Thoughts on TelcoTV 2006: Complete Solutions vs. Best-of-Breed Solutions

Authored by colin_dixon on November 16, 2006 - 7:03am.

At last week's TelcoTV conference in Dallas, I had the opportunity to speak with a variety of vendors whose technologies enable the delivery of TV services over telecom networks. Many had exciting new features pushing the boundaries of what is possible in the delivery of digital TV services. But amongst all the customer wins and service updates, I sensed a familiar theme echoing through my conversations with the smaller, independent vendors: how can we compete with the 'Big Guys' – the vertically-integrated 'complete solution' vendors?

Background

The telco operators set on delivering TV services over their networks have attracted a broad swath of vendors offering assistance. These vendors break out into two broad categories: 'complete solutions' versus 'best-of-breed' merchants.

In the 'complete solutions' category, account control and vendor aggregation are the rules of the game. These vendors are capable of handling large service operator accounts and usually offer a 'complete' or 'end-to-end' solution, not so much from a technology perspective but in terms of their commercial approach (that is, going beyond the video offering and encompassing voice, data and, of course, operational/back-end systems). Companies following this approach in the U.S. include Microsoft/Alcatel, Siemens, and Lucent. In Asia , UTStarcom, PCCW, and Microsoft/Alcatel are the main 'complete' service vendors. What these vendors have in common is breadth but little in the way of depth.

The 'best-of-breed' vendors focus on a specific component of the IPTV service platform, seeking to differentiate their offerings by providing outstanding performance and service. Typically, they need to strike technology alliances with other vendors to form a complete solution. Most of the vendors in this category have therefore developed a network of alliances between one another. These alliances are often formed on an opportunistic basis, when necessary to win a particular customer. There are many companies in this category. For example, in the VOD space we find vendors such as Seachange and Kasenna. In the middleware space, examples include Minerva and ORCA. In the browser space, we find companies like ANT and Opera. What these companies have in common is depth but little in the way of breadth.

The Current Situation

Today the majority of tier 1 telcos have already selected vendors and, no surprise, they are from the 'complete solution' camp. Alcatel/Microsoft dominates in the U.S. with wins at AT&T and Verizon and in Europe with BT and Deutsche Telecom. However, the majority of tier 1 operators are only now beginning to deliver television services (in many cases due to delays caused by flaws in the 'complete solutions' they selected).

Among tier 2 and tier 3 telcos, it is a completely different story. Here the 'best-of-breed' approach dominates. Smaller operators such as SureWest in California and Iowa Network Services have been providing TV services for several years and in most cases have been quite pleased using a variety of 'best-of-breed' vendors versus a single end-to-end solutions provider.

So which approach is winning in the market? Today, the 'best-of-breed' vendors serve about 55% of global TelcoTV subscribers. However, given the vast footprint of tier 1 telcos – and with most of these operators using a 'complete solution' – TDG predicts that the 'best-of-breed' approach will lose market share to 'complete solution' vendors over the next several years, declining to 45% by 2010. Keep in mind that TDG predicts that the TelcoTV market will grow from 3.5 million subscribers today to 33 million in 2010. Hence, 'best-of-breed' vendors will continue to see growth but at a much reduced rate than their business plans may promise.

Identifying the Opportunities

Should the 'best-of-breed' vendors be worried about the 'complete solution' providers? No doubt. That said, there will be at least two strategic openings in the coming months for smaller vendors to make gains against the likes of Microsoft and Siemens. The first will be opportunistic; the second will require hard work and planning.

As any VOD vendor will confess, it takes years to build a truly scalable, robust streaming server system capable of handling the rigors of broadcast-quality delivery. Yet Microsoft is claiming to provide this functionality as part of its IPTV edition just two years after starting development. This story is repeated throughout the IPTV software stack including the components for conditional access, middleware, and encryption. The lesson for 'best-of-breed' vendors is clear: specific parts of the 'complete solutions' will fail to deliver as promised and vendors such as Microsoft will be forced by their customers to open up and work with proven 'best-of-breed' component vendors.

'Best-of-breed' vendors, as mentioned before, have typically integrated with similar vendors on a customer-by-customer basis. With many large customers opting for pre-integrated, fully-configured solutions, clearly 'best-of-breed' providers must do better here. In order to effectively compete for large telco business, smaller vendors must provide pre-integrated solutions – in other words, 'best-of-breed' vendors must come together to agree on integration standards and put real resources behind meeting these standards.

The Bottom Line

Telecom operators have taken a bold step in deciding to add video to their service mix and take on cable TV providers for multi-service offerings. Telcos are quite aware that without a video offering they face a bleak future with declining revenues and market share.

The 'best-of-breed vendors' should take a leaf out of their customer's book. They need to take on Microsoft at the highest level (with the largest operators) by working with their fellow vendors to build pre-integrated, pre-configured solutions that bring 'best-of-breed' performance to every component in the solution stack. Armed with this approach, the smaller independent vendors may be able to not only maintain but even grow market share. Without this strategy, they will be condemned to compete with each other for a smaller and smaller share of the pie.

For a PDF version of this article click here.

About the Author

Colin Dixon oversees TDG's IP Media consulting team including rich media, DTV, and IPTV. He has held senior executive positions at Microsoft/WebTV, Liberate and Oracle where he was responsible for technology and business teams delivering to the Cable, Satellite and IPTV industries.

About The Diffusion Group (TDG)

The Diffusion Group is a strategic research and consulting firm focused on the new media and digital home markets.

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