Editorial : Plasma TV: The Disruptive Telecommunications Technology of the Decade

The plasma TV will go down as the most disruptive telecommunications technology for the remainder of this decade and perhaps longer. It will create a domino effect of strategic thinking starting with the cable TV business and then on to the wireline and wireless businesses.

Before getting into the top 10 changes to expect in the communications industry because of the plasma TV, first some basic industry realities to set the stage.

1) It’s All About Residential

Residential services will now be the driver of today’s telecommunications network architectures more so than business services. Consider this, most small to mid-sized businesses have a T-1 for Internet access shared by all employees. When those employees go home they are likely each to have roughly the equivalent of T-1 access (DSL or cable modem) at home. If you have 30 high-tech employees, it is likely they generate 30 times as much IP traffic via residential connections versus business. That’s not to mention employees who work from home. Add to that the increase in bandwidth usage generated by the introduction of the plasma TV, and you have a situation where residential traffic will dominate network capacity demand by perhaps 100-fold over business in the near future.

2) It’s All About Access

The only long-term sustainable business model today will be for those companies that control facilities-based access. The days of the pure long-distance players are numbered. Consider MCI, which is virtually debt-free as it emerges from bankruptcy but is still operating at a loss. In addition, when the regulators get around to scrapping UNE-P, non-local access facilities-based long-distance companies will disappear or be relegated to wholesale bandwidth suppliers.

3) The North American Market Is Unique

From a telecommunications market perspective, the rest of the world is vastly different than North America. Only in North America are there more PCs than wireless phones and more wired subscribers than wireless. But more important is the development of cable TV for future services. In North America, cable modems outnumber DSL two to one; in the rest of the world, DSL modems outnumber cable modems two to one. Bottom line, the cable industry is in the driver’s seat regarding telecom development in North America, and the introduction of the plasma TV is a wake-up call that will only accelerate cable’s dominance.

The Top 10 Disruptions Created by Plasma TV

Here are the 10 developments that will occur in sequential order or domino effect due to the acceleration of consumer demand for plasma TVs. It will all begin with the conversion of cable networks to all digital.

1) All-Digital Cable

A plasma TV set has a 40-inch plus screen, is only seven inches thick and has HDTV capabilities. Once you watch a basic cable channel on a plasma TV, you realize that analog transmission quality is poor. With a standard 27-inch digital TV you can’t notice the difference between analog and digital transmissions. But as consumers are driven to buy plasma sets because they can fit them into a small living room because of their slim shape and can deliver a bigger screen size, DVD recorders, HDTV-delivered football games etc., they will want all-digital TV service.

The cable industry has to do something quickly or it will lose its big-screen plasma TV customers to satellite. Note that satellite service is 100 percent digital versus cable, where only the pay-per-view movies are digital where service is available. ESPN, CNN, etc. are almost always on analog channels even if you have a digital set top.

So here is the first domino to fall because of plasma TV. The cable industry has to go all digital to keep its plasma TV customers and to meet the high bandwidth requirements as more HDTV programs become available. If the only place you can get every NFL game on HDTV is from satellite, cable will be in big trouble.

But what about “Joe Analog” who only wants basic service and who has a 27-inch TV where digital service has no noticeable improvement in quality? How do you get an ROI from the digital upgrade? You introduce more services (VoD, iTV, personal video recording, and lots of IP multimedia), because “Joe Analog” now has two-way service into the home whether he wants it or not.

2) Cable VoIP

Going all digital will cost the cable industry a bundle of cash. But the all-digital cable plant is not the only candidate for a massive cable upgrade. The second new service option is an upgrade to VoIP via a PacketCable architecture, using the next-generation cable modem (DOCSIS 1.1) and a softswitch VoIP infrastructure. The alternative VoIP architecture however is just to use the same cable modems (DOCSIS 1.0) that are used for broadband Internet access for transmission of VoIP traffic to a CLEC that has an old-fashioned circuit switch that can handle E-911, lawful intercept, and all those other things that are problematic with proposed cable softswitches.

So here’s the cable industry’s choice: keep and grow revenue from its plasma TV customers, settle for a piece of the VoIP revenue shared with a CLEC and put their cash and credit to work building an all-digital network, or sink a ton of cash into softswitch infrastructure, new cable modems and the not-yet fully developed BSS/OSS/ISS infrastructure. It’s a no-brainer today; go for the sure thing—the all-digital network option.

3) Satellite/DSL Deals

All major RBOCs will have bundled DSL/satellite service deals in place by year-end like the DirecTV/SBC deal. The RBOCs have to do something to provide new services, because they will continue to lose voice customers to wireless and cable companies as most cable companies take the fast route to the VoIP market as discussed above.

Satellite TV to the home with an associated DSL line allows satellite companies to provide interactive TV (iTV), limited VoD and other services the cable companies offer. Satellite companies don’t want to lose their plasma TV customers to cable.

4) Next-Generation Satellite

The reason direct-to-the home broadcast satellite players technically need the RBOCs is for the dedicated quality return path DSL provides. But there’s a problem (e.g., sharing revenue), not to mention helping the RBOCs expand into the video market.

2004 will see a new competitor to both cable modems and DSL—the next generation of high power satellites to feed smaller VSATs from Hughes Network Systems. If the take rate for next-generation VSATs is as expected, you will see equivalent Internet access via satellites in terms of capacity at today’s DSL/cable modem prices.

So what’s the big deal here? Two satellite services (direct home TV and Internet access) being provided across the entire geographic market delivered to one satellite dish (e.g., a multi-feed antenna). So, who needs the RBOCs? A little more below on how the plasma TV fits into this picture.

5) RBOC FTTH

The RBOCs have got to have a premium video play all on their own. The satellite partnerships are short term at best, and DSL in North America can’t deliver the capacity for multiple channels let alone HDTV because of the bandwidth limitations due to the copper loop.

The only option for survival is Fiber to the Home (FTTH). Yes, CapEx is horrible and the maintenance (OpEx) is even worse. If RBOCs use existing FTTH architecture (Home Run or PON) with fiber on telephone poles they will still be splicing fiber six months after a strong hurricane like last September’s Isabel passes through one of their territories.

Again, it all starts with the plasma TV. Cable must be upgraded to all digital, creating a further video service capability divide with DSL-oriented RBOCs. RBOCs have to go with FTTH, or they will die.

6) PC and TV

The PC is great for pulling music and video off the Internet but not so good if you want stereo for audio or STV, let alone HDTV for video. Likewise, the plasma TV can’t download programming off the Internet, but it is great for delivering quality entertainment.

Guess what? The next hot convergence frontier isn’t the phone with the PC, it’s the plasma TV with the PC, and it’s beginning to happen. Real Networks’ Rhapsody product spans the PC and TV today.

7) Wi-Fi

The natural home networking option for PC to plasma TV connectivity is Wi-Fi. The PC is the ideal entertainment content search engine, and plasma TV is the premium home content display. Wi-Fi connectivity will deliver entertainment to the home on plasma TV, but it won’t stop there. Other entertainment and/or infotainment devices with Wi-Fi operability will appear.

8) EDGE and EV-DO

The mobile wireless provider can’t let Wi-Fi have an open field run at new generation entertainment display and/or audio delivery devices. If so, such devices will be used not only in the home but at Wi-Fi hotspots, municipality-owned networks, universities, etc.

Mobile wireless carriers will have to accelerate 2.75G (EDGE and/or EV-DO) networks. If they don’t, Wi-Fi will be so embedded in entertainment devices that later entry by 2.75G will be a futile exercise. The first to market with next-generation mobile entertainment devices is key.

But what about cable? How can they take the steam out of Wi-Fi? The promotion of the so-called embedded DOCSIS (or e-DOCSIS) is one way. This would tie next-generation entertainment displays to cable modems (DOCSIS 1.0, 1.1, 2.0 and more).

9) P2P

Back in the home, the PC to plasma TV revolution will further accelerate peer to peer (P2P) networking to exchange content (music and videos). This is great for the consumer but very bad for cable companies on two fronts. First, the cable “walled garden” becomes a park, with PC access to the Internet. The consumer controls the choice of content, not the cable company. Second, P2P traffic is a bandwidth hog on the return or upstream path. All of today’s broadband access services (cable modems, DSL, and VSATs) are asymmetrical with more capacity into the home than out.

So what’s a cable operator to do? Block P2P? Not a good idea because it will lose the consumer to DSL or satellite. Besides, you can only stop your customers from hosting content, not the rest of the world.

So here is where P2P growth will lead. This application requires a solution to minimize use of the uplink. Here is where intelligence support systems come in. The cable operator (DSL or satellite operator) needs an ISS to identify popular content sites or hot sites. So an ISS that monitors usage by packet type/header can detect hot hosting sites and direct that package or packets off to a cache server. This removes traffic from the return path because the cache site is accessed on the backbone side, not the consumer side.

At this point, some might say what about privacy or copyright law. Isn’t the cable operator repackaging someone else’s content without their permission? No, because it’s no different than providing an email server. The cable operator is not selling the content, looking at it or promoting it.

10) Cable as IP Backbone King

The majority of IP traffic on backbone networks in the future (at least in North America) will be IP traffic to and from cable systems or ILEC FTTH. In a short time, cable, ILECs and FTTH companies will be the premium backbone suppliers. Note, once the conversion to all digital happens, it will be time for the cable industry to reconsider the PacketCable model for VoIP. There you would want to bypass the PSTN entirely for voice calls (cable system to cable system) to improve voice quality.

In summary, the plasma TV will be the spark that significantly changes the telecommunications industry for the next decade.

If you need to better understand what’s happening in telecom today, plan to attend “Understanding The New Telecommunications Technologies and Industry Dynamics.” For seminar dates and locations, go to www.telestrategies.com.