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Viodi View Newsletter – December 21st, 2005

Indie Telco Local Content Workshop Advertisement

Telco Video – But Wait, There’s More

By Ken Pyle, [email protected], Managing Editor, Viodi View

[note, this article was originally published in Direct Retailer magazine under the title of The Telcos Are Coming! This Time They Really Are.]

IPTV is the acronym that has the telecom world buzzing. On what seems like a daily basis, analysts are filling the newswires with predictions that IPTV systems will soon be home to millions of subscribers. In a recent report, Telco TV In Mass Deployment Phase, research firm In-Stat predicts that by the end of 2009 there will be 32 million subscribers to IPTV systems.

Rewind to the Mid-1990s

Go back a little more than 10 years and many of the same large telcos that are today embracing IPTV were announcing similar grandiose plans to provide customers integrated packages of voice, data and video. Competition and the evolution of technology are two of the major factors as to why this time these announcements will turn into real business opportunities.

Competition from cable operators, wireless carriers and, more recently, Voice Over Internet Protocol (VOIP) providers coupled with the growth of broadband is causing a steady erosion of the telcos core POTS (Plain Old Telephone Service), a marked shift from ten years ago when their POTS business was still on the upswing. This time, however, telcos have to react or else they risk becoming the passenger trains of the 21st century.

Fortunately for the telcos, the technology has evolved such that IPTV represents an extension of their existing plant and operations methodology. This is a much different story than a decade ago, when the Hybrid Fiber Coax architectures the telcos were considering meant the construction of an entirely new and unfamiliar network. These challenges eventually forced the major telcos to abandon their Hybrid Fiber Coax “me-too” efforts.

Hit Play

Beginning in the late 1990s, while the video efforts of the large telcos were starting to wane, smaller telcos, with names like Paul Bunyan Telephone, Wood County Telephone and All West Communications, began implementing the first commercial deployments of what evolved into Internet Protocol Television. To date, approximately 150 of these independent telcos have deployed IPTV networks in mostly rural locales.

IPTV should not be confused with video that is delivered over the Internet. Instead, IPTV networks are similar to cable systems in that video signals are groomed at a centralized headend and distributed over a private network. One thing that differentiates IPTV from traditional cable is that 100% of the customer base has a two-way, digital set-top box. The all digital, interactive nature of IPTV, coupled with its close ties to the Internet, video storage and telephone networks, provides the foundation for new T-commerce applications.

The inherent integration of these technologies will allow interactivity that has been unheard of via CATV or DBS and will elevate the value of Direct Response advertising as the friction of interacting with the television is reduced. The following represent a few examples of what this integration could mean:

Telescoping advertisements that allow a viewer to navigate easily from a 30 second linear advertisement to a more in-depth, on-demand infomercial.
Target advertising directed to individual viewers will have more value than advertisements sent to a mass audience. With IPTV’s all-digital environment, it is conceivable that a profile could be established for each individual in a household.
Single-click connection to a telephone support center from within an on-demand infomercial. Until the combination remote control, telephone is resurrected; this scenario would most likely play itself out through a call-back from the call center. The advantage to the consumer is that they would avoid the typical call center’s auto-attendant answer maze.

Many of the aforementioned independent telephone companies have already begun to experiment with interactive applications that contain elements of the above ideas. For instance, many of the independent telcos deploying IPTV have found that caller identification on the television screen is something of a “killer application”. In this scenario, when the phone rings, the incoming phone number appears on the television screen.

Using a variation of this technology, one telco, CT Communications in Urbana, Ohio, implemented a Direct Response application that allows their customers to order food from local merchants via CT’s interactive program guide. Another independent telco has begun experimenting with packages that include video ad insertion, phone directory print ads and web page advertisements. The phone directory opportunity is interesting as it could create a whole new class of businesses that would have never considered video advertisements in years past.

The major telcos also see the opportunity of being able to use the IPTV technology to leverage their existing businesses. SBC has plans for 18 million homes passed with their IPTV networks by the end of 2007. For the rest of their customer base, they will be offering an interactive Direct Broadcast Satellite service that will use their broadband network to provide interactivity. Jeff Weber SBC’s Vice President who is leading their IPTV effort, suggested at the IP Video @ Supercomm conference in June that SBC will use their phone directory business to help build an IPTV and video business which will have a significant interactive advertising element.

Stop

After the false starts of the 1990s, it has become imperative for telcos to build networks that are competitive with the cable MSOs. T-Commerce applications will be inherent parts of these IPTV systems, both from a technology and business case standpoint. Look for telcos to work with local merchants and national brands to develop unique Direct Response and other interactive applications that will help differentiate them from the incumbent cable MSOs. For producers of Direct Response advertisements, this time the telcos’ move into video should mean real business.

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