Winner: The Battle For Broadband
Switzerland is an unlikely front in the ongoing war between telephone carriers and cable providers
Switzerland is famous for its neutrality. It sat out both world wars. It's a refuge for international finance. It was almost the home of the United Nations. The entire country, it sometimes seems, is dedicated to smoothing ruffled feathers and averting conflict.
And yet, if all goes well, sometime in 2005 Switzerland will be the front line in one of the cardinal business wars of the 21st century—a battle royal for telecommunications supremacy between cable and telephone companies.
In the unfamiliar role of the upstart is 152-year-old Swisscom AG, the Bern-based Swiss phone company. Like all the other privatized European national carriers, it hasn't had to face any competition for much of its history, but it's ready to now. Armed with servers, applications, and appliances made by some of the largest hardware and software merchants on the planet—Microsoft, Hewlett-Packard, and Thomson—it is marching out to meet the enemy on the unfriendliest possible turf: the delivery of television programming.
In the meantime, its main adversary—the country's largest cable provider, Cablecom GmbH, in Zurich—has also been sending squadrons deep behind enemy lines, loaded with some of the latest in telecom technology: an Internet-based telephony service.
The two companies already go head-to-head as rival providers of high-speed Internet access. Now each side is striving to complete a package of offerings known as the "triple play": voice, data, and video—that is, telephony, the Internet, and television. The triple play can triple per-customer revenue, bringing in as much as US $150 per month from some households. And it reduces "churn," the endless migration of customers from one service provider to another, and with it the large expense of replacing departing accounts with new ones. When the dust settles a couple of years from now, it will be easy to tell the winner. The victor will be the company with more customers—and the bigger share of annual revenue from the three Swiss consumer services, each worth about a billion dollars.
The same basic conflict will be waged in nations large and small around the globe. Indeed, the key weapon on which the Battle of Switzerland will turn, a software platform called Internet Protocol television, or IPTV, is already being evaluated in research labs in India, Canada, the United States, and Italy.
But only in otherwise placid Switzerland has IPTV been put into living rooms as well. Swisscom's trial is the most serious test anywhere of a phone company's ability to deliver video and win customers from cable. In other words, only in the land of civility are customers being told to choose between a cable provider and a telephone carrier for what is the most revenue-intensive mode of communications we have: television. Hanging in the balance is the future direction of the telecommunications industry, and that of a big chunk of the entertainment world as well.
For Microsoft Corp., the Redmond, Wash., company behind IPTV, getting a foothold in the production and distribution of digital audio and video is critical to escaping the confines of the personal computer software world it dominates. There are other ways of delivering video across the Internet than IPTV, and there's at least one other equally adept encoding scheme, MPEG-4, but only Microsoft has written a single software suite that has everything a phone company needs to get into the television game.
A business war, like a real war, is won in the trenches, one skirmish at a time. And while the boardroom generals move money and personnel around like chess pieces, it's often the lieutenants who hold the keys to victory and defeat. One such officer is Gerhard Mueller, project leader for broadband services at Bluewin, a Zurich-based brand of Swisscom's that is the nation's largest Internet service provider. (See photo, " ")
In mid-September, when I visited Bluewin's offices in an up-and-coming commercial district west of Zurich's fashionable downtown, Mueller wasn't pondering the long-term future of telecommunications. He was worrying about the next stage in the trial. At the beginning of the month, Bluewin had given the IPTV software and hardware to 80 households—60 company employees and 20 additional "friendly" subscribers. Mueller and his colleagues had a couple of weeks before a key milestone. On 1 October they would decide whether to go ahead with plans to roll out the television service, 17 days later, to an additional 600 or so households.
Mueller's immediate problem was whether to move the latest version of Microsoft's set-top-box software, still in development, onto the IPTV network. In the lab, the new version crashed a lot less often than the previous one, which Microsoft had sent Bluewin in August. But were there any hidden bugs he hadn't found? Not moving the software to the production network might leave him without enough data for the big rollout decision on 1 October, in turn jeopardizing the schedule of the trial as a whole.
The 18 October start-up date for Bluewin's wider market trial of some 600 households had been publicly announced; people had already signed up, prepared to give the phone company real Swiss francs for a real television service. Any delay would have been an enormous embarrassment. But so would rolling out a flawed service. That's a lesson that didn't need to be learned firsthand.
Three months earlier, in June, on the war's other main front, Bluewin's principal competitor, Cablecom, made its voice-over-IP telephone service available to the public at large, after 16 months of patient testing. A successful service would complete Cablecom's triple-play offering, greatly threatening one of Swisscom's fundamental businesses, residential phone service. By largely bypassing the regular phone network, Cablecom could lure Swisscom's customers away with lower prices.
Cablecom signed up thousands of customers within days, but complaints were numerous, compounded by long delays in customer-service queues. It took the company only a month to sort out its problems, but the dent in the service's reputation is still visible to the image-conscious Swiss.
The Bluewin television engineers are determined to do better. They hope, in fact, to improve on the television experience—with a better program guide, for example. And their chosen set-top box can do some things that most others can't, most notably storing programs for later viewing.
Those added features are important, because Bluewin's trial TV offering won't be as good as Cablecom's television service in some other ways. It won't have as many channels, for one thing. Nor can viewers watch different shows on two televisions in the same household.
Television has always been the problem child in phone companies' attempts to offer the triple play. They and their cable competitors are well positioned for the first two parts, telephony and broadband Internet. But the meat of the triple play, data-rich video programming, can't flow through the phone companies' narrow copper capillaries. Here, of course, the cable company networks excel. Their largely optical-fiber networks can feed vast amounts of video through last-mile coaxial cable to hundreds of millions of households around the world.
And until recently, that's all they did. But in the late 1990s, with the Internet gold rush on, cable companies spent billions of dollars to turn their systems into digital networks. Each neighborhood became, essentially, a high-capacity local-area network. The hundreds of television channels that are a cable system's raison d'être use most of that data capacity. But what's left over is still as fast as or faster than most phone companies' digital subscriber line (DSL) services.
So Swisscom's pitch to consumers is as audacious as Hannibal's crossing of the Alps. Spurred by some amazing capabilities of Microsoft's multimedia software, Swisscom proposes to offer a video service in some ways better than cable, despite having to squeeze it through those narrow copper pipes.
On 18 September, Mueller and his colleagues decided to move the newer version of Microsoft's set-top-box software out of the testing lab and onto the machines used by the 80 families trying the service. Sure enough, the users found their set-top boxes crashing less, although still often enough to be annoying.
A regular set-top box doesn't crash at all, of course, because it's much simpler than the ones used in the IPTV service, which are really full-featured computers. The IPTV set-top boxes run Windows CE, a version of Microsoft's ubiquitous operating system designed for consumer electronics devices. In addition, they play television shows and other media files and run Microsoft's own program guide software. They interact with media servers set up by Bluewin across a sophisticated data network. The set-top boxes are as different from their cable television cousins as a PC is from a dumb terminal of days gone by.
The IPTV service is built on top of Bluewin's DSL system, which, in turn, operates through the same physical network as Swisscom's telephone system. In a DSL system, packets of data flow in and out of a home computer to a phone system device no more than 5000 meters away, called a DSLAM (digital subscriber line access multiplexer). The DSLAM aggregates data packets from a number of users before shuttling them into the phone company's backbone network, and from there through two separate 10-gigabit-per-second interconnection points in Zurich to the Internet as a whole. It also divides up the various signals coming from a household. Regular telephone service goes out to the public telephone system, while video and DSL data go out to the Internet [see diagram, " "].
In the IPTV system, television programming is first collected in a special data center. Swisscom's is located at a facility in Olten, 50 kilometers west of Zurich, owned by Swiss Broadcasting Corp., Switzerland's national television and radio company. Servers there take television programming from many sources—live broadcasts and cable shows, French movies, a German version of the United States' Cartoon Network, channels licensed from Italy, and more. They then encode it and send it out to off-the-shelf servers running Microsoft's IPTV software at a Bluewin data center in Zurich. Those servers are in constant communication with users' living-room set-top boxes, via the DSLAM.
To understand the magic of Microsoft's IPTV —the way it replicates and even enhances the cable television experience, over a pair of thin copper wires—let's first remember how ordinary broadcast television works. An analog television set contains a tuner designed to receive a 6-megahertz-wide chunk of bandwidth for each channel of programming.
For cable services nowadays, at least 550 MHz of video programming gushes through an optical-fiber network into every subscriber's set-top box. Starting from facilities like the one in Olten, broadcast signals, video from on-demand servers, and programming from other sources all flow through a neighborhood midpoint similar to the DSLAM. Then they are passed on to a coaxial cable running out to the home. The 550 MHz is enough spectrum for up to 91 channels of programming. A set-top box, with its own tuner, sits at the end of the radio-wave fire hose; the viewer uses it merely to make a selection. One 6-MHz channel is tuned in; the other 544 MHz are ignored.
Digital technologies change the picture only in its details. Using the Moving Picture Experts Group's MPEG-2, the television industry's decade-old but still dominant digital encoding standard, more than 10 times as much content can be pushed through the pipe—over 800 channels of programming. Again, the viewer picks one channel and the set-top box disregards the rest. When the viewer flips the channel, the tuner simply changes to a different frequency band. Any one of those MPEG-2 channels could be transmitted in real time—"streamed," in industry parlance—at a few megabits per second. Such a data rate is within the range of a broadband data service.
So a phone company like Swisscom can offer a cablelike television service across a DSL network. There are some critical challenges, but the IPTV service has cracked them. The first is to compress video better than MPEG-2 does. An MPEG-2 stream would need a speed of 5 to 6 megabits per second. Some versions of DSL are capable of that and more, but Swisscom's, near the low end of the continuum with a download data rate of about 2 Mb/s, isn't one of them. Microsoft's video-encoding software, Windows Media 9, is about three times as efficient as MPEG-2, bringing the video stream well within Swisscom's range.
Then there's the single-channel problem. When one channel of digitally encoded and compressed video programming is flowing through a phone wire, all the other channels are not—unlike cable TV, where all the channels flow to the household at once. For a low-data-rate version of cable television such as IPTV, a channel change is something of a crisis.
That, then, is the single most amazing thing IPTV does: when the channel-surfer at home starts clicking away, the set-top box relays that fact to the data center, kilometers away. The server there stops sending the old channel selection and sends the new one. And it does all that in less than 200 milliseconds, so fast that the user has no idea that the programming wasn't there in the set-top box all along, waiting for its chance to leap onto the screen.
Transmitting data across an Internet-like network in a fifth of a second isn't a big deal—even e-mail can be sent and received that quickly, sometimes. Doing it with bulky video data, though, and doing it reliably enough to create a television experience that can be watched for hours on end, is something that took some of Microsoft's top software engineers a couple of years to develop.
Even the magicians at Microsoft can do only so much, though. There's a small delay between when a broadcaster sends out a show and when it is displayed in the living room. That delay, caused by the need to compress the digital signal before it goes out, should be kept to a minimum for live programming, such as a sports event, but it's unavoidable, says Ed Graczyk, marketing director of Microsoft's TV division.
Whenever media is streamed, an additional delay, called buffering, is introduced to hide transmission glitches. When the data flow between server and destination is halted, the local media-playing device draws from the buffer. If data start flowing again before the buffer runs dry, there's no interruption as far as the viewer is concerned. The system pumps out data again, faster than it is played, building the buffer back up. For stored content, such as on-demand movies, the larger the buffer, the better. But for a live show, the buffer should be as small as possible, because people like to watch in real time.
For IPTV, every available channel has to be buffered, since there's no way to know in advance what channel someone will switch to. "It's not just buffering the neighboring channels," Graczyk says. "What if the viewer hits 1-1 on the remote control?" He won't say anything more about how Microsoft maintains so many buffers despite the limited bandwidth of Swisscom's DSL service. "It's a lot of patent-pending stuff," he says. "At conferences, our competitors come over and ask, 'Exactly how do you do that?' "
Watching TV in Bluewin's Offices is in fact pretty much the same as back home in New Jersey, except, of course, that the programs are in German, and my living room doesn't have a beautiful ninth-floor view of the Zugerberg and Rigi mountains.
Mueller directs my eyes back to the television set and eagerly points out some subtle differences. "Click on the guide, the menu button," he says. "We can have picture-in-picture, even two of them, if we want." I dutifully press the appropriate button on the remote. The channel we were watching is still broadcast, but it is ghosted in the background, letting the guide fill up the whole screen on top of it. About a half-dozen channels are listed in the screen's upper half [see illustration, " "]. Below that, the highlighted selection is described in more detail, along with a large thumbnail video showing what's on that channel right now, something that the guide for my home cable service doesn't do.
"On a regular set, picture-in-picture needs two tuners," Mueller explains. "Two pictures-in-picture would need three. But here, it's all software. No expensive tuners." The three pictures he's talking about are the current channel (ghosted), the program guide, and the thumbnail of another channel. And it is pretty remarkable. No need to read a few words of text to know what's on the other channels, because with the thumbnail you can see it. Picture-in-picture isn't different from having two computer programs on your screen at once—the very idea for which Microsoft named its flagship software "Windows." But seeing it with streaming video instead of a static spreadsheet, on a television screen instead of a computer display, is riveting at first.
Software-based picture-in-picture also makes it easier to show soccer-obsessed sports fans thumbnails of the multiple camera angles they can choose among. And the Bluewin program guide (a spreadsheet, really) can be arranged horizontally or vertically, with the channel names across the top and the time-of-day axis on the side, or vice versa.
Software needs hardware, of course. The set-top box is made by Thomson SA, of Boulogne, France, the consumer electronics giant that 17 years ago bought RCA, a venerable U.S. consumer electronics label. Known as the Thomson IP1001 in Europe and the RCA IP1000 in North America, its television-playing software is based on Windows Media 9, the same encoding technology found in Microsoft's computer desktop program Windows Media Player. The set-top box contains a 933-MHz Pentium III, with 64 megabytes of random-access memory and 64 MB of read-only memory, of which the Microsoft media software takes about 10 MB.
In fact, the set-top box is really a digital media player, hidden under a cloak of cable-TV-like respectability. Also known as multimedia home centers or digital hubs, such appliances were, a few years ago, supposed to be the next big thing in home entertainment [see "Digital Hubbub," IEEE Spectrum, July 2002]. Media players can record, archive, and play back video and music; organize digital photo albums; and distribute digital media around the home—all things that the Thomson set-top boxes can do, too.
Internet Protocol Television
Goal: Deliver dozens of channels of video programming through a relatively low-speed broadband connection (2.2 megabits per second)
Why it's a winner: Lets telephone carriers compete with cable providers using their legacy copper networks, instead of upgrading with expensive optical fiber
Organizations: Swisscom AG, Microsoft Corp.
Center of activity: Zurich, Switzerland
Number of people on the project: At Swisscom, about 20 full- and part-time employees
Indeed, the set-top box comes with an external disk drive, used to record television programs for later viewing. That capability was made famous by TiVo, but set-top-box manufacturers have high hopes it will soon be a ubiquitous premium feature of cable services. It's not yet offered by Cablecom, the large Swiss cable TV provider, though, again giving IPTV a much-needed leg up on the competition. You don't need a technician to set up the IPTV service. Inside two cardboard cartons are the set-top box, an external hard drive, a networking router, and everything else required, down to a power strip and the cables to connect it all. The 80-gigabyte hard disk can store 150 hours of television programming.
The set-top box connects to an ordinary television in standard ways, using a coaxial cable or an S-video cable, with its increasingly familiar-looking red, white, yellow, and black plugs. At the other end, an Ethernet port and cable connect it to a wireless router, which Bluewin also included in the package it shipped to each household in the trial.
The system's connection to the outside world is the phone line, naturally, plugged right into the router, which is made by Netopia Inc., of Emeryville, Calif. The router can also serve as a wired hub, or a wireless one for an IEEE 802.11 home data network.
If you also order Bluewin's broadband Internet service, that too flows through the phone line into the router. The speed of the total connection is about 2.4 Mb/s, of which 1.8 Mb/s is needed for video. The remainder goes to a DSL-like broadband connection.
For video service, the connection runs back to servers in Bluewin's Zurich data center. There, computers run Microsoft's multimedia server applications, all except for one key component, a video encoder, which is located at the Swiss Broadcasting facility in Olten.
For Bluewin, the video encoder has been a headache, one of several that make up a list of potential "showstoppers" that Mueller has drawn up and taped to his wall [see sidebar, " "].
One of the items on the showstopper list was stability, referring mainly to the habit the set-top boxes have had of crashing. In one respect, crashing is just an annoyance; all a user has to do is turn the set-top box off and back on—rebooting it, essentially. We do that all the time with personal computers, but we expect ordinary consumer electronics gadgets to be more reliable. Because the boxes' stability has improved, Bluewin now considers that unlikely to stop the show.
Most worrying of all was the video encoder. The encoder harmonizes the heterogeneous mass of content—that German-language Cartoon Network, and all the rest—pouring into the head end of the IPTV network in a hodgepodge of formats. Swiss Broadcasting Corp. pre-encodes its programming, but it still has to be turned into a data stream in Microsoft's Windows Media data format that can flow through other servers in the Bluewin network and then out to households. That's the encoder's job.
As the system was designed, video encoding would be done by a dedicated server supplied by Tandberg, formerly in Sweden, now based in Southampton, England. Microsoft has its own all-software encoder, but since encoding is done in real time and is computation-heavy, it's best done by special hardware. Tandberg, which started working with Microsoft on digital encoding back in 2002—even before the IPTV software was written—takes Microsoft's software and essentially rewrites it so it's compatible with other video-processing software Tandberg has written and with custom digital signal processors and field-programmable gate arrays the company has designed for the task.
Tandberg's custom hardware and software constitute an encoding server with 10 to 20 times as much processing power as an ordinary PC. Tandberg and Microsoft expect the hardware encoder to show a live soccer match with only a few seconds of delay—most of it the small amount of buffering needed for IPTV's channel-changing magic.
But in Bluewin's lab, the Thomson set-top boxes aren't properly decoding the streams of data created by the Tandberg encoder. Until they do, Bluewin has to use Microsoft's slower pure-software encoder at the server end, running on a generic Windows computer equipped with audio/video capture cards. Without the hardware encoder, if you listen to the game on the radio while watching it on TV, you'll hear "Goal!" about 16 seconds before you see the ball hit the net.
"In the end, it's all a big software project, a somewhat weary Mueller says. But it will live or die as a replacement for the television service that Cablecom and other cable providers have had 20 years to perfect.
Television à la Swisscom may be a bit cheaper than Cablecom's. The national telephone system that Swisscom inherited when it was privatized was, for the most part, built and paid for long ago, so IPTV has little of the infrastructure expense that a new cable system would have. And Bluewin and Microsoft say they'll be offering a better television experience, with IPTV's cleverly written program-guide software and integrated personal video recorder.
Bluewin can't entirely escape the problems of a start-up and the limitations of copper wiring. In the trial, Bluewin is delivering mainly German-language content, thus serving about two-thirds of the country. The French- and Italian-speaking cantons will have to wait until the commercial launch.
Fortunately, much of the television content that Bluewin needs to compete with cable comes from a single source, Swiss Broadcasting, at fees regulated by the government. In many countries, acquiring dozens of television channels is a complex and almost insurmountably expensive business problem. It's the main reason no U.S. phone company has run a customer trial of a triple-play service—not even Verizon Communication Inc.'s much-publicized showcase all-optical-fiber network in Keller, Texas, despite the fact that fiber is the ideal medium for delivering video content.
As it is, Bluewin will offer 30 channels, about half as many as Cablecom, with fewer optional packages. "The trial will tell us how important this is," says Michael Zumsteg, Bluewin's head of broadband services. "With the right 12 channels," his market research has shown, "we can have 80 percent of what people watch. With 18 channels, 90 percent."
Bluewin also would like to offer a second IPTV stream into the household, so that two TVs can show different programs. Cable providers can do that, because all it takes is a splitter that divides the signal already flowing through the cable. But for IPTV, it would take twice the bandwidth, and Swisscom's current DSL network isn't up to it.
The TV industry as a whole is being dragged, kicking and screaming, into the next generation of digital programming: high-definition television. And HDTV, with its vastly greater resolution, needs massively higher data rates. No amount of encoding magic can compress those larger digital video flows into Bluewin's 1.8-Mb/s data stream. Fortunately, DSL speeds are rising. Already, many DSL users in Korea and Japan are seeing speeds of 20 to 30 Mb/s. Faster rates, 100 Mb/s and more, are on the R&D horizon.
Nor will telephone companies be forever limited to the speed of copper wires. Companies like Verizon and BT have started aggressive fiber-to-the-home programs. SBC, too, is upgrading its copper network and in mid-November announced a 10-year, $400 million deal with Microsoft to offer IPTV in the areas it upgrades.
For Swisscom, though, the need for IPTV is immediate. As the once-sleeping giant awakens from its monopolistic slumbers, it must staunch the trickle of long-standing customers leaving for Cablecom's voice-over-IP telephony service. On 18 November, Swisscom began its full 600-household trial of IPTV, a month later than it had originally planned.
The efficiency of sending a single bill for voice, video, and data makes the triple play compelling for customers and companies alike. Swisscom would like to offer it today. The IPTV trial is scheduled to wrap up sometime this month. Before the end of 2005, Swisscom will open the service to its millions of customers, and to its former customers, too. The battle royal has begun. Cable and telephone companies around the world are watching.
To Probe Further
Specific information about Swisscom AG’s IPTV project is at Bluewin’s site, http://de.bluewin.ch/news/index.php/wirtschaft//9006. You can download a PowerPoint presentation about the company’s triple-play offering of television services, telephony, and broadband access from http://www.bluewinag.com/cont/pm/pdf/Triple_Play_Mediengespraech_dt.pdf.
Microsoft Corp. describes the full range of its television-related software at http://www.microsoft.com/tv/content/Solutions/IPTV/mstv_IPTV_Overview.mspx.
Cablecom GmbH, the large Swiss cable television provider, is at http://www.cablecom.ch/.