefits and negatives to every product, and we let customers know upfront that in some cases certain middleware won't support features like DVR,” Romm said. “That's the problem many telcos are having: They're signing up for features that aren't ready. We try to make sure we do the leg work for them, so that they know what to expect.”

Another option for telcos that want to build their own IPTV services is hiring a consultant to help. Network equipment-maker Tellabs has a consulting practice devoted to IPTV, which has helped 20 local telcos deploy the service.

“We've been in the IOC space for 35 years, so we have a lot of history and success with these customers,” said Tim Ayers, director of global consulting for Tellabs. While Tellabs does not sell IPTV middleware or STBs, the company does sell the access and transport gear necessary to deliver an IPTV service.

Tellabs operates an IPTV convergence and integration center in Dallas, where the company performs interoperability testing on middleware and other IPTV components from many different vendors.

“For us it's not about picking the best horses and backing those horses in the marketplace; it's about being independent and agnostic to help the customer,” Ayers said.

Beyond middleware, another IPTV deployment headache for small telcos is bandwidth — specifically the lack of it. Many IOCs still have copper to the home, which means that delivering HD content to the subscriber is difficult using existing compression technologies.

Atlanta-based Infinite Video, a subsidiary of Even Technologies, is hoping to remedy the bandwidth situation with compression technology that improves on MPEG 2 and MPEG 4 by reducing the bandwidth needed for standard definition TV to 750 kb/s and for HDTV to 3 Mb/s.

Infinite Video has built a turnkey IPTV ecosystem using its compression technology and STBs combined with middleware from Kasenna and conditional access from SecureMedia. The company also is looking to support additional middleware and conditional access vendors, said Bob Saunders, co-founder of Infinite Video.

Even Technologies and Infinite Video first unveiled their PSI_V compression technology in 2006, and last year Infinite Video announced its first customer, Twin Lakes Telephone Cooperative, an IOC serving 37,000 subscribers near Gainsboro, Tenn. But beyond that, Infinite Video hasn't been able to gain the traction it has hoped for.

“There is a reluctance in our industry to adopt new technology,” Saunders said. “It's a very conservative industry.”

Other factors may be involved as well. “Infinite Video uses a proprietary compression scheme,” said Bernie Arnason, managing partner and founder of Pivot Media. That means telcos are going to be less likely to consider it over a proven technology such as MPEG 4, he said.

But Saunders argues that all compression technology is proprietary. “This is new technology, but it's licensable,” he said. “MPEG 4 isn't free; you license it. This is no different.”

Another potential problem for Infinite Video, Arnason said, lies in securing content transport rights. Content providers are picky about how their intellectual property is being compressed, transferred and streamed, he said.

“That was one of the biggest hurdles the industry faced early on: Convincing Hollywood that it was OK to use IP to transport, stream and compress the content,” Arnason said. “When you start talking about a new compression scheme, you have to have the content providers sign off on your technology first.”

Saunders said he has an agreement with Turner Broadcasting System to distribute all of its content, and he is working with others to secure rights. According to Saunders, TBS has tested the PSI_V technology against MPEG 4 in its lab and has found PSI_V to provide 20% better visual quality at a lower bit rate. TBS could not be reached to verify Saunder's claims. A TBS representative confirmed that the company has been evaluating the technology but couldn't say more at this time.

Independent telcos have the potential now to put many IPTV headaches behind them, industry analysts agree. They are embarking on a second wave of deployment, and they can benefit from all of the lessons learned so far.

“When you look at the grand scheme of IPTV, there is enough global momentum to suggest that all of its problems will eventually be resolved,” Arnason said. “Although there are still some challenges, I am bullish on the outlook for IPTV.”
— Carol Wilson contributed material to this report.