PTCI is so frustrated with equipment cost and performance that it's overbuilding with HFC

When Panhandle Telephone Cooperative Inc. began offering IPTV service to its ILEC and CLEC customers in 2001, the company never dreamed that in 2008 it would be building a brand new hybrid fiber/coax network to deliver video. But that's exactly what the small, rural Oklahoma telco is doing.

“It took a lot of frustration to get to this point, but ultimately we've decided that IPTV is simply not the best way to deliver video,” said Gary Burke, plant manager for PTCI. “We were beginning to lose customers back to the cable company and to dish. In order to stay in the video business, we had to find a solution that's more stable than IPTV.”

PTCI, which serves about 1500 video customers, has applied to become an independent cable operator in its serving area and is in the process of constructing a new HFC network, Burke said. He declined to reveal how much the telco is spending to build the new network, but he said it will cost less than deploying fiber to the home. PTCI will continue to offer IPTV through its ILEC and CLEC subsidiaries in the most rural areas, where it doesn't make financial sense to replace the network, Burke said.

PTCI's chief complaints about IPTV include interoperability problems among IPTV network components such as middleware, encoders, set-top boxes (STBs) and DSL modems; the high cost of high-definition (HD) content for IPTV systems; difficulty delivering HD over existing copper loops; and lack of support from its middleware vendor Myrio, a division of Nokia Siemens Networks.

The telco is not alone. Other small Independents have echoed PTCI's frustration, although most of them are not taking a step as drastic as building a new HFC network for video.

“There is definitely an undercurrent of frustration with the smaller telcos that centers around middleware and the inability to get the feature set and applications they need to compete effectively,” said Bernie Arnason, managing partner for Pivot Media. “The applications and features are either not there, or there are technical challenges and glitches in implementing them that are not being addressed to the satisfaction of the service providers.”

The crucial middleware features that have been missing from many vendors' offerings are support for HD video and digital video recorders (DVRs). And telcos are discovering that even once the features are available, in order to use them, they must replace all of their STBs at a cost of about $400 each while upgrading or replacing other components such as encoders, conditional access systems and video servers. To deliver HD video, telcos also must either replace copper to the subscriber premises with fiber or at the very least shorten the copper loops. All of the necessary changes amount to a big investment in capital for a small company.

PTCI also pointed to the high cost of HD content for IPTV as a reason for its decision to reevaluate the technology. According to Burke, it's much more expensive to deliver MPEG-4 HD video over IPTV than it is to provide it in MPEG-2 over HFC.

“The MPEG-4 costs over IPTV are just astronomical,” Burke said. “In order to put 30 channels of MPEG-4 HD content on our IPTV system, it was going to cost us three-quarters of a million dollars. The same 30 channels on my HFC plant are about $120,000.”

Like PTCI, diversiCOM, an ILEC and CLEC operating in rural Minnesota, is feeling the pain over its choice of IPTV to deliver video. The telco has been forced to halt its IPTV marketing because it does not yet have a middleware upgrade from Myrio to support HD and DVR capabilities, said Dean Mohs, chief operating officer for diversiCOM.

Mohs said Myrio hasn't told him that he can't get HD and DVR, but adding those features would require significant network changes, which would likely include replacing every STB and other components. That's left diversiCOM wondering whether it should continue to try to work with Myrio or look for another middleware vendor.

Giving up on IPTV isn't an option for the company at this point, Mohs said. “We were a telephone company providing voice and data, and we decided to add this video service,” he said. “Our reputation is on the line now, so we feel we've got to make it work.”

Myrio has been taking more heat than some of its middleware competitors recently because telcos believe the company is abandoning them to concentrate on international markets.

“Myrio spent a lot of time cultivating the [Independent] market, and then when it was purchased by Siemens, the focus shifted,” Arnason said. “Siemens started going after the bigger fish internationally, and now there is a perception that the focus they had on the small guys has disappeared.”

Myrio denies that it has lost its focus on North American Independents. “Nokia Siemens Networks is fully committed to sales, support and product development of its IPTV business in North America,” the company told The Independent in an e-mail statement.

Myrio customers aren't the only ones frustrated with IPTV. Ringgold Telephone Co., a telco using Minerva Networks middleware to serve fewer than 2000 video customers in northern Georgia, is having similar problems. To implement HD and DVR features, Ringgold will have to replace all of its STBs to make them compatible with Minerva's middleware upgrades, said Phil Erli, executive vice president for Ringgold Telephone.

In addition to buying new STBs, Ringgold also will have to improve bandwidth to the subscriber premises to support delivery of HD content, even though it's delivered using MPEG-4, which offers better compression, Erli said.

Back in 2001, PTCI was Myrio's third telco customer to begin offering IPTV, and in 2003 Ringgold Telephone was Minerva's first customer. Both telcos now say they wish they had never decided to offer IPTV.

“As one of the pioneers of IPTV, I can tell you that if I had it to do over again, I would build an HFC network,” Erli said. “I wouldn't mess with IPTV.”