Basic telephony over cable

(Posted on 16 July 2001, 12:45 pm)

Introduction: In an earlier article, we had touched upon the possibilities of offering a whole range of value added services (VAS) over the ubiquitous cable networks. These services aimed to exploit the wide bandwidth carrying capacity of cable and encompass the entire gamut of data, voice and video services. We now examine the why's and how's of offering basic telephony services over cable in slightly greater detail.

Basic Telephony Story: In a world which is driven by communication today, India has approximately 30 million telephone connections in addition to 3.8 million cellular subscribers. This gives us a telephone penetration of around 3 per 100 people, one of the lowest in the world and certainly not the level of infrastructure expected for one of the better "developing economies". This figure further pales in comparison to China's 230 million landlines and 116 million mobile phone users. The question then naturally arises as to what are the remedies for increasing India's telephone penetration; especially attract investment in the "Last Mile" segment where the margins are much thinner than the lucrative National Long Distance or International telephony.

One of the solutions being suggested (to increase penetration levels to 7 telephones per 100 people by 2007 and 15 per 100 by 2015) is Wireless in Local Loop (WiLL), which bypasses the need for establishing last mile copper-wire connectivity. However, WiLL systems will incur high capital expenditures in the range of 25 to 30 thousand rupees per connection using the present CDMA technology (inclusive of the cost of CPE and infrastructure). The other option is considering telephony over cable networks, which seems viable considering the high penetration of CATV in India.

How Cable Telephony works: The basic cable telephony architecture is based on either circuit switched i.e. constant bit-rate telephony or packet switched i.e. IP telephony over a hybrid fiber coaxial (HFC) network. The circuit switched architecture appears to be more favourable to the cable operators entering the telephony business because of quicker revenues generated, especially with IP telephony technology still being in a nascent stage.

The cable operator installs a Class 5 switch at the Network Operating Center (NOC), which is the control point for the telephone network, routing calls to and from their destination. This switch is then connected via fiber to a Host Digital Terminal (HDT) installed at the NOC. The HDT converts the circuit switched telephone calls to Radio Frequency signals for transmission to end-users over the HFC network. Voice ports are installed at the customer premise to convert these RF signals into dial tone enabling subscribers to use any standard telephone, fax machine or telephone modem on the network. Unlike conventional CATV networks, the cable operator has to ensure uninterrupted power supply through battery back ups as telephony is an essential service. Also, telephone billing is a complex process and the Network Interface Units must capture all relevant usage data with help of software to provide accurate billing to customers.

The International Experience: Presently, there are about 400,000 cable telephony subscribers in the U.S. itself, with Strategis Group projecting a subscriber figure of over 10 million worldwide by 2005 with circuit switched subscribers accounting for more than 70 per cent of these. According to a Arthur D. Little forecast, Cable telephony service providers could attract about 35 per cent of total U.S. households in a couple of years time. The drivers of this success will be a blend of cost savings and a one-stop shopping for bundled services (cable TV, VoD, PPV, Videoconferencing etc.) Worldwide cable telephony revenue is expected to grow to $7 billion by 2004, with projected monthly telephony revenue per subscriber expected to be in the range of $45 - $50 with a margin of 35%-40% within 2-5 years of deployment.

Gazing into the future: Although it would be economically feasible to introduce only circuit switched based cable telephony now, the future clearly lies in an IP based network once DOCSIS 1.1 and 1.2 standards are fully implemented. The principal advantage of an IP solution lies in the fact that voice and high-speed data travel on the same network. IP telephony also allows the MSOs to avoid the capital, operational and spectrum inefficiencies that result from maintaining a separate voice network and they can create an integrated multi-service communications system that takes less time to deploy and costs less to operate. In addition, this also promises a host of unique value-added services such as integrated voice and e-mail, web based service modifications and "click to talk" websites. What remains is the Quality of Service challenge inherent in all VoIP implementations. Amongst the most significant QoS hurdles are transmission latency, echo, jitter and lost packets.

Creating the win-win situation in India: Let us consider the implications from the perspective of the three major parties involved: the Government, Cable operators and the users of the cable telephony service.

Currently, the cable distribution business is so structured that the Last Mile (into the consumer's premises) belongs to small time cable operators/franchisees. There is rampant under-declaration of the true number of connections as a result of which the MSO bleeds. Also, the state of the cable infrastructure is extremely poor and absolutely unsuitable for offering any kind of VAS. In such a scenario, it becomes unfeasible economically and practically for the MSOs to introduce services such as cable telephony and thus unlock the true value of their investments in the cable networks. What is clearly the need of the hour is for the Government to introduce legislation governing this sector.

The Government can actually earn revenues by demarcating the country into different zones on the pattern of telecom circles and then auctioning it to MSOs. This is particularly relevant in the context of the demarcation between traditionally divergent services and carriers slowly blurring due to convergence. What this will also ensure is that there will be sufficient incentives for the larger MSOs to invest capital to upgrade their networks and provide VAS to the consumers. There is also scope for not only a one-time license fee, but also a revenue-sharing agreement, akin to what the cellular operators have today.

Finally, of course the consumers will have the best of bargains with the true range of convergent services (Internet, Cable channels, Telephony etc.) available to them through a broadband medium (cable) into a single access medium (TV/Computer) with attendant soft benefits like customer care, service and billing by a single service provider.

*The article is co-authored by Anjan Sur, a strategic business analyst for the Zee Convergence Group, Bangalore (sura@zeenetwork.com) and Monideep Chattopadhay, a student of the ICFAI Business School, Bangalore.

*All arguments and views expressed herein are the authors' personal views.

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