Date 15. March 2011
Interviewees Jørn Hodne, CTO, NextGenTel
Anders Solhaug, Manager Networks Design and Development, NextGenTel
Location NextGenTel/Netcom shared premises, Trondheim
NextGenTel is one of the few players in the Norwegian market that offers IPTV over a controlled end-to-end xDSL network. In the light of them being a relatively new entrant into the television market, they were con- tacted for an interview.
Today’s situation and current business models
NextGenTel started developing their own IPTV plat- form in 2005 when they bought LOS from Agder Energy and at the same time acquired the company’s share in iVisjon. iVisjon was positioned to deliver vid- eo-on-demand over fiber optic networks. After Next- GenTel in 2006 was bought by the Swedish company
TeliaSonera, they have transitioned to TeliaSonera’s IPTV platform which is common for all of their cus- tomers in the Scandinavian and Baltic countries. Most of the content is collected and coded at the Swedish located head-end and transported via fiber to Norway where some additional local content is collected and coded for transmission to consumers. This current solution is an IP-multicast platform with unicast pos- sibilities when that is necessary.
Hodne describes the development in the TV- market as moving from broadcast towards unicast solutions, and he emphasizes that time-shifted con- tent is gaining a more prominent position. Currently
PVRs are the dominating time-shift devices, mostly because of content rights and the maturity of the tech- nology. The interviewees believe that both customers and distributors want to move towards more central- ized content in the future. NextGenTel has recently introduced a NPVR solution called Play, where all content on certain niche channels are stored centrally and made available for time-shifted viewing for all of their customers regardless of what devices they have at home. There are several legal barriers that have to be overcome for this solution to gain the dominant posi- tion, but the interviewees agree that this will likely be one of the services that we will use in the future. They also mention that infrastructure which only supports one-way communication – e.g. satellite – will struggle with the competition from two-way communication technologies in the coming years.
Complications in the industry
When asked about future network infrastructure Hodne and Solhaug differ somewhat in their response. Both agree that fiber is the future, but Hodne has a stronger belief in an extended lifetime for copper based networks. This is due to economy, and also what he calls the main challenge for fiber optic networks in Norway; that is the lack of a common set of rules for digging ditches for laying out new network infrastruc- ture. This makes rolling out fiber a juridical night- mare as the terms are decided on a local basis. The interviewees call the lack of political will to support fiber network construction coupled with the lack of rules for digging ditches the ultimate show-stopper for increased fiber accessibility for Norwegian consumers.
Another huge challenge for distributors is the rapid increase in bandwidth consumption. NextGen- Tel scales up their systems when they reach a utilization of 70 percent, but they indicate that this might not be a sustainable strategy over time. Hodne mentions that there are systems in place in the USA where con- sumers pay for quality of service, and the interviewees believe that this will be more common in Norway as well in the coming years. A possible scenario includes
different bandwidth classes based on different service requirements. Another possible solution is to intro- duce monthly bandwidth limitations, where excessive use leads to reduced speeds. Hodne specifies that there are many discussions of this among distributors in Europe, and that the most plausible way to introduce capping is to start with a limit that is well above today’s normal usage, to let consumers adapt and conform to this change over several years.
Future challenges also include changes in the licensing costs, where content providers want a large part of the total revenues. They are the deciding actors for the pricing of content and among the supply chain actors with highest leverage, and Solhaug agrees that content will continue to be important for the distribu- tors in the future, not just the infrastructure. At the same time, the licensing costs are dependent on infra- structure and are higher for IPTV broadcasting than for traditional broadcasting. On a side note, today’s customers do not care about which TV infrastructure they use, according to the interviewees. Hodne exem- plifies this by saying: «Today the customer doesn’t care whether they have TV over coax or over DSL. So what?»
The future situation and related business models
While talking about the future business models in the TV-market, Hodne mentions the necessity for all involved actors to realize that there exists a form of mutual dependability between content and networks, where neither can survive without the other. Thus dif- ferent actors needs to come to terms with the fact that business models must be created that support overall value creation with money to be made for all those involved. These sustainable business models are not present today. Solhaug adds that if a content provider suddenly increases the quality of their video content, this will leave a big challenge with added costs to the distributors, and they want a fair share of the value creation they are part of. This also means that Akamai and other CDNs will become even more important in the coming years according to the interviewees. They
48 also raise their concern about every CDN wanting to place a rack in their facilities, and that joint CDNs where both content creators and distributors collabo- rate could be a better solution going forward.
The interviewees believe that locality will be of more significant importance in the future. When the location of the customer is known, many opportunities arise. One example is targeted local ads. This requires local adaption of the signal sent from content provid- ers, and this involves both technical and licensing issues. The technical issues are according to Solhaug already solved by component developers, with systems that can swap out old commercials with new, but these systems are not in use in Norway today. The licensing issues are still present, but the interviewees see a devel- opment in this area as well. While content providers historically have refused any modification of their signal, NextGenTel has recently been allowed to do their own re-encoding, though with some limitations.
By limiting the number of necessary encodings, con- tent providers reduces their costs, and Hodne believes that we will see even more local adaption of the signal in the future, but emphasizes that this will take long time. Signal adaption can make room for new services that utilizes localization even more.
The development in the industry the next five years
When it comes to the future Hodne is reluctant to speculate. He says that NextGenTel’s position as a participant in the Norwegian TV-market currently is too small, but that their platform has potential as TeliaSonera has rolled it out to 900 000 households in Scandinavia and Balticum. He continues with pointing out that the market will not look the same in 5-years’ time, at least not with regards to the actors in the marketplace. Hodne also believes that we will start seeing shifts already in the coming year.