IPTV Hits the Heartland

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While the efforts of large telephone companies like AT&T and Verizon to offer television service in major markets have been well-documented, small telcos serving rural areas are quietly embarking on a TV revolution of their own.

Such “Tier III” telcos, which may only have a few thousand customers (and generally serve less than 100,000 access lines), are using IP-based networks and advanced MPEG-4 compression to launch TV services and offer a full bundle of voice, data and video service, just like their larger cable and telco brethren.

Satellite operators such as SES Americom and Intelsat are targeting this market by aggregating and transmitting packages of hundreds of channels, which are pre-compressed with MPEG-4 encoders to make them ready for direct delivery to a subscriber's set-top. That cuts down the amount of equipment required at local headends and lowers the capital expenditure required to launch TV service. The model is similar to the way AT&T's old “Headend in the Sky” service (now owned by Comcast) used MPEG-2 compression to bring digital multiplexes to small cable operators over a decade ago.

Perhaps the most aggressive proponent of this nascent “turnkey IPTV” model is SES Americom, which has spent two years and over $40 million building an MPEG-4 origination facility in Vernon Valley, N.J., and assembling pre-engineered packages of headend equipment, IPTV middleware and set-tops to provide a service called “IP-Prime.”

IP-Prime, which is being run as a separate business within SES Americom under the direction of former News Corp. executive and Sportvision President Bill Squadron, has partnered with the National Rural Telecommunications Cooperative (NRTC) and National Telecommunications Cooperative Association (NTCA) to market the service.

IP-Prime's goal is to make launching TV service as easy as possible for small telcos. NRTC has assembled master contracts with hundreds of programmers, which means that telcos don't have to seek individual deals for popular channels. SES Americom has created the technical backbone to ingest hundreds of MPEG-2 program feeds, convert them to MPEG-4, and then transmit them nationally via its AMC-9 satellite.

Down on the farm

Today, IP-Prime offers over 260 standard-definition channels and 27 high-definition channels from all the major program networks with the exception of HBO and Rainbow Media. SES Americom worked hard to convince programmers like NBC and Discovery of the quality of IP-Prime's approach, which takes incoming MPEG-2 satellite feeds, decompresses them to serial digital, and encodes them in MPEG-4 at 2 megabits-per-second (Mbps) for SD and 8 Mbps for HD before uplinking them for national distribution.

But Squadron says the proof is in the end product. “A bunch of farmers in Steele, N.D., might have the best picture quality in the country,” he claims.

SES has also worked with NRTC to secure discounted prices on IPTV hardware, software and conditional access technology from major vendors such as Cisco Scientific-Atlanta, Harmonic, Amino, NDS and International Data Corp. While IP-Prime is available as just a transport service, Squadron says most small telcos are gravitating toward the end-to-end model.

To provide IP-Prime, a telco must have first upgraded its network to provide broadband IP. But after that investment, which many telcos are undertaking anyway to provide faster Internet access, the savings from the turnkey model can be significant. While a digital headend with on-site encoders might cost $5 million to $7 million, says Squadron, an IP-Prime headend costs less than $500,000.

“On the capital expense alone, it's a 90% savings,” he says.

IP-Prime has commercially deployed with BEK Communications in North Dakota, West Kentucky Rural Telephone Cooperative, and Planters Rural Telephone Cooperative in Georgia, and is beta testing with two more telcos: Yelcot Telephone in Arkansas and Valley Telephone Cooperative in Texas. The customer base is small, perhaps “in the low four digits,” says Squadron.

But the service is gaining momentum. In September, North Central Telephone of Lafayette, Tenn., became the first telco to sign a non-beta contract for IP-Prime, and last month, NRTC President and CEO Bob Phillips announced that three more telcos have signed up to provide the service to their customers: CenCom in Jackson, Neb.; Cheyenne River Sioux Tribe Telephone Authority in Eagle Butte, S.D.; and Home Communications in Galva, Kan.

Bundles of joy

IP-Prime made sense to West Kentucky Rural Telephone, says CEO Trevor Bonnstetter. The firm, which operates 18,000 access lines in 10 counties across Kentucky and Tennessee, had already spent about $6 million to upgrade its network to IP to provide broadband Internet access, and wanted to add video to its voice and data offerings.

But Bonnstetter says, “We couldn't afford having our own headend in MPEG-4, and we couldn't see buying MPEG-2 and going backward. The economics looked a lot better working with SES and NRTC.”

West Kentucky spent between $250,000 and $500,000 on its IPTV headend, and began offering video service commercially in July. It has about 500 customers on the system today, says Bonnstetter, and “a pretty good backlog” of customers. Bonnstetter's IPTV offering, which is bundled with voice and data in packages ranging in price from $129 to $209, is competing mostly with DBS operators DirecTV and EchoStar, as well as incumbent cable operator Mediacom.

“In our market you see cable and satellite vehicles running up and down the road, and we're competing head-to-head every day,” he says. “We're winning some and they're winning some.”

The potential market for such IPTV services in rural America is some 10 million homes, estimates NRTC, and SES Americom is one of several companies trying get them. So is Reston, Va.-based Avail Media, a venture-funded “rollup company” formed in early 2007 from the combination of technology vendors Broadstream, Aurorus and ViewNow.

Avail, which relies on the IPTV headend Intelsat has built in Hagerstown, Md., to encode its signals in MPEG-4, has signed 22 contracts for its IPTV service and deployed some 17 IPTV “gateways” to a variety of customers, including telcos, hotels, multiple dwelling units (MDUs) and fiber-to-the-home providers.

Battling for small deals

Avail also has a master programming agreement with NRTC, says COO Jon Romm, a former Intelsat executive. It has deals with CSI Digital and Falcon/IP to resell its service, and relationships with large vendors such as Motorola, Nortel and Thomson to provide headend gear and set-tops. Customers can choose their own IPTV middleware and conditional access system.

While Avail has signed more contracts than IP-Prime, its service currently only reaches about 1,700 subscribers. But Romm says, “We're seeing signs that tell us the industry is here, and we see people committing dollars for gateways.”

EchoStar, which marketed its Dish satellite business aggressively in rural areas, is aiming at little telcos with ViP-TV, from its fixed satellite division.

The service will provide MPEG-4 versions of the standard-def and hi-def channels currently offered on Dish Network, and work with as-yet-unnamed third-party firms to specify and install IPTV headend equipment at telcos. Ironically, ViP-TV will transmit its feeds via existing Ku-band capacity it leases on SES Americom's AMC-16 satellite.

ViP-TV could create some “marginal competition” to EchoStar's core Dish satellite product, says ViP-TV general manager Dan Daines, but that risk is outweighed by the revenue potential.

Daines thinks it's time to capitalize. “A critical mass of IPTV is coming along, and we're going to be in that business,” he says.

E-mail comments to glen.dickson@reedbusiness.com

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