Mixing satellite TV into the wireline triple-play

Sarah Reedy - How to integrate satellite video with landline VOD

Where terrestrial triple-play services are not economical (in rural areas, for example), the lingering question for telcos becomes: How can they seamlessly integrate a partner’s satellite TV service with their own terrestrial services such as video-on-demand (VOD)?

Following the lead of AT&T’s HomeZone offering, Qwest Communications, Embarq and Windstream (to name a few) have all expressed interest in combining wireline VOD with satellite TV to serve sparsely populated areas. But the approach requires seamless integration on the customer’s end in order to work. And that’s no small task.

“It is not that the service provider is off the hook from maintaining more quality of service in terms of the broadband it provides, but they’ve got to count on someone else, too, to make sure their service is going to meet the potential demand that is going to come from their customer base,” said Teresa Mastrangelo, principal analyst with broadbandtrends.com, adding that this adds the challenge of marketing the service so that customers understand how it works and the benefits it brings.

That being said, consumers may not know or care how their TV services are delivered. Regardless, they won’t compromise for a service that is not seamless. One remote, one electronic programming guide (EPG), one customer service number, one bill and of course, one set-top box (STB) are the top requirements for customers and the biggest challenge for the service provider.

“Everything should be accessible from the same portal and same remote,” Mastrangelo said. “It should be something that they can, on a menu, simply select the service and off you go. I think that’s got to be the first thing -- it’s got to be just unbelievably easy to use. If there is a payment scheme where they are renting a video or using a third-party on-demand service they have to pay for on a per-use basis, that video aspect has to be tied together so the customer is being billed through their billing operator and not this third party. If they have problems with it, whom do they contact? They should be able to contact the main service provider.”

An integrated solution requires a hybrid STB, much more common fare in Europe than in the U.S. According to Mastrangelo, vendors that have the capability to integrate satellite TV with broadband VOD include Motorola, Cisco, Entone, Pace Micro, Sagem, Telsey, Thomson, ADB, Tilgin and DGL2. Residential gateway company 2Wire already has the edge in the U.S.

2Wire provides the residential gateway, backend management system and customer care for AT&T’s HomeZone. The advantage the hybrid STB offers is that, through progressive download of on-demand content, movies requested by the consumer can begin in approximately seven seconds--much quicker than a linear model, according to 2Wire. Furthermore, there is a far greater catalogue in the Internet VOD world than the linear world because it takes up bandwidth only when you are downloading one of those movies, said Jonathon Symonds, vice president of product marketing at 2Wire.

The process, typically done past the headend level in an operator’s network, couples a linear video feed and a TV software stack, EPG, DVR and broadband services. According to Symonds, every night, the backend management system transacts with content providers – Akimbo and Movie Link in the case of AT&T – to deliver a current catalogue of movies and on-demand content to 2Wire, which then aggregates and masses the content from various providers into a common format and single catalogue to the STB. That catalogue is then displayed on the consumer’s EPG, divided by movie genre, release date or however the operator chooses to design the interface. The user can select any number of those titles and download them directly to their box. The download will remain accessible, depending on what the rights owner requires, 30 days or more on the consumer’s hard drive.

For AT&T, that on-demand content is stored on its own video hubs, called Internet data centers. In the STB, the video content is kept separate from the linear streams of channels. When the customer selects a video, it is delivered over AT&T’s private network, rather than the public Internet, and down to the STB. Despite the delineation of content, Brett Anderson, AT&T’s director of IP video and broadband said the user interface for HomeZone is a unified and seamless process for the consumer. In alignment with Mastrangelo’s specifications, the service does have only one remote, one customer service number to call and one bill. The in-home hardware, however, includes a STB, as well as the 2Wire home networking gateway – purchasable through AT&T – that integrates the HomeZone receiver with a consumer’s home computer.

While AT&T may well be the best example of this type of hybrid service in the U.S. to date, Mastrangelo pointed out that it hasn’t been making news lately. Whereas early last year, marketing and media coverage was prevalent, that has since faded. The whole company has opted to focus on its IPTV service, U-Verse, instead, she said.

“It has always been a question from a marketing perspective: How do you co-market these two services against each other,” Mastrangelo added. “It is very confusing. We’ve asked this question about the marketing, and they’ve never answered it and didn’t seem to think it would be a problem. But as U-Verse gets more sophisticated and they add more and more features that are unique to U-Verse, I would think customers from HomeZone would start to say, ‘Well why can’t I get U-Verse? I want that feature.’”

From this perspective, telcos face competition not only from their cable and satellite competitors but also from other telecom providers going either the all-IP route or partnered approach. Qwest is another company deep in the planning stages of deploying video offerings overbroadband to deliver a wide range of VOD offerings, including high-definition video. Rather than deal with the expense of IPTV, the phone company plans to earn its return on investment selling high-bandwidth services to consumers and capacity to content developers while allowing its customers to seek out HD VoD from the Internet. “In video, the world is going from three broadcast channels to 500 cable channels to customized delivery of just what you want,” Qwest CEO Ed Mueller told Telephony in January.

But he is still looking for the best user interface to tie services together in the home. “The home interface is still yet to come, but this is where I want Qwest to play,” he said.

With the infrastructure already in place, bringing this type of system to fruition is not unfeasible. Despite the cost savings in infrastructure, the challenge providers – typically small or rural ones – still must conquer revolves around scaling the service in a cost-effective manner. Operators late to roll out VOD generally just opt to offer DVR, since it is less expensive than installing new hardware in consumers’ homes. After that hurdle is reconciled, telcos like Qwest must be able to scale that service over their small base of initial customers to justify the cost.

“Outside of major operators, can a small operator [scale] who is starting from a base of zero? That would be pretty difficult,” said Bruce Leichtman, president and principal analyst at the Leichtman Research Group. “Also, one would think the first people who would want to do that--and who are to some degree--are DirecTV and EchoStar. DirecTV has been looking at integrating a broadband offering of on-demand into their satellite offering. So to me, [interest] comes more from DirecTV than from a local carrier.”

For DirecTV to enter into this kind of arrangement, it would not have to be a two-box solution. Rather, it would simply be a matter of switching out its existing legacy STBs or waiting until new boxes take hold in the home. Telcos have no particular advantage in deploying this type of system, Leichtman said, and he’s not convinced more implementations of this sort will even come to market in the next three to five years, or ever for that matter.

“Coming from the telco end, they’d have to figure out ‘how do we do this’,” Leichtman said. “Their advantage is that they are starting from scratch. You can do a lot of different things. Their disadvantage is they are starting from scratch in a business that is 85% penetrated. It is now next to impossible for a new entrant to make money off of video. The only way you’d be doing video is to protect other services.”

That being said, telecom service providers do enter the game with several significant advantages. For one, since they are starting from scratch with deploying video systems in mass, they don’t have any significantly embedded infrastructure that they have to go out and replace. According to Symonds, 2Wire’s telco relationship gives them the ability to scale well beyond Comcast’s library of 1,800 titles within this year. While Comcast was considered the pioneer of large on-demand video libraries back when on-demand first gained steam, the delivery of Internet content coupled with backend systems that can accommodate multiple content partners has dwarfed the size of Comcast’s offerings, he said.

“If you look at AT&T as a model for this or you look at Verizon, for example, both of those companies have been able to rapidly grow video services in way that I don’t think the cable industry really anticipated they’d be able to do,” Symonds said. “The speed with which they’ve grown their effectively all-digital subscriber base is pretty remarkable. If you look at FiOS, it is probably the fourth largest digital cable company in digital cable subscribers in the U.S., and they started three or four years ago. AT&T has almost one million video subs across the EchoStar relationship and U-Verse platform, so those guys are getting very big very fast.”

With the right investment and network in place, telcos have the ability to make these numbers grow even more. However, as Leichtman pointed out, video is not something a company can just dabble in. The challenges of video deployment, namely seamless integration and achieving the scale to be competitive, remain, and the journey may be a long one.

“I really think there are three challenges,” Leichtman said. “One, the marketplace in general. Two is making its seamless for consumers, and three is the economies of scale. All of those come together to create a very challenging situation for anybody who doesn’t have the ability to grow scale or the commitment to do so.”



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