The Tale of the Tube

As high-speed Internet connections reach into more and more American homes, so too does the promise that telephone companies could use them to deliver television content. The problem is, if they did so today your bill could be more than your car payment. A lot more.

That's the way Hank Kafka, BellSouth Corp.'s chief architect, figures it, because of the huge amount of bandwidth required if Americans were to watch video-on-demand and other high-definition TV programming over the Internet the same way we watch the tube now, which is an average of eight hours a day, often from more than one set in the house.

Kafka took some generally accepted cost estimates for today's Internet -- that the average user downloads about 2 GBs of data every month, which costs service providers about $1 -- and made some extrapolations. If a subscriber were to watch five standard definition movies per month, about 9 GBs of data, that would cost about $4.50. But if all TV viewing were in standard definition, the price tag jumps to $112 for 224 GBs. And if all viewing were high definition -- carried at 24 megabits per second -- the quantity reaches 1,120 GBs per month and the bill totals a whopping $560.

But Kafka, who first announced his estimates at a recent telecom industry trade conference, doesn't expect anyone to pay those kinds of prices. He just wants to make a point.

"If this kind of traffic develops and we just follow the same Internet model we have now, then the Internet is going to be a mess. We need to find other ways to address it," he says. "What you want is massive amounts of cheaper bandwidth."The headaches will start for companies like BellSouth when Internet TV, or IPTV, services are provided via unicasting, which delivers to single households individually rather than to an audience of multiple households simultaneously, the current system of multicasting, which is much more efficient.

"The key is, it moves the emphasis from just access bandwidth to core network bandwidth that's necessary to fill up the access pipes with sustained high-bit video traffic," Kafka says.

BellSouth will conduct a technical trial of IPTV for up to 1,000 customers by the end of the year and all of its competing service providers are investing in IPTV too. The technology is appealing because the content can be personalized. Major League Baseball, for example, is working on a system to show multiple games at once while also providing access to statistics and scores from other live games.Count on another four or five years before a significant number of IPTV subscribers embrace high-definition TV and multiple set-top boxes to really push the access networks being built today to their limits, according to Mark Bieberich, director of the communications network infrastructure at the Yankee Group.

By that time, costs will have decreased significantly for optical components and many of the necessary broadband technologies. Still, it's going to take that long before service providers start generating a profit.

"The cost is massive," Bieberich says. "The way consumers will use these services is elusive."He estimates the price tag to be in the billions of dollars. First, there's the equipment in the home: set top boxes with a digital video recorder and residential gateways, the devices in homes that interface with a service provider's network. Then there's the infrastructure that connects the customer to the video serving office. "The service provider has to spend significantly to upgrade that to prepare it for video delivery," Bieberich says.

On top of that, because existing Asymmetrical DSL lines are inadequate for video, they'll need to be upgraded to VDSL or ADSL 2+. And the infrastructure at the office that serves the video -- switches, routers, video on demand servers -- and the fiber that connects users to content will all need to be replaced. The process is under way in this country and in Europe and Asia.

"You're talking about dozens of different categories of capital expenditures," Bieberich says. "Telecoms have to invest in the same type of video infrastructure that the cable companies have already invested in."

How will companies like BellSouth charge their customers for this? There's plenty of possibilities: one of the more likely options is that instead of paying for access speed as they do now, subscribers could select different plans that limit the quantity of traffic they could download; the more movies you want to see, the more you pay. Or, a customer could pay a small fee to temporarily upgrade a connection to download a video.

Advertisers, already frustrated that their standard 30-second spots are easily removed by Tivo and other recording devices, may switch to placing products inside programs or to offering directly through the IPTV connection specials to buy merchandise related to a program.Since IPTV requires high-speed Internet connections, it's worth noting that the rate of U.S. broadband adoption -- and average connection speed -- is sluggish compared to the rest of the world. In response, municipalities across the country have begun setting up their own wireless Internet networks, drawing protests and lawsuits from telephone companies objecting to what they say is unfair, taxpayer-funded competition. BellSouth has sued, successfully, to block Lafayette, La., for example.Advocates of municipal wireless movements, who insist their way is cheaper for consumers, are frustrated by a market in most of the country that prevents anyone but the local phone or cable company from providing Internet services.

"Three years ago, the thought of cities doing their own Wi-Fi clouds was crazy," says Dwayne Hendricks, chief executive of the Dandin Group, which is working on a $9 million project for rural Sandoval County in New Mexico that's nearly the size of Connecticut. "But now it's happening, everybody's doing it. It's finally occurred to people that this stuff really works and it provides a competitive service to the duopoly.

"You're having the government compete with the private sector because the private sector is not doing the job."

In the next five years, Sandoval County is hoping to provide wireless service of 100 megabits per second over an area of more than 3,700 square miles. "The county wanted a wireless infrastructure to outperform any telco or cableco in the country," Hendricks says. Once the network is established, it will be open to service providers who will be able to determine the price for connecting residential customers.