Video delivered over telco infrastructure has traveled an ignominious path--moving from the peaks of glory into a vexing stream of disappointments and deficiencies that have stalled progress and undermined credibility.

Starting in the early 90's, video was only a whisper away. Just one more deal, a regulatory pen stroke and a modest technological advancement would give telco providers the foot speed they needed to catch up to cable operators. Here's a sampling of headlines from that optimistic era:

Roughly ten years have passed and the nation's top telecom providers have little or nothing to show for their grand dreams of distributing televised programming to the masses.

Many industry executives charge that the Telecommunications Act of 1996 unforgivably knotted up the video deployment plans of the largest incumbents. It was not until early this year when the FCC exempted broadband networks from line sharing requirements, that carriers could evaluate video service strategies without concerns over competitive access implications. Of course, the Telecom Act is not entirely to blame. Fundamental questions around bandwidth requirements and business models have hampered the rollout of video over DSL (VDSL), triggering more thorough assessments of what consumers will pay for and how to differentiate service offerings from the multichannel television platforms of cable operators.

"There is still a lingering feeling among the RBOCs that they've been burned before," says Michelle Abraham, a senior analyst at In-Stat MDR. "Telcos are taking their time making the decision to deliver these services." By the end of the year, Abraham estimates the nation's telcos, in most cases independent operators, will provide video services to about 200,000 households. That figure will grow to 3.5 million in four years.

Although the threat of cable providers offering the triple play of voice, video and data continues to surface, telcos seem to have an assortment of additional reasons to get behind their video strategies. The loss of access lines and price erosion for services like broadband are putting added pressure on large incumbents to not only pursue video, but also provide something different than cable players. Differentiated services may center on interactivity and "time-shifted" platforms that give viewers more choices of access to video content.

Telco video's resurgence almost automatically produces a concentrated form of skepticism because a central question still lingers: Can the telco networks of today deliver to consumers a video experience comparable to cable? The answer, generally, is no.

However, there is no doubt that the telco video movement is experiencing demonstrable momentum, fueled as much by technological improvements as a "let's get real" motivation of carriers to contain further market encroachments by cable operators. The rest of this report will focus on four key pieces of that momentum: advances in compression, IP innovation, Tier-three triumphs and access mixing.

ADVANCES IN COMPRESSION

While compression is not new to video, the impact its evolution will have on the telco market is viewed as seismic. Video codecs, or the format standards that use sophisticated software tools to compress multimedia content, have matured rapidly in the last few years.

The widely used MPEG2, an open standard developed by the Moving Picture Experts Group (MPEG), is giving way to the more advanced MPEG4, increasing the efficiency of audio and video codecs and enabling traditional telco service providers, among others, to expand the capacity of existing network infrastructure.

Although MPEG2 and MPEG4 are open standards, a host of others are proprietary, including Microsoft's newly developed format, Windows Media 9, and RealNetwork's Real Video 9. Compression technologies are widely used in multimedia applications in a range of formats for satellite, digital cable, DVDs and mobile handsets. The endgame for telco service providers is to leverage the strengths of compression, resulting in an increase in channels into the last mile and broadening service feature sets.

New compression standards will have a direct and positive effect on telco providers, says Abraham of In-Stat MDR. "The new codecs are definitely going to help them (service providers) in terms of delivering video, particularly over long copper runs," she says. Perhaps one of the most awaited advances will be equipment that supports H.264, a new video coding standard that trims the bandwidth of HDTV (high definition television). Over time it is expected that the open standard-based H.264 will become a larger part of the MPEG4 product set.

Telcos, particularly those that have already deployed video services, are closely examining the development of HDTV, says Abraham. "They are very aware of HDTV," she says, noting that set-top boxes enabled with H.264 will not likely hit the market until 2005.

Microsoft is building its IPTV initiative around the strengths of its Windows Media 9 compression platform, which company officials say outperforms MPEG2 by delivering the same content with two to three-times greater efficiency. Leading manufacturers of chips for set-top boxes have announced support for Windows Media 9, paving the way for what Microsoft believes will allow telco operators to deliver live and on-demand services in standard and high-definition formats.