Hi Old Mardy,
This speaks to what "some" of the other 5% of the service providers I mentioned in post no. 10400 are doing (or would like to do). From XChange Magzine.
xchangemag.com
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Back to the Future
Rural Telcos Lead Way With Video Over DSL
By Gail Lawyer
In a Darwinian race to survive and thrive, rural telephone companies and their CLEC affiliates have found something that has put a spark of life into their POTS offerings. These service providers, who focus primarily on rural communities and small cities, are using their existing copper plant and very high speed DSL (VDSL) technology to deliver a bundle of voice, video and data services over a single line to the home.
With their VDSL weapon in hand, these companies are going after weaker prey, from cable companies that don't offer good service or a wide breadth of channels, to other incumbent telcos that provide basic dial tone at a higher price or fewer enhanced calling features.
By using a platform designed to deliver voice, high-speed Internet access and digital TV services, rural telcos and CLECs not only are able to differentiate themselves by offering a unique bundle of services, they also have the opportunity to double, triple or even quadruple the revenue they bring in per line if a customer purchases the whole package.
That's what Ernie Lombard, president of market and strategic planning at HickoryTech Corp. (www.hickorytech.com), is banking on.
HickoryTech--which is part 100-year-old incumbent telco, part wireless provider, and part billing, customer care and equipment vendor--decided to become a CLEC a few years ago. The CLEC division toyed with different ways to get into the competitive telecom business, including various wholesale programs, such as total service resale (TSR), unbundled loops and unbundled network elements.
"But we quickly came to the recognition that that service was no better than the incumbent the customers were trying to get away from," says Lombard.
So, HickoryTech made the decision to do complete network overbuilds in 15 communities in southern Minnesota and central Iowa. "This is a very capital- intensive strategy, [so] the most important thing to do is to get as many services as you can over that wire," Lombard says.
As it was planning its CLEC overbuilds, HickoryTech met Next Level Communications Inc. (www.nlc.com), which develops and supplies a single access platform that integrates interactive DSL broadband systems. Next Level's platform allows service providers to get more bang for their buck by enabling the delivery of voice, high-speed Internet access and multiple digital video channels over a single copper pair to a home.
"We've been deploying [Next Level's platform] since the beginning. No one else really integrated it into a single platform," says Lombard. "That was attractive for us. The economics worked out to where it was a decent business even if it was just voice and high-speed data. Video became extra on top of that."
HickoryTech is already offering voice and high-speed Internet access in its CLEC territory, and is now in the process of completing its headend for video services. The first market to get video will likely be the town of St. Peter, Minn., where HickoryTech expects to debut a cable alternative in April.
While the chance to get revenue for three services--rather than just one or two--from a single connection to a home may be the most convincing argument for deployment of DSL-based video services, the competitive advantage aspect also holds promise for HickoryTech and other service providers with similar offerings.
"Each of these communities have different degrees of service and different incumbents," says Lombard. "In some cities, the poor cable TV service is the prime competitive advantage, so we'll lead with the video offering there. In other towns, voice communications may be the most compelling offer."
Lombard says that HickoryTech "literally looks at each community [individually] and sees what the weakest element is." The package the company offers in each town will vary depending on what service is the worst in that particular market, he adds. [What a hoot!]
The packaging of service has proven very successful for rural service providers. Take the example of CTC Telecom (www.ctctele.com), the CLEC subsidiary of Chibardun Telephone Cooperative Inc. (www.chibardun.net), a telco serving Dallas, Wisc.
In 1997, when CTC began its CLEC operations, it overbuilt an analog cable TV system and a regular twisted-pair telephone network in Barron, Wisc., a community served by GTE Corp. (www.gte.com , now part of Verizon Communications, www.verizon.com) and Marcus Cable Co. (www.marcuscable.com).
When it first started out in Barron, a city of about 2,500 access lines, CTC had special offers that included 10 free cable channels if a customer took long distance, or some other mix of services. In Barron, CTC ended up taking about 80 percent of the access lines from GTE, 80 percent of the cable subscribers and won about an 88 percent long-distance market share.
Since its initial CLEC foray, which included an overbuild of separate telephone and video networks, CTC has adopted the Next Level platform so that it only has to build a copper network that is capable of carrying the same services as the two independent networks.
"In Rice Lake and Chetek, [Minn.], we put in only traditional telephone plant. The equipment we're purchasing to do telephone service is capable of doing VDSL," says Rick Vergin, general manager and executive vice president of Chibardun. In those markets, CTC now has a package that includes local and long-distance telephony with enhanced calling features, high-speed Internet access and 70 channels of digital video over the twisted pair for $69 a month.
Single-System Economies
The economics of the single network system were what prompted CTC to use VDSL for video in its subsequent CLEC markets. For instance, Vergin says that to overbuild an analog cable system, it costs about $1,200 to $1,300 per subscriber passed. But there was no guarantee that every single subscriber would take the service, so actual costs per customer were even higher.
However, by using the telephone network to deliver digital video, which is much higher quality than traditional analog cable, CTC only experiences a cost of $1,000 when each video subscriber is acquired. This delivery strategy allows for fewer up-front costs, and more control over how much of its capital CTC spends to deploy additional services, he notes.
HickoryTech and CTC are not necessarily unique in their approach to the market. Many rural CLECs and independent telcos are looking for ways to get the most return out of their buried telephone assets, or to upgrade their cable offerings from analog to digital. HickoryTech said that once it becomes comfortable with delivering voice, video and high-speed Internet access in its CLEC territory, it will likely deploy the Next Level platform in its telco territory.
Hutchinson Telephone Co. (www.hutchtel.net), a Hutchinson, Minn.-based independent telco and CLEC, is doing the same. Hutchinson operates a CLEC network in Litchfield, Minn., a community of 5,000 people located about 20 miles from its telco territory. In July 2000, Hutchinson Telephone completed an overbuild of its telephony network and began offering a package of services to about 95 percent of the homes and businesses in Litchfield. The bundle of services includes voice telephony, high-speed Internet access at up to 1.5mbps and about 100 video channels, all of which can simultaneously be delivered over that single pipe to the house.
"We felt we had to be able to bring a variety of services to them, and be able to package it. That's what customers want--a company that can provide quality of service at competitive prices. That's what we're doing," says Walter S. Clay, chairman, president and CEO of Hutchinson Telephone.
Now that it has its bundled offering running smoothly in its Litchfield CLEC market, Clay expected the company to begin offering its telco customers in the city of Hutchinson the same package of services early this year.
That's Entertainment
Entertainment offerings, such as cable TV-like programming, interactive video and video- on-demand, will play a key role in allowing rural telcos and CLECs to differentiate themselves from their competitors. And the technology is now ready for prime time, enabling widespread commercial deployment of networks that can deliver a full slate of entertainment offerings.
"The stage is set from a technical and business standpoint for delivery of entertainment to the home," says Lee Rainey, vice president of marketing for VideoTele.com Inc. (www.videotele.com), a provider of video delivery technology whose equipment works in conjunction with the Next Level platform to achieve end-to-end solutions for service providers. Rainey believes that the time is ripe for a "full-service network" in which voice, data and home entertainment are packaged over a single wire.
The stage is also set for a full-scale war between the cable and telephone companies in the race to sign customers up for their bundled, broadband offerings, says Dave Caputo, the vice president of marketing for PixStream Inc. (www.pixstream.com), a developer of video headend systems that was acquired by Cisco Systems Inc. (www.cisco.com) and is now that company's video networking division.
Telcos getting into the delivery of these bundled services via VDSL have the chance to capitalize on a growing business. In fact, the market for entertainment over DSL will reach $2.5 billion by 2005, according to industry analysts at Cahners In-Stat Group (www.instat.com).
Beyond the customer demand for entertainment offerings and the chance to expand their revenue streams, there's a whole slew of stories as to why rural CLECs and telcos are adding services beyond their traditional voice telephony offerings.
"The decisions are based on a variety of reasons," says Pat Pachynski, senior vice president of marketing at Next Level. "Some are to supersede a competitive threat, where a local cable company may be offering telephony service. But the majority of them are looking at this as a way to significantly expand their revenue stream."
The largest chunk of revenue that is slowly disappearing is from access. "In rural areas, [access] makes up about 60 to 65 percent of our revenues," says Charles Coon, general manager of the Pekin, Ind.-based Washington County Rural Telephone Cooperative Inc. (WCRTC, www.wcrtc.com).
In 1992, Coon began trying to figure out how WCRTC could overcome future shortfalls in access revenue. "I could see those starting to go away, and was looking for a way to offset that revenue loss and provide additional services to our customers," he notes.
It took almost seven years for technology to catch up with Coon's vision of being able to provide video at relatively reasonable costs. Initially, WCRTC considered using asymmetric DSL (ADSL). ADSL has a longer reach, delivering up to 2mbps over a distance of 18,000 feet from the CO, vs. VDSL, which has a shorter reach but higher bandwidth. VDSL has speeds of 12.95mbps at 4,500 feet.
"ADSL is a very good product for Internet access and some limited video applications," says Coon. "But ADSL, in my opinion, doesn't have the bandwidth you need to offer the whole package. Rather than invest a lot of money in ADSL, and then come back later and put in VDSL, we decided to jump into VDSL."
Coon hopes to have WCRTC's telco territory provisioned with video over VDSL by mid-2001. Once that's complete, it's considering expanding into some neighboring communities with a CLEC offering that would include telephony and video services.
Lombard agrees, and explains why HickoryTech opted to go with VDSL from the beginning. "Those doing ADSL are going to find themselves rather short-sighted in opportunities coming down the road," he says. "As the Internet world moves rapidly to distribution of video and data-intensive content, the Next Level platform will allow us to deliver that to homes. Other skinnier DSL offerings won't be able to handle that."
Next Level believes that currently, VDSL is the best technology for service providers wanting to do a video offering over copper that can compete effectively with cable companies.
"Current options of [DSL] technology are such that if a customer wants to deliver cable TV-like services with multiple channels simultaneously, VDSL is the only choice because it's the only DSL technology that has the bandwidth," says Next Level's Pachynski. "ADSL can be used for a single channel and can go a bit further out and do streaming video. But it doesn't give the provider the technology to compete one-on-one with the cable company."
Pachynski adds that VDSL is just one technology that Next Level is using to transport signals to the home. "As other technologies may allow wider bandwidth--such as wireless or another version of ADSL--we'll be able to offer those as well," he says.
Next Level is perhaps the only vendor that integrates everything a telephone company needs to be able to get into the business of bundling voice, high-speed Internet access and video.
"We offer an end-to-end solution that includes CPE and the capability of the system to offer simultaneous multichannel service," says Pachynski.
Next Level's premier product is its NLevel3 Unified Access Platform. The platform is a fully integrated, ATM-based system that includes a digital loop carrier, fiber-to-the-curb, fiber-to-the-home, DSLAM and full-service broadband access capabilities. The platform enables the delivery of voice, data and video services over fiber optic and copper twisted-pair networks. Next Level also provides broadband management systems and CPE for high-speed data and video services.
Costs of the digital headends have dropped dramatically over the last few years, which has also helped make the video business less costly for telephone companies to enter.
Pachynski says he has seen a headend capable of 100 channels decrease from $5 million to about $500,000 currently. NextLevel has partnered with both PixStream Inc. (www.pixstream.com) and VideoTele.com for interoperability of its DSL technology with their respective video headend systems.
Next Level is also working closely with VideoTele.com in order to be a one-stop shop for all the elements a telco needs to go into the broadcast business. Pachynski says all of these elements will be in place and announced by early 2001. |
