Transcript No Slide Title

Waiting For IP
Sandy Teger and David Waks
System Dynamics Inc.
Fall ’99 Voice On the Net
Wednesday, September 29, 1999
System Dynamics Inc.
Copyright © 1999
Summary
• Big MSOs view telephony as integral part of the bundle
– Aspire to capture substantial market share from ILEC
– Need to match ILEC features and reliability
– Investing now in CBR (circuit switched) access technology
for telephony over cable
– Investing in circuit-switching infrastructure
• Switch from CBR to IP access solution requires
– IP services, features and reliability comparable to or better
than CBR
– IP cost comparable to or lower than CBR
– National and global IP networks in place to push conversion
from IP to circuit switching deep into network
Copyright © 1999 System Dynamics Inc.
Slide 2
Cable Focused on “The Bundle”
• Defend video services business against DBS today and
others tomorrow
• Enter new businesses - replace lost revenue, keep
growing
• Be first to provide all pieces of “the bundle”
Data
Telephony
Interactive services
PC and TV
Local
Video telephony
Long distance Videoconferencing
Video
Analog/digital
PPV/NVOD/VOD
Copyright © 1999 System Dynamics Inc.
Slide 3
Some Cable Acronyms and Definitions
• HFC (Hybrid Fiber/Coax) - modern cable plant
architecture
• Broadband access system: Cable modem + CMTS (cable
modem termination system)
• DOCSIS (“Data Over Cable Service Interface
Specifications”) - North American industry initiative for
standardized cable modems, led by CableLabs
• OpenCable™ - NA industry initiative for digital set-tops
• PacketCable™ - NA industry initiative for IP voice and
video
Copyright © 1999 System Dynamics Inc.
Slide 4
Cable Standards Enable the Bundle
DOCSIS
cable modems
Analog video
PPV/NVOD
PacketCable
Phase 1
PacketCable
Phase 2
Local
Long distance
PC Interactive services
CBR
telephony
IP
Telephony
Local
Long distance
Video telephony
Videoconferencing
OpenCable
digital set tops
Digital video
TV Interactive services
Video on demand
Copyright © 1999 System Dynamics Inc.
Slide 5
Telephony Market Entry:
Varying MSO Approaches and Timing
• Deploy CBR telephony now
– AT&T
– Cox
– MediaOne
• Deploy IP telephony as quickly as possible
– Videotron
– Cogeco
• Wait until completion of PacketCable initiative
– Smaller MSOs
Copyright © 1999 System Dynamics Inc.
Slide 6
Differing MSO Priorities for Telephony
AT&T
• Strategic imperative
• Provide alternative to LEC
access
• Extend the customer
relationship / complete the
service bundle
• Preserve “high quality”
reputation of brand
• Now: Use existing circuit-
switched infrastructure of
AT&T and Teleport
• Later: Switch to packet
infrastructure in orderly way
without substantial “throwaway” costs
Copyright © 1999 System Dynamics Inc.
Videotron Ltee
• Opportunistic
• Extend the customer
relationship / tap into new
revenues
• No significant investment in
circuit-switched
infrastructure
• Stores and distribution
channels
• Unique Francophone
community of interest
• Early adopter culture
• Now: Start with IP
Slide 7
Packet Promises More - In The Future
CBR Telephony
(Circuit Switched)
IP Telephony
(Packet Switched)
Network efficiency
Fairly low
Higher
Voice quality
Very good, equal
to LEC service
Okay today, excellent
tomorrow
Extension to new
applications
Very limited
Full integration of
video, data, and voice
- over time
Cost for network
infrastructure
High
Lower and following
Moore's Law
Cost for access
technology
High
Higher now, lower in
future
Readiness for
primary cable
telephone service
Available now off
the shelf
Probably 2001 for
high volume
production
Copyright © 1999 System Dynamics Inc.
Slide 8
CBR Products For Cable - Available Now
HFC distribution plant
Arris Interactive
Cornerstone equipment
Host digital
terminal
Customer Home
Class 5
Switch
PSTN
GR-303
or V5.2
(T-1/E-1)
Two-line
“voice port”
( or NIU)
Cable Hub Site and/or Headend
• Four major products deployed worldwide
– Arris Cornerstone (Antec/Nortel)
– ADC HomeWorx
– Tellabs CableSpan 2300
– Motorola CableComm
• Proprietary and mutually incompatible
Copyright © 1999 System Dynamics Inc.
Slide 9
Major U.S. MSOs Deploying CBR Telephony
• AT&T Broadband and
Internet Services (TCI)
– California: Fremont
– 9 additional markets in 1999
– “Ramp up” in 2000
• Cox
– Arizona: Phoenix
– California: Orange County,
San Diego
– Connecticut: Hartford
– Nebraska: Omaha
– Virginia: Hampton Roads
• Cablevision Systems
– Connecticut: Norwalk
– New York: Parts of Long
Island
• MediaOne
– California: Los Angeles
– Florida: Jacksonville, 2
others
– Georgia: Atlanta
– Massachusetts: Boston
suburbs
– Michigan: Detroit suburbs
– Virginia: Richmond
• Comcast
– Washington D.C. suburbs
(formerly Jones)
• Time Warner Cable
– New York: Rochester
Sources: Cable World, January 18,1999, from NCTA; Multichannel News April 26, 1999
Copyright © 1999 System Dynamics Inc.
Slide 10
Sample Offers
• First AT&T trial -- Fremont, CA
– $12.50/mo for single line, $20.25/mo with call waiting,
call return, 3-way calling
– 10 cents/min long distance
– Waiving installation fee
• MediaOne -- Richmond
– Fully-featured single line (CLASS, …) $26.95/mo
– 2 lines (1 fully-featured)
37.95
– 2 lines (both fully-featured)
49.95
– Each additional line
10.00
– Incentives: free installation, one month free service, 3
months free voicemail
– Can keep existing phone number and long distance carrier
Copyright © 1999 System Dynamics Inc.
Slide 11
How’s It Going? Cox
• Will keep on going with circuit-switched, as planned
• “It’s proven out for us, with penetration well beyond
our business model.” Penetration exceeds 20% where
Cox markets and “can end up in the 40% plus range if
you add value.”
• During first 18 months, suffered from too much
demand just from word of mouth “that we just weren’t
ready for”.
• Now has a “favorable regulatory environment” since
Bells need to demonstrate “significant competition” to
enter LD market.
Source: Communications Daily quotes
from investors conference 5/7/99
Copyright © 1999 System Dynamics Inc.
Slide 12
CBR Telephony Deployments Outside the
U.S. -- Some Examples
Location
System Operator
Vendor
Australia
Optus Vision
Motorola, ADC
Austria: Vienna
Telekabel (UPC)
Nortel/Arris
China: Nanjing
Nanjing CATV
ADC
France: Paris
Priority Telecom (UPC)
Tellabs
Japan: Tokyo + 3
others
Titus (MediaOne, Time
Warner, Itochu, Toshiba
partnership)
Nortel/Arris
Malaysia
Binariang
ADC
Netherlands:
Eindhoven,
Amsterdam
A2000 Cable (50% UPC)
Tellabs
Norway: Oslo
Priority Telecom (UPC)
Tellabs
Spain
CTC, SPTA
Nortel/Arris
Copyright © 1999 System Dynamics Inc.
Slide 13
MSO Differentiation From ILEC
• MSOs need to differentiate their telephony services
from incumbent LEC
• “Do it cheaper” - Lower price for basic service, CLASS,
multi-line, long distance
– Can do with CBR today, IP later
• “Do it better” - Value added services require IP
– Self provisioning - add features or a line without waiting
– Turn features on and off as needed
– Simple, inexpensive multi-party calls
– “Click to talk” for Web sites
– Unified messaging
– Higher-quality voice
– Videophone, videoconferencing
– Net enhanced calling -- volume enhancement, text to
speech
Copyright © 1999 System Dynamics Inc.
Slide 14
When Will MSO’s Switch to IP?
• (1) When IP solution is equal and cheaper
– Comparable voice quality
– Equal or less power
– Equal or better system reliability
– Equal or better installation and support (infrastructure and
subscriber unit)
– Stable technology, long lifetime
– Packaging and house wiring worked out
– Cost lower than CBR and going down faster
• (2) IP solution is significantly better
– Roughly equal voice quality, power, reliability, installation
and support, stability
– Supports migration to video telephony, multimedia
integration
– Comparable cost to CBR for voice telephony
• (3) Own packet network far along in deployment
– Avoid multiple IP gateway expense and call degradation
Copyright © 1999 System Dynamics Inc.
Slide 15
Plant Requirements for Primary Telephony
• Availability - both MTBF and MTTR
– Needs to match customer experience and expectations:
“always get dial tone”
• Cable plant is underpinning for all services
– Amplifiers in cascade, node size
– Powering - centralized at node versus distributed
– Redundancy - fiber, electronics
– Many possible points of failure
• Different operational models
– Twisted pair telephone plant is not monitored — single
failure usually impacts only one subscriber line
– Cable plant has not been monitored — single failure can
impact many subscriber lines
• Needs proactive network management
– Cable systems starting to deploy monitoring and response
systems
Copyright © 1999 System Dynamics Inc.
Slide 16
Our Forecast
• Large-scale deployment in 2001
– Probably two years for volume production of primary IP
voice products - fully functional, interoperable, cost reduced,
fully competitive with LEC and CBR products
• Near-term deployment strategies extend the lifetime for
circuit-switched CBR telephony
Copyright © 1999 System Dynamics Inc.
Slide 17
Primary Telephony Over Cable - Conclusions
• IP clearly the future of telephony
– Near term, new entrants willing to accept risks
– Mid term, IP will do everything CBR does ...
– … and offers the promise of doing it for less
– Longer term, will do much more
• Success requires more than technology
• Service providers
– Training
– Business support systems: billing, customer support
– Operational support systems: network management, traffic
engineering
– Service culture
• End users
– Require clear incentive to switch providers
– Choice based on pricing, features, provider reputation
Copyright © 1999 System Dynamics Inc.
Slide 18
For More Information:
System Dynamics Inc.
18 Beaver Ridge Road, Morris Plains, NJ 07950-1901
(973) 644-4739 Fax (973) 538-6003
dave @ system-dynamics.com
sandy @ system-dynamics.com
http://www.system-dynamics.com