CES Trend #4: Will the quadruple-play finally cinch the 'last mile?'

How did we get here?

For the past three decades, the goal of the next-generation telecommunications network has been to find a reason for customers to willingly subsidize the tremendous costs of replacing a century's worth of copper with a pipeline of much higher bandwidth. No one company could ever afford the incomprehensible investment of re-wiring absolutely everyone.

The hurdle that service providers face today is the same one they faced two decades ago: They haven't yet cleared the "last mile," the proverbial wire leading from the home (the premises) out to the nearest network connection node -- often shorter than one mile in length, although figuratively, it may as well be a thousand miles long.

The importance of that span of wire or cable is that it represents the gateway between the part of the network owned by telecommunications companies and connectivity providers, and the part that US law protects as being "owned," in a discretionary sense, by the homeowner. Ever since the 1980 breakup of the original AT&T, the law has maintained that the homeowner has exclusive rights to decide whose cable connects to his gateway.

Perhaps unintentionally, this change in the law created an extraordinary problem: It made the consumer responsible for deciding when, how, and with what the information pipeline into his home is to be expanded. Telcos and cable providers found themselves having to entice homeowners with the promise of higher quality service, and more recently, with some kind of digital content, in order to strike a bargain with him where he's willing to pay for the upgrade.

The promise of better cable TV or better phone service is not enough of a lure to bring the customer to the bargaining table. With further changes to the law, telcos and cable providers (CATV) were allowed for the first time to offer services that each other had pioneered. As a result, telcos are now competing by offering high-definition television service, and CATV providers are offering phone service, for what the industry calls "triple play" offerings.

The phrase may have first been borrowed as far back as 1994 by Sprint, which made one of the first bargains with CATV providers to provide landline phone, wireless phone, and cable services in a single bundle. At that time, of course, it wasn't all dependent upon one gateway, but it was a move to give Sprint leverage in its move to enter the local phone market, while at the same time advancing its wireless PCS service.

Today, the new AT&T and Verizon are in an extraordinary position to take the bargaining one step further, busting up the baseball metaphor entirely to produce the quadruple play: broadband Internet, wireless, landline, and high-definition TV, with three of the four coming from the same wire. Analysts' surveys since 2005 have revealed that at least one-third of US consumers remain willing to ditch their current broadband and CATV service providers, if in turn they can shift to a single plan that includes wireless service.

Comcast's strategy for offering quadruple play service involves a partnership with Sprint, as a way of converging consumer services as least insofar as billing is concerned. For now, it puts Comcast on a par with competitor telcos AT&T and Verizon, although especially in recent months, Sprint's customer retention has been at an historic low.

Meanwhile, Comcast's buildout of fiberoptic services over the past few years have been sporadic, leasing in selected regions from companies such as Level3 Communications while slowly building out in others. The fiberoptic backbone is critical to delivering high-definition, on-demand service to millions of customers simultaneously, and Verizon and AT&T have been making better progress at deploying a fully fiberoptic network to more rural and geographically diverse areas.

It's here, though, where two deployment strategies -- and thus, two tactics for selling quadruple play service -- diverge: AT&T is betting on a strategy that lets it stop short of replacing that last mile, while Verizon is opting that its service will compel its customers to let it overhaul that last strand of cable leading to the gateway.

Where does the last mile end?

AT&T's deployment strategy is based on an architecture called fiber-to-the-node (FTTN), and in this case the "node" is the connection between the residential gateway and the broader network. It's the headend of the last mile, and for most AT&T U-verse deployments, it's as far as it plans to go.

The company's theory is this: If HDTV can effectively be delivered over Internet Protocol (IPTV), and landline service can be delivered there as well, then at least three of the quadruple play's four services can technologically be fused into one, under the U-verse umbrella brand.

Between the node and the premise, U-verse relies on an upgraded form of DSL, called VDSL2, another copper-based upgrade of the incoming phone line. AT&T's expectation is that VDSL2 can deliver 100 Mbps over 500 meter distances, though in practicality, the number is actually closer to 32 Mbps. Still, the company says, that's enough to be able to drive HD service over its IPTV protocol.

But exactly what "HD" is that? Customers are discovering that it's not exactly 1080 lines, and for many, not even 720 lines.

AT&T is banking on IPTV to get the broadband and video on-demand components over the hump.

IPTV -- a concept now entering its second decade -- has even now yet to deliver on its glorious promises. A report last fall from research firm iLocus estimated the total number of IPTV subscribers worldwide to have been 7.5 million (that's with an "m") at the end of last June. And although Microsoft made a huge play at CES last year, especially during Bill Gates' keynote, to play itself as the leader in IPTV, its software only powers an estimated 4.9% of the world's IPTV set-top boxes, in a field where there are over a dozen players and no clear leader among them.

Normally, technology providers in a given market that's been around awhile are capable of forging a small handful of standards around which to base their architectures going forward. But this hasn't happened with IPTV, partly for lack of consumer demand (it doesn't really have a selling point of its own just yet), and partly because the different carriers' strategies for service rollouts affect what it is they require from IPTV, which affects what technologies the IPTV STB manufacturers choose to include...which impacts intellectual property and all the other players in the long chain.

The alternative Verizon chose for its FiOS service uses an architecture called fiber-to-the-premises (FTTP, often used interchangeably with "fiber-to-the-household" or "home", FTTH). It's the bolder, more expensive move which replaces the last mile and the whole gateway with a fiberoptic solution. And while it too relies on IPTV to some degree, including for video-on-demand, its broadcast signal is delivered over a more conventional 870 MHz closed-circuit transmission, enabling a theoretical maximum downstream bandwidth of 622 Mbps. Thus, the STB doesn't have to deploy IPTV for decoding the broadcast and cable channels.

That choice changes everything, especially for companies like Microsoft whose investments in IPTV depend on some form of connectivity with its existing PC operating system, and like Macrovision whose recent investments in STB technology and in scheduling services like TV Guide aren't anywhere nearly as dependent upon the PC even being part of the picture.

What we hope to see at CES this upcoming week is some clearer picture of a complete, end-to-end map, connecting all the components in the quadruple play sequence: the service providers, the content formats, the decoders, the codecs, the network architectures, all falling into place.

While Microsoft and others last year spent time and money on demonstrating what a quadruple- or otherwise multiple-play vision of the future might look like if it all worked, neither it nor anyone else presented a solution to the problem of how all the players with a stake in the outcome...converge upon a common solution.