Pipeline Publishing, Volume 3, Issue 3
This Month's Issue: 
That's Entertainment 
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New Ideas, New Challenges
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By Wedge Greene & Barb Lancaster

Complexity in the Business and Management of IPTV

Voice over IP seems to be the technology platform that finally will make it possible for the Cable providers to deliver telephony services successfully.  It is less clear that Television over IP will do the same for telephone companies wishing to deliver television and other video content services.  With billions of dollars on the line, IPTV offers hope, fear, and opportunity – both for victory and disaster.

Complexity: The first word that comes to mind when IPTV is mentioned to an OSS specialist is complexity.  In 2004, a European telecom with U.S. Labs was involved in launching an IPTV trial and asked for help with management architectures.  The OSS Architect who investigated IPTV delivery architectures reports that it took two white boards and most of the half day meeting to draw out and describe the major systems, protocols, and network devices that were required in their trial – in all there were about 60 component parts before any management services.  Then they mentioned having issues with provisioning services and delivering consistent QoS.  IPTV is the most complex telco service product ever attempted.

Foresight, or Hindsight? The second thing that IPTV conjures up is leaping before you look.  It is quite expensive to attack someone else’s core business.  Ask any Venture Capitalist (VC) if they would fund a venture aimed at stealing the business of an entrenched group of a few mature companies, all of whom use a common, working technology with 100% customer uptake.  I doubt you would find even one VC that would back that play.  Unless the feature set was so remarkable that customers must have it and the costs were at least half that of the old approach. Yet Telecom service providers have attempted to venture into TV land more than once before, and therefore have quite a body of evidence to examine.

The Value Chain: In the mid 1990’s, the business vision for long distance and incumbent telecoms was to move up the value chain by offering services instead of just connectivity.  Many services were explored, but none with more determination than video content delivery.  (We wonder if this persistence is because many executives subconsciously yearn to be in the movie or TV business, as somehow more glamorous than communications…)  One of the earliest and most devoted trials was built by British Telecom out of their Ipswich Labs.  This was a grand experiment in delivery of higher quality TV (than cable or broadcast) via telephone systems.  In addition, the TV was to be interactive with the user and to a certain extent, demand driven for some content choices.  A bundle of capital was spent and this service was delivered.  It was rolled out in a subsidized model to one small region for many months.  Although they were confused by the interactive choices, the video service was visually spectacular and users loved it.  Economically, the service, if fully deployed, might have bankrupted BT.  It cost too much and customers would not pay what it cost, given alternative cheaper broadcast and cable TV.

"We wonder if this persistence is because many executives subconsciously yearn to be in the movie or TV business, as somehow more glamorous than communications…"

MCI decided to get into the content delivery game in the later 1990’s by partnering with Mr. Rupert Murdock, who everyone believed was a genius pointing directly to the businesses of the future.  MCI co-invested with Murdock in a new venture.  It was to be the future of the company.  (Meanwhile MCI’s fledgling data division was doubling its business 3 times in a year and starving for capital.)  The new venture paid great sums to gather licenses for content with an emphasis on sports licenses, as one might expect with Murdock as the key partner.  The vision was to deliver sports events via satellites to home TV’s and sport  scores  to phones.  Software

was to be downloaded via satellite to home dishes and right into home and business computers.  In all this they were visionary, but too far ahead of their time.  While a good idea someday, the costs at that time for infrastructure and management were prohibitive.

And frankly the telecom executives did not understand the business of paying for satellites, buying reliable foreign launches, and insuring it all.  This is one major element in the content distribution chain in which companies like Comcast have a distinct advantage given their experience in satellite launches.  Further, partnering with Murdock is much like partnering with Microsoft: usually only one winner emerges.  Eventually MCI paid a billion US dollars to get out of the deal with Murdock.  We are not sure how much was lost in this venture, but it may have been double or triple that billion.  Of course, Murdock, being nimble and a risk taker eventually did make money on the concept.

Chasing someone else’s business: As a third cautionary example, it is important to look at the counter-incursion of the cable companies into the telecom business.  As a reactive counter-strategy to the telecom TV plays, the cable companies realized that they also had wires into the home, which could be a competition to phone lines.  In the pre-VoIP days of Class 5 switches, this little negative externality of the move up the value chain strategy cost all of the service providers big time in competition, churn, and confusion.


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