Peter Griffin: Holy grail out of Telecom's reach

I went, I listened, I asked questions and came away unconvinced. Unconvinced, that is, about Telecom's vision of delivering movies and interactive TV content over the copper wires that snake into our homes.

It was a hazy afternoon in Shanghai and from the top of Alcatel's Asia Pacific headquarters, you'd be forgiven for thinking the key to telecoms nirvana was to simply roll fibre-optic cables past each towering apartment block in high-speed daisy chains spreading out to the city limits.

Around the Alcatel boardroom table the topic of discussion was not fibre but DSL (digital subscriber line) technology - enabling the ageing copper networks that link vast stretches of suburbia in most parts of the world so that digital content can be delivered, cheaply and quickly.

A firm bedfellow of Telecom's through its extensive network outsourcing contracts, Alcatel has a big interest in making video over DSL a global success. It has a 40 per cent share of the market for DSL equipment, making everything from DSLAMs - the boxes that sit in telephone exchanges and digitally enable phone lines - to those turquoise, sting ray-shaped modems that gather dust under the desk of the average Jetstream user and receive the digital signal.

Telecom and its contemporaries also have a big interest in making video over DSL work. Faced with flat revenue growth from their fixed networks and averse to the prospect of replacing copper wires with expensive fibre, they'll do anything to squeeze more life and revenue out of copper.

The idea is to send content down the phone line to our TV sets that we'd normally get through our TV aerials, satellite dishes and from the internet straight to our PCs.

What can we expect? A larger range of broadcast-quality TV channels with the "red button" type facility that allows Sky users in Britain to shoot off on viewing tangents to parallel channels.

Maybe tele-shopping, an interactive form of the lowest denominator of TV shopping - the infomercial. Or perhaps tele-voting: reach for your remote control to kick some hapless contestant out of the Big Brother household. Or a library of movies that will keep you on your couch rather than queuing for a car park outside the local video shop on a Saturday night. Then there is online gaming. Access Xbox Live! and blast away at friends in an orgy of Counterstrike madness.

In July, after a year of negotiation, Telecom finally rekindled its relationship with our only major pay TV operator, Sky, allowing it to again begin offering Sky-Fi-type packages that bundle phone and internet with pay TV services.

All that is simple stuff. The real sticking point with the deal was how Telecom could deliver Sky content over its DSL network and who would own the customer. To placate Sky, Telecom ditched a partnership it had formed with Asian video over DSL provider Intertainer.

In theory the ground has been paved for the copper holy grail - video over DSL. In reality, it's a pretty difficult thing to do here.

While consumers in Japan and Europe are already downloading movies, streaming pay TV channels and responding to TV advertisements over their DSL connections, New Zealand faces a number of barriers in delivering the goods in the same way.

With broadband penetration here lagging behind the rest of the world at just 2 per cent, video over DSL will be able to reach only a fraction of entertainment-hungry consumers for years to come.

Just last week it was reported that of the 50,000 residential "broadband" customers Telecom has notched up, a staggering 73 per cent of them are using Jetstart - the 128kbps offering which isn't even classed as broadband. Viewers will need connection speeds of several megabits a second to make the kinds of thing Telecom has in mind a reality.

The other hurdle DSL faces is one of geography. While Telecom claims up to 85 per cent of the population can access its Jetstream DSL products, many users' homes are based far from Telecom's telephone exchanges, which reduces the speed and reliability at which data can be transmitted.

That's generally not a problem for low-level web surfing, but streaming video or downloading large movie files is another story. In Europe some 70 per cent of the population lives within 3km of the local exchange and are getting connection speeds allowing the delivery of several channels of broadcast TV. Not so New Zealand, where many Jetstream customers are 5km to 7km from the exchange. In Telecom's business, this is the tyranny of distance.

These issues explain why the only real video-over-DSL success stories so far come out of Europe and Asia - from the likes of MonacoTel in Monaco, or Japanese operator BB Cable.

To bridge the gaps between the exchanges and the home, Telecom can install mini DSLAMs in street-side cabinets - and it is already dabbling in this area to deliver high-speed internet access in remote areas. But there's cost involved there and in providing the video servers and broadcasting "head-ends" to make video over DSL possible.

Serious cost. Then you have to figure out how to bill everyone for the services they use. There's also the switch-over of set-top boxes that will be necessary to receive the services.

Alcatel says that every three years compression technology is reducing by half the bandwidth needed to transmit video at high quality, which will reduce the necessity for high-speed connections.

In the short term, it claims, the model in New Zealand and Australia for video over DSL will involve users pre-loading content on to their set-top box for viewing later. I don't buy that argument. Deciding to watch a movie is a spontaneous thing; a mid-evening urge to pop down to the video store and pick up a DVD or two. Tying up your DSL connection all night as a movie of several gigabytes re-assembles itself on your set-top box for viewing the next day is not an attractive option.

No, for the foreseeable future the most effective method of delivering pay TV content will be via satellite to a dish mounted on the roof of the user with the feed sent to a set-top box - in other words, exactly the same way we do now with Sky.

With an inadequate upstream connection, satellite has its limitations but can be used in conjunction with Telecom's copper network to provide interactive TV.

We can expect more and better things to come through our TV sets in the next couple of years and Telecom, Alcatel and Sky will help deliver them.

But sadly, in the development of interactive TV services and the long-talked-about convergence of the TV and the PC, New Zealand is likely to lag well behind the rest of the world.

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