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What's next for telco home networks?

6/04/2007, Joan Engebretson

When telcos began to offer home networking to support their broadband offerings, the move was driven largely by necessity. Only by controlling the performance of a customer's home network could the telco ensure the performance of its advanced video and data services throughout the home. Once in place, those networks have provided a platform for a range of new applications, including some that present new revenue opportunities.

Both AT&T and Verizon now offer premises equipment supporting home networks to their broadband customers � and both have begun to use those platforms to support other capabilities, such as sharing photos and digital video recorders (DVRs). Telco offerings already have changed the way consumers buy home networks. As of mid-2006, between 2.2 million and 2.4 million U.S. homes had networks provided by their service provider, representing about 10% of the home network market � up from about 1 million homes just two years earlier, according to research firm Parks Associates.

That's the kind of growth that normally gets management asking, �How can we get more of this business?� And although telcos aren't saying much about their future plans in this area, they're undoubtedly pondering the best home network strategy, technology issues and which of numerous emerging opportunities to pursue.

Today, the customer premises equipment supporting Verizon's high-speed FiOS service and AT&T's high-speed U-verse service have home networking capability built in, enabling subscribers to access their high-bandwidth data service from multiple computers in the home. Both companies also offer networked set-top boxes so that video services can be available on multiple TVs throughout the home.

As Brian Whitton, Verizon's executive director of access network design put it, the ultimate goal of that company's home network offering is �to ensure that the capabilities, benefits and experiences related to the all-fiber network are extended to all communications devices customers might want to connect to.�

Although U-verse more often uses fiber to a neighborhood node, rather than an �all-fiber� approach, it provides similar bandwidth to that of FiOS and shares similar connectivity goals. Meanwhile, Homezone, a home networking package for subscribers to AT&T's DSL and DISH Network satellite video service, provides similar data- and video-oriented home networking capability for an extra monthly fee. All three telco broadband offerings support Wi-Fi connectivity, enabling users to connect their laptops to the home network.

But it's on the video side that service providers have generated the most new revenue streams for home network-enabled services. AT&T's ability to charge $9.99 per month for Homezone, for example, relates less to its data capabilities than to its video capabilities. Among others, these include the ability to independently control a DVR from two different TV sets in the home and to copy photos from a home computer to the hard drive for viewing on either of those televisions.

Verizon charges an even higher monthly fee for similar capabilities, which are enabled in a bit more sophisticated fashion. For $19.99 per month, customers get a networked set-top box with a built-in DVR that can display up to three different recorded shows on up to three televisions simultaneously. In addition, the TV attached to the DVR can display photos stored on a network-connected computer.

Such offerings are just the beginning of other potential new revenue streams that telcos could generate by expanding network connectivity to include other devices. Equipment that could benefit from broadband connectivity via a home network includes everything from storage devices for data and other media to sensors that could monitor and control a range of functionality within the home.

As fuel prices have climbed in recent months, consumer interest in being able to program heating and cooling systems has grown, noted Ron Zimmer, president and CEO of the Continental Automated Buildings Association, which conducts research on home networks for members such as Cisco, Microsoft, Panasonic, Hewlett-Packard and Whirlpool. Consumers also have shown increased interest in connecting lights to a motion detector so that the lights shut off when people leave an area, Zimmer said.

Although service providers are certainly not the only ones eyeing such opportunities, they may be able to differentiate their offerings through added-value capabilities. �Home monitoring exists today; people can buy kits,� noted Tushar Saxena, director of access design and integration for Verizon. �But the customer experience is terrible. You have to set things up and do port forwarding on the home router � things that no customer wants to do. There is a big revenue opportunity in the simplification of such services.�

Both AT&T and Verizon offer remote monitoring and troubleshooting capabilities for their home networking offering. Zimmer sees an opportunity for them to expand those capabilities in the future by remotely monitoring home appliances. �There's an opportunity for someone � and it could be a service provider � to provide diagnostics,� he said. Through a remote communications link to a network-attached refrigerator, for example, technicians could provide remote troubleshooting, possibly avoiding a service call.

Home security is another area that some see as an excellent prospect for telcos. Buying an established security company and adding value through broadband and home network connectivity would be an excellent move for a telco, noted Danny Briere, CEO of Telechoice and co-author � with Pat Hurley, Telechoice director of research � of several books on smart homes. �The money they could make there is huge,� Briere said, noting that security companies charge as much as $25 per month for monitoring.

Hurley also sees opportunities to use devices traditionally associated with security, such as door sensors, for other purposes. For example, he said, parents could program their home network to automatically alert them when their children arrive home from school each day.

Other telco opportunities would build on their video entertainment services. Allan Linden, senior director of marketing communications for software developer Kasenna, envisions a Wi-Fi-based wireless set-top box that would provide an extra level of flexibility in where people can watch their advanced video services.

�Imagine the service provider becoming more like a mobile phone store,� Linden said. Just as wireless customers are offered a basic wireless phone or various enhanced models, video customers would have the option of basic or advanced set-top boxes at different price levels. �From the retail sale, service providers could lock people into long-term contracts,� he added.

Telcos also may be well positioned to offer videoconferencing services, which could leverage network-connected television sets, minimizing equipment costs.

Another natural fit for telcos could involve the customer premises equipment for voice-over-IP (VoIP) services. Customers in areas receiving services such as FiOS and U-verse are likely to be the first to receive telco-provided VoIP offerings. As that happens, another opportunity for telcos could be in providing session initiation protocol (SIP) phones that could connect directly to the home network, eliminating the need for a terminal adapter and offering an easy interface for advanced SIP-based services such as conference calling or find me/follow me services. Although broadband VoIP providers such as Vonage have offered such capabilities as part of their basic monthly charge, many consumers have not used them because a Web browser is required to enable those features. By simplifying that process, telcos might be able to charge a small premium for such capabilities.

�Once all services are going over IP, it opens up the possibility for a blended communications experience,� added Kurt Scherf, vice president and principal analyst for Parks Associates. �Then you're looking at things like caller ID on the TV and voice mail portals.�

Devices supporting two interrelated and emerging technology standards could help telcos in their quest to simplify the home networking experience for their customers. As Scherf explained, the universal plug-and-play (UPnP) standard lets a device announce itself to the network. �In some cases, it can also announce capabilities and features,� he said.

The Digital Living Network Alliance (DLNA) standard uses UPnP for device discovery. Additionally, it provides specific profiles for specific functions. For example, a video sharing profile would specify certain video formats a device intended for that purpose would need to support.

�We're very closely following DLNA,� Saxena said. �We view it as a standardized way to interface with consumer electronics � and the more customer premises equipment we can offer service on, the better for us. We're very interested in UPnP and DLNA and in the next year or two, you'll see our architectures align more closely with those.�

But as more devices are attached to telco home networks, some industry players question whether telco home networking technologies will be able to support bandwidth demands. In designing their home network services, telcos tried to minimize the need for additional wiring. That drove FiOS to use multimedia over coax (MOCA) technology, which works over coaxial cable, while U-verse uses HomePNA, which works over coax or in-home phone wiring. Both technologies claim average throughput of at least 100 Mb/s with equipment currently available.

But Toni Sormunen, director of Smart Home for Nokia Research Center, said 100 MB/s may not be enough as more customers begin to use high-definition television (HDTV). �The requirement on the network side is a reliable transmission rate of 20 to 30 Mb/s,� Sormunen said. He added, though, that between two endpoints supporting 100 Mb/s connectivity, HDTV frames can sometimes be dropped. �The quality of the picture is not what you would expect,� he said. Instead, Sormunen argued that between 200 and 300 Mb/s throughput must be supported in order to transmit full HDTV.

In the short term, if that concern proves real, it could be addressed by adding Ethernet wiring as needed. Typically, such wiring is snaked along the wall, under flooring or behind cabinets in the same way that audiophiles often install speaker wires. Homezone, FiOS and U-verse all support that option today.

Longer term, however, developers of both MOCA and HomePNA are working on bandwidth increases. HomePNA equipment supporting a higher throughput rate of over 200 Mb/s is expected to hit the market later this year. MOCA's next version will support similar throughput, and equipment supporting the new version is expected by 2008.

Wireless alternatives such as Wi-Fi and Bluetooth also continue to make bandwidth gains � and ultrawideband is showing promise as a very high-bandwidth alternative for short distances, such as those involved when moving content from a home computer to a cellphone.

�Ultrawideband is looking like it has the potential to leapfrog existing network technologies,� Saxena said. He added however that, �the cost points need to come down significantly.�

As new technology options such as these begin to emerge, and as new applications begin to hit the market, service providers should be able to generate significant new revenue streams from home network products and services.

Parks Associates expects the number of homes with service provider networks to increase five-fold between 2006 and 2010, climbing to nearly 12 million homes within the next three years.

AT&T U-verse FTTN (some FTTP) HomePNA,Wi-Fi, Ethernet Data and video services can be shared on computers and televisions throughout the home No extra charge
AT&T Homezone DSL and satellite video Ethernet and Wi-Fi ▪ Data and video services can be shared on computers and televisions throughout the home
▪ Movie downloads (some at extra charge*)
▪ Photo sharing
▪ DVR can be controlled independently from two TVs
$9.99 per month plus cost of DVR, data and video service
Verizon FiOS FTTP MOCA, Wi-Fi, Ethernet Data and video service can be shared on computers throughout the home No extra charge for data sharing; video sharing may require an extra-charge set top box
Home Media DVR service:
▪ Displays up to three different recorded shows on three televisions simultaneously
▪ DVR can be independently controlled by two different televisions
▪ TV attached to the DVR supports photo sharing
$19.99 per month includes service plus one set-top box with DVR
* U-verse and FiOS include movie downloads as part of their video offering