Emerging Trends in
Telecommunications-Business Overview
Video Services Forum
October 2001
Presented by Cindy Andreu
Creating Convergence
The 1939 New York World’s Fair featured the
formal debut television broadcast. The receiver, a
combination television-radio-recorder-playbackfacsimile-projector set, was way ahead of its time.
This suggests a fundamental desire to merge all
media into a single entity long before the birth of
telecommunications as we know it today.
Key Sectors in Telecommunications
• Telephone service companies
• Broadcast networks
• Cable television
Industry Subject Regulation
• Each sector’s history is filled with federal
regulation
– Intended to ensure that the masses had cheap access to
product offerings
– Prevent sector cross-over presumably to fend off
monopolies
• Finally, in 1996 the U.S. government issued
landmark regulation changing the dynamics of this
industry.
The 1996 Act
President Clinton’s Vision:
”We will help to create an open market place where competition
can move as quick as light.”
• The goal: Accelerate rapid private sector
deployment of advanced telecommunications
and information technologies
• The intent: Facilitate by enabling competition
and removing barriers to market entry across
all sectors
What does Today’s Competitive Landscape
Look Like?
Key Competition Indicators in Local
Telephone
• As of 12/2000, new
entrant phone lines
continue to increase
– CLECs report 50%
increase in
telephone lines from
1999 to 2000
– But CLECs only
account for 8% of
the pie
(Source: FCC)
ILEC Lines vs. CLEC Lines (In Millions)
CLEC= 8%
ILEC = 92%
16.4
CLEC Lines
ILEC Lines
177.6
Local Competition--continued
• CLEC customers are primarily concentrated in
Georgia
Iowa
Massachusetts
New York
Texas
Illinois
Kansas
Minnesota
Pennsylvania
• Accounts for about 50% of total CLEC markets,
with each representing at least 10% of the market.
(Source: FCC)
Local Competition--continued
Proportion of Residential vs.
Business Customer Mix
The proportion of
residential to
business customers
varies significantly
between CLECs and
ILECs
(expressed in percentages)
0.8
0.6
``
Residential
0.4
Business
0.2
0
CLEC
(Source: FCC)
ILEC
Local Telephone Infrastructure Update
Capital expenditures = $105 billion from 1995 to 1999
Central office investment:
– In 98% or 14,900 central offices have computerized
switching
– Nearly all offices offer equal access for long distance
Local transmission investment:
– 80% of transmission paths to customers are linked by
copper
– 97% of all links tying switching offices together are fiber;
up from 60% in 199O
(Source: FCC, statistics as of 12/2000)
Local Telephone Industry Fact Sheet
(As of 12/2000 unless otherwise indicated)
U.S. Telephone Households
Households with Telephones
End-user Lines
Service Penetration Percentages:
Telephone
Video (TV) *
DSL *
Local Carriers
Central Offices
* as of 3/01
106,500,000
100,200,000
193,400,000
94.1 %
.9 %
2.1 %
257
15,000
Long Distance Providers
Long Distance Providers
Market Overview
• By the end of 2000,
700 companies
offered long
distance service as
compared to 1 in
1976.
2000 Revenue Analysis
(In Millions)
AT&T
$
MCI WorldCom
22,554
Sprint
9,038
Other Long Distance Carriers
30,544
Bell Operating Companies
5,865
Other ILECs
734
Other Local Carriers
Total
38,111
1,335
$
108,181
Long Distance Providers
Historical Market Share Analysis for Annual Revenues
Year
AT&T
1984
1990
1995
2000
68.3%
50.7%
44.9%
35.2%
(Source: FCC)
MCI/
Sprint
WorldCom
3.4%
11.3%
21.4%
20.8%
2.1%
7.5%
8.5%
8.4%
All other
Long-Dist.
Carriers
Bell
Operating
Companies
Other Local
Telephone
Companies
2.0%
8.4%
12.0%
28.2%
17.7%
15.8%
9.6%
5.4%
6.5%
6.3%
3.6%
2.0%
Status of FCC Approval for BOC
In-Region/InterLATA Service
Television
Market Place
Sector Overview
• Broadcast networks and affiliates are consumed
with building new FCC mandated DTV channels
• In the meantime, Cable has been spending more
on programming and stealing audience and
advertising revenues from broadcast
• Cable is positioning to become a mult-service
provider for high speed Internet, video services,
Interactive TV and telephone
DTV Update
• Nearly 70 % of commercial TV stations expect to
have DTV signals by May 2002
• 19 out of 20 American homes will have access to
at least one DTV signal via over-the-air
• Depending upon the channel, viewers may be able
see sports or other programming in high definition
Trends in Broadcast vs.Cable
Viewership shifts:
• The most pervasive change over the past 10 years
is the shift in viewership from broadcast to cable
• Basic cable viewership more than doubled
• Cable has taken substantial advertising revenue
away from broadcast
– Cable represented 11% of TV advertising revenues in
1991 vs. 24% in 2000
Contributing Factors
• Overall increase in cable networks from 82 in 1991
to 224 in 2001
• Heavier investment in higher quality programming
– Program costs have increased an average of 23% per year
over the past five years
– Provides more than three times as much children’s
programming
– Leading source for political and public affairs
programming
• New business models
What’s up with Cable?
Infrastructure update as of May 2001:
• $50 billion spent on capital expenditures over the
past 5 years (Includes FY 2001 projection.)
• Heavy investment in infrastructure upgrades and
facility improvements provides:
– Two-way plant to 60% of all cable homes
– 550 MHz to 77% of homes by the end of 2001
(Source: NCTA Web site)
Cable Update
According to an NCTA press release on 8/13/2001:
• Q2 averaged 70K new subscriptions per week for
cable modems
• 200K residential telephone subscribers were added
in Q2 for a total customer base of 1.3 million
• There were 15 million business customers by
6/30/01
Cable Industry Fact Sheet
U.S. Television Households (1/01)
Homes Passed by Cable (12/00)
Basic Cable Households (5/01)
Cable Modem Homes Passed (E12/01)
Cable Modem Subscribers (7/01)
Residential Telephone Subscribers (7/01)
National Cable Networks (3/01)
Service Penetration as Percentages:
Cable homes
Basic Cable
Residential Telephone
Cable Modem
(Source: NCTA Web site)
102,184,810
97,700,000
69,501,440
81,237,000
5,500,000
1,300,000
224
95.6 %
68.0 %
1.3 %
5.3 %
Cable Update
Key Players as of 3/01:
MSO
AT&T Broadband
Time Warner Cable
Comcast Communications
Charter Communications
Adelphia Communications
Cablevision Systems
Total subscribers
Subscribers
(In Thousands)
15,900
12,800
7,733
6,208
5,723
1,285
49,649
What’s Ahead
Emerging Products and Trends
Trends in High-Speed Internet Access
• In 1999, the FCC found that 98.2 percent of Internet
users accessed the Internet through dial-up facilities
• Reports from broadband front are one-sided with
cable deployments growing more rapidly than DSL
Trends in High-Speed Internet Access
• Banc of America Securities analyst Douglas Shapiro
sees cable modems in 18.8 million homes by 2005
compared to 13.9 million DSL installations
• Yankee Consulting predicts that cable modems will
hold and even wider advantage over DSL:15.7
million to 10.5 million in 2005
• The FCC projects roughly half of Internet users will
still access the Internet through dial-up by 2004
Other Frontiers in Cable
• Cable is now poised to fight off direct broadcasters
• Digital video offers 4-12 video signals in a 6-MHz
channel that used to accommodate 1 analog signal
– By the end of Q2, cable had 12.2 million subscribers
recovering previously lost customers
– Morgan Stanley believes that direct-broadcast subscriber
adds will drop from 3.3 million per year to 2 million in
2002
– Paul Kagan projects 43.2 and 48.2 million cable
subscribers by 2004 and 2005, respectively
(Source: Barron’s and NCTA)
Other Frontiers in Cable
Video-on-Demand is finally born
• Charter Communications, Insight Communications
and Comcast have launched services in selected
locations doubling the buy rates of older pay-perview. However, these services offer only a meager
350 films to date.
– Insight offers DIVA On Demand TV for VOD movies
accessed by a remote control and on-screen navigator that
includes full VCR functionality
(Source: Barron’s and NCTA)
Video On Demand
Studio Initiatives:
• Paramount, Sony Pictures, Universal, MGM and
Warner Brothers partner to create an on-demand
Web service that will provide theatrical releases to
viewers via the Internet. The service is scheduled
to start in 2002 or 2003
• Disney and News Corp. have agreed to launch
Movies.com in early 2002. Movies will be
available in the pay-per-view release window
Other Frontiers in Cable
Other Enhanced and Interactive TV initiatives
available in selected markets:
• Interactive Program Guides with many digital TV
offerings
• AT&T teamed up with WorldGate 2000 in Cedar
Falls and Waterloo, IA, to offer e-mail, ecommerce, Internet access and interactive video
content/advertising through digital set-top boxes
deployed with digital cable
(Source: NCTA Web site)
Other Enhanced and Interactive TV Services
• Charter Communications teamed up with the city of
LaGrange, Georgia, in Spring 2000 to offer free
Internet-over-TV access providing customers Internet
access, e-mail and local information on TV
• Cox Communications launched Movies-on-Demand in
San Diego using digital set-top boxes and remote
controls with VCR ability: pause, fast-forward, rewind
• In Honolulu, Time Warner offers iControl Video on
Demand ,which instantly delivers pay-per-view and
Pizza-On-Demand through Pizza Hut
Overview of Interactive TV Products and Markets
Emerging Products:
• Forrester Research calls ITV the new business model for
television and predicts a $20 billion industry by 2004
• Recent product offerings:
– OpenTV
– Wink
Overview of Interactive TV Products and Markets
Market Penetration to date:
OpenTV
18 million settop boxes
deployed
worldwide
Wink
4 million
households
Overview of Interactive TV Products and Markets
Personal video recorders:
Major players are TiVO, ReplayTV, and
Microsoft’s Ultimate TV, just launched this year
Overview of Interactive TV Products and Markets
• Only 300-400,000 units have been sold to-date (189,000 are
TiVO units), comparable to adoption of the VCR in the late
1970’s
– Analysts believe that entrants have poorly explained the
mechanics and benefits to consumers
– Often products were priced too high; Replay was priced at
$1,499. Motorola will will incorporate this technology into
their set-top boxes
– TiVO offers several options including a $9.95 monthly
subscription or product lifetime subscription of $259.00.
TiVO is current being marketed in 4000 retail outlets
The Future of Interactive TV Devices
IP Telephony
• Cable companies are bundling voice
services,primarily circuit switched today, with other
broadband services. AT&T and Cox are leading the
way
• Bundled offerings are expected to cut customer
churn by 40%
• Most MSO’s are waiting for full IP capability to
emerge
• AT&T and Cox are currently testing IP telephony
technology
IP Telephony
• Time Warner experienced successful trials of IP
telephony over fiberoptic networks
• Current technical challenges:
– Delays in voice signals or loss of voice packets
– Commercial equipment delays; missing server that will
manage features such as 411, 911, and call forwarding
– Technologies to reach critical mass in 2003 and beyond
• Benefits:
– Estimated to be 40% cheaper to provide and maintain
– Leverages existing infrastructure rather building dedicated
circuits
Advances in Telemedicine
New Uses for Video
• Ambulance Telemedicine
– U. of Maryland pilots project that integrates video
images, audio, vital signs and ECGs to be transmitted
from within a moving ambulance to land-based
workstations where they are used to manage the patient
– Project has been underway for 18 months with over 12
patients
– A similar pilot is also underway in Las Vegas
Advances in Telemedicine
• Tele-Home Health Nursing
– Using a regular phone line and an MCI videophone
customized by American Telecare, Kaiser Permanente
staff can have a video visit from a healthcare center with
a patient at home
– Breathing is monitored on another line using headphones
while the patient’s spouse moves the stethoscope around
the patient’s body
– Preliminary trial results in Sacramento indicate nurses
can contact up to 15 patients per shift as opposed to 6 on
face-to-face visits traveling from home to home
Questions?
Creating Convergence
Today, wireless phones, personal computers,
PDAs, and televisions are taking on one another’s
functions.
Content can be sent to many platforms over
multiple distribution channels.
Creating Convergence
For certain, three elements of convergence are
emerging:
– Content:- combination of audio, video, data or just
data
– Platforms:- PC, TV, Internet appliance or game
machine
– Distribution:- how content gets to your platform
and they are powerfully intertwined.
Managing the process to Convergence
The challenges:
• Standard technologies and architectures must be
adopted to ensure interoperability
• Content encryption tools must be developed for
copyright protection
• Profitable investment in distribution capacity
robust enough for two-way communications of
various media
Managing the process to Convergence
• We can expect to use multiple devices most likely
connected by the Internet.
• Consumers, with new technology choices, will
demand content in one source, received on a
single device, delivered by a single connection.
• Although this still seems far off, the outcome has
already been given a name…
Emergence
–What defines telecommunications today?
–Emergence since the 1996 Act?
–What’s ahead?
Telecommunications
Tele:- distant or at a distance
+
Communications:- an act or an instance of transmitting
information; the technology of transmission of
information
=
Telecommunications:- Communications at a distance as
by cable, radio, telephone or television
Economic Factors Affecting Competition
• Legacy long-distance subsidies (roughly $30 billion
annually) produce backward economics.
• Its very difficult to build profitable models that
require infrastructure. The existing Bell network is
valued at more than $270 billion, not feasible to
duplicate
• No elasticity in voice. Revenues often suffer when
prices are lowered because demand does not grow.
Economic Factors Affecting Competition
The problem:
• For example, author Steve Rosenbush cites in his
book, Telecom Business Opportunities:
– Building a network from scratch including switches,
transmission, equipment and phone lines can run as
much as $4,000 per customer
– The FCC reports consumer payments to local telephone
companies average $360 annually
– At that rate, it would take more than 11 years to breakeven
Business Opportunities with DTV
Datacasting:
• Households
– games, video, Internet, or ticker services to TV
• Business
– sending data to businesses without using T1
lines