BuddeBlog

A recent article in Asia Pacific Broadcasting (APB) provides further indications of the dangerous direction Australia is taking in the digital TV arena. Last month (p180) we very much welcomed the Productivity Commission Report on this issue, but also flagged the political unwillingness in this country to resile from earlier decisions when they proved to be ill-judged. I have used some of the comments made in APB to further emphasise the case that digital TV should not be split into two (datacasting and pretty pictures) and that the government should mandate the HDTV technology.

In North America, TV officials admit that switching to HDTV is a big risk for operators. The problem is that true HDTV ‘chews up’ bandwidth. HDTV is also expensive because, although the film that is used to produce theatrical movies intrinsically has enough definition for HDTV, it still has to be converted, via telecine, to the HDTV format. The conversion, much of which is done by Sony, can cost hundreds of thousands of dollars per movie.

Europe has chosen not to follow the HDTV track at all, instead using a PAL upgrade called SDTV, providing ‘pretty pictures’ to those who want it at a much lower price. In Europe they market these SDTV sets only to the top end of the market (3%-5%). The inference then is that SDTV, let alone HDTV, will not be a widely used consumer product for many years to come. In the USA the latest indications are that the current analogue services will have to remain in operation until at least 2013-2016!! (In Australia, under the government mandate these will turn off in 2008).

There are only a handful of HDTV customers in North America. Fewer than 10,000 true HDTV receivers would be in operation in the United States by year-end. Of those, many are satisfied with the programming they are getting from terrestrial broadcasters or the handful of cable operators that carry digital TV. That leaves only a few thousand customers to be divided among the HDTV operators.

‘Never has so much [money] been spent by so many people on so few customers’, said David Baldwin, HBO’s senior vice-president for program planning.

For terrestrial HDTV broadcasts a consumer needs to buy an HDTV set, currently costing US$5,000-$10,000, depending on the manufacturer and options. Consumers are showing reluctance to spend money on HDTV electronics. One survey indicated that more than 70% of US consumers were not willing to pay US$1,000 more for an HDTV set than they would for a high-quality SD set. Only about 10% said they were willing to pay the US$5,000 premium, which is more typical today.

One of my good and friends and colleague in the industry is Peter Cook.

Peter is a real telco entrepreneur and has provided valuable input into the industry through innovative new technologies and concepts. For a time we also shared directorship positions at SPAN. After his breakthrough prepaid card businesses over the last two years, Peter is now involved in RealNet, a new interactive Internet-based communications company. They recently launched their first software product, the Rotor Learning System.

This provides an effective interactive communications available in one-to-many settings. It integrated streaming video, audio with graphics, and a wide range of question and response features ensures that programmed sessions allow for high quality live presentation over the Internet.

For example, an instructor based in Hobart conducting an on-site class can also interact simultaneously with up to 300 students in their homes or offices all over the world. The software can, of course, also be integrated with many other real-time interactive features. The presenter can, for example, manage questions and responses, discussion groups, graded quizzes, instantly tabulated polls and surveys, mood meters with instantaneous yes/no response, and whiteboards with shared graphical tools.

The Rotor Learning System was first launched in the United States of America in June this year. It has been purchased and placed into service by a number of American universities.

In an unprecedented move, the Orbit Satellite Television and Radio Network (Middle East/Africa pay TV satellite service) broke all norms associated with subscription on any Pay-TV network in the region. The company launched a No Minimum, Monthly Payment and Mega Bouquet pay TV service.

The limited period special offer eliminates the minimum monthly subscription, establishes monthly payment facilities, and enhances added value by introducing the Mega Bouquet.

The service provides total affordability by eliminating the US$50 per month minimum, thus allowing viewers in the Middle East and North Africa to select only the channels they want and paying as low as 10 cents a day.

It also gives viewers the option to subscribe to the total package (all Orbit TV and Radio channels) at the price of US$59 per month. This package offers the broadest selection of quality programming available in the region (international and regional movies, entertainment, free-to-air, sport, news, children, music, etc).

Last but not least the long-awaited 24-hour Arabic Series Channel will be offered as part of the package at no additional cost.

There are many reasons why Internet access costs are so low.

For a start, the Internet is more efficient than voice circuits in the way it uses available network capacity. When you place a typical call over the Public Switched Telephone Network (PSTN), network switches establish a duplex (two-way) circuit which is available for your exclusive use for the entire duration of the call, regardless of whether you and your called party are actually talking or not.

Conversely, a voice call placed over the Internet can be routed over a number of different circuits, each of which is only occupied for a fraction of a second. This is because the voice signal is carried in a series of discrete data ‘packets’, which are sent from one end of the line and reassembled – having followed whatever network path was available – at the receiving end.

Furthermore, the public switched network is optimised to carry traffic at 64Kb/s in chunks of 8 bit bytes, sampled at a rate of 8,000 times a second. While this method results in excellent signal quality, it is at the expense of speed. The Internet, for its part, can send its voice packets at speeds only limited by the slowest link on the network (a LAN, phone line, wireless connection and so on) a feature which often results in much faster transmission times. The quality of the voice signal may be low, but throughput will almost always be faster.

In addition, capacity utilisation of network resources is generally much higher on the Internet. While the Net generally runs at an average 60%-70% of total capacity, on an average day network utilisation on the PSTN operates is a mere 20% of available resources.

This seemingly shameful waste of resources can be explained by the fact that the PSTN has been optimised to be as robust and reliable a network as possible. A surge in demand – whether caused by a panic on Wall Street, a natural disaster or simply the arrival of Mother’s Day (the busiest day of the year on most operators’ networks) – will not result in dropped connections or even problems getting a line. Instead, the network’s reserve capacity will simply kick in, and users will make and receive their calls as normal, oblivious to any change in traffic levels.

The same, sadly, cannot be said of the Internet. Congestion on the network inevitably results in delayed or dropped packets, resulting in service deregulation and, ultimately, calls cut off in mid-sentence. The Internet’s higher capacity use results in cheaper prices for users, but at the expense of the reliability of traditional networks.

Internet calls are also cheaper because they effectively by-pass the international accounting rate system which obliges PTOs to pay one another settlement rates for terminating one another’s international traffic. And finally, PTO tariff structures, traditionally based on distance and duration, are not entirely cost-based, but are determined by a complex range of factors such as the operator’s universal service obligations and the need for investment in expensive new equipment to maintain and grow the network.

In a recent document from Cisco I came across interesting data on the ISP market in the United States.

There are here seven basic service provider market segments:

- ISP-Tier 1: Tier 1 Internet service providers (ISPs) provide the national and international backbones for the Internet. They frequently focus on large business customers and they provide interconnection services with other ISPs. Tier 1 ISPs connect with each other and with Tier 2/3 ISPs. Tier 1 ISPs are expected to have excellent customer support and highly reliable networks.

- ISP-Tier 2/3: Tier 2/3 ISPs provide more geographically localised services. Tier 2 ISPs generally focus on business customers; they must offer good customer support. Tier 3 ISPs focus on the price-sensitive dial-up market. These ISPs offer inexpensive access with minimal services. Tier 3 ISPs have relatively low volume, and they focus on minimising their cost of doing business. Both Tier 2/3 and Tier 3 ISPs tend to connect to Tier 1 ISPs for their backbone services, and they frequently connect directly to other Tier 2/3 ISPs that are in their geographic areas.

- Cable MSO: Cable multisystem operator networks provide cable access to homes and businesses. Historically, cable MSO networks have provided one-way broadcast of video signals to homes. Cable MSOs continue to generate most of their revenue from video services. They are very interested in expanding their services to include data-over-cable and cable telephony services because these services offer significantly higher revenue opportunities.

- ILEC/PTT: Incumbent local exchange carriers/Post, Telephone, and Telegraph networks are the traditional telephone companies. In the United States, they consist of the regional Bell operating companies (RBOCs), which were formed after the divestiture of AT&T and independent operating companies (IOCs), which are usually located in more rural areas or single cities. Many countries outside the US have also deregulated their Telecommunications industry, opening the way for competition, especially in the areas of long-distance telephone service, wireless telephone service, and all data services. In a few remaining areas of the world, the PTTs are still government-managed monopolies.

Historically, ILECs/PTTs have provided local voice services and have leased capacity to the data-communications industry for data transport. ILECs frequently make most of their revenue in transport services. As data traffic surpasses voice on the networks, ILECs/PTTs are developing their ability to support data traffic directly. Today ILECs are partnering with ISPs by providing wholesale dial or dedicated access.

ILECs/PTTs are suffering from significant competition as competitive local exchange carriers (CLECs) and cable MSOs bypass the traditional ILEC domination of the local access market.

- CLEC/CAP: In the United States, the Telecommunications Act of 1996 allowed CLECs/Competitive Access providers (CAPs) to compete with the RBOCs for local traffic. In Canada, Western Europe, Latin America and some parts of the Asia Pacific region, CLEC/CAPs also compete with the traditional telephone companies for local voice and data services. CLECs are frequently aggressive competitors who are trying to grow their networks quickly in order to gain market share. CLECs frequently partner with Tier 2/3 ISPs – the CLEC provides the access portion of the network and delivers bulk traffic to the ISP. CLECs tend to focus on business customers.

- IXC: Inter-exchange carrier networks are large, existing telephony networks with their primary bases in the long-distance telephony business. IXCs own their own communication infrastructure and make most of their money on circuit-switching services such as traditional telephony. IXCs participate in the packet-switching world by providing transport services. IXCs are losing market share to bandwidth resellers and IP-based communications networks such as Greenfield IXCs. IXCs are re-engineering their networks to make them more efficient and to leverage their existing resources into a dominant position in packet networking. They are aggressively partnering with or purchasing CLECs so that they can provide local and long distance service for voice and data.

- Greenfield IXC: Greenfield IXC networks are relatively new long-distance networks that are providing competitive inter-exchange services. Greenfield IXCs often focus on the business and wholesale market. Greenfield IXCs are designing their networks to optimise for data services from the beginning; they are also offering cheap long-distance voice service based on packet telephony technology.