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Viewer pays

By Chris Keall

Saturday 1st March 2003

Text too small?
Two or three beers into networking firm Cisco's 1999 Christmas party, one of Telecom's most senior network planners started talking television. Sure, Telecom's recently launched JetStream service had the capacity to offer fast internet into homes and small business, he told me. By dint of DSL (digital subscriber line) technology, JetStream could mash a fast data feed through bung old copper phone lines, as long as your PC and local phone exchange were both outfitted with special DSL modems.

But internet schminternet. The really intriguing bit was that a DSL connection would soon be fast enough to supply a home with not just web pages but real-time, full-screen video. The outfit that should be worrying about JetStream, said my Telecom friend, was not Ihug or any other internet service provider, but TVNZ.

Remember, this was 1999. These were brave words at a time when Telecom's FirstMedia project had been abandoned the year before, having clocked up a reported $20 million on a trial that offered pay TV to east Auckland suburbanites via fibre-optic cable.

Fast-forward to Christmas 2002, a time when most tech-wrecked telcos around the world are keeping their heads down and sticking to their knitting. Convergence has become a dirty word, with exponents tending to make the news only when being led away in handcuffs over dodgy cable deals.

Yet on December 9, amid screaming kids at the Telecom Shed at Auckland's Viaduct, Telecom quietly relaunched its broadcasting ambitions, announcing that 100 Kiwi families were about to begin a multimonth trial of a new service called JetVideo. Running on top of a JetStream connection, JetVideo would allow 90 of the participants to watch recently released Hollywood movies full-screen on their PCs, streaming via Microsoft's Windows Media Player. The 10 remaining families would have a set-top box that would let them watch JetVideo movies on their televisions.

Beyond web rage

JetStream subscribers who curse at slow web pages (I feel your pain) will wonder how real-time, full-screen video could ever be feasible. But there's no doubt this technology can work. Things are helped along by the fact that a simple point-to-point file transfer is taking place (at 1.5 megabits per second or faster), rather than the endless back-and-forth across a glugged up internet that's required when retrieving a website.

Telecom's partner in the trial is Intertainer Asia, which has had a similar service up and running in Singapore for years. I watched The Matrix on a big-screen television there, and the quality looked superb. At the Shed in Auckland, snatches of various movies lived up to a Telecom technician's description of "better looking than videotape but not as good as DVD". Most viewers will also find the audio fine, though home theatre buffs used to trouser-rippling Dolby Digital or DTS will quibble.

In Singapore, the PC sat by the television - a common setup in the crowded city. But most Kiwis have their PCs in a different room. In any case, Telecom told me that although it was technically possible to wire a JetVideo-connected PC to a television (and several staff have done it during an in-house trial), it's geekorama territory and they don't expect any trial participants or future buyers to do it. It's also difficult to imagine many fair dinkum Kiwi families (the trial takes place in Auckland, Wellington, Christchurch and Taranaki) gathering around a PC to watch a movie, which makes me think the set-top box option is the logical one. It also means more competition with Telecom's sometime partner Sky TV, which may be why the set-top part of the trial is not being emphasised.

JetVideo won't run on Macs, which some will see as part of the vast global conspiracy against Apple, but probably has more to do with simple maths - Windows/Intel PCs enjoy around 96% market share.

But even Wintel owners will need a PC that packs a 1GHz or faster processor, 128MB of memory and a graphics card with 32MB of memory, ruling out most desktops bought more than 12 months ago.

However, the technical challenges facing JetVideo pale beside the economic and political ones. One immediately obvious problem: more than three years since its launch, JetStream has captured only around 25,000 customers. Even if all these punters were to embrace JetVideo (which they won't, because many of them are small business people rather than home surfers and not all have a PC bought in the past year), we're still only looking at a viewership the size of a small town.

The move recalls Ihug's Internet Digital TV (IDTV) initiative, which uses the same satellite feed and dish employed by its Ultra wireless service to digitally broadcast pay-per-view movies into subscribers homes (either directly to a PC or to a television via set-top box). Unlimited stablemate PC World has trialled the service and it works fine (you pay $19.95 a month for CNN, the BBC, the Cartoon Network and five other channels). There's even a good dollop of adult content, that trusty internet standby. Still, IDTV boasts fewer than 1000 subscribers.

The $400 movie ... or the $7 movie?

Then there's the little pricing problem. The average JetStream subscriber pays around $120 for their broadband internet connection - plus some heavy surcharges over set plan data limits that can double or triple that if you're a keen gamer or hooked on internet audio or video. If you're on the popular JetStream 1000 plan, for example, you pay $200 for every gigabyte (GB) above your limit. So downloading a movie, which involves about 2GB of data transfer, would land you with a $400 bill on one of today's standard plans.

Telecom has yet to officially set pricing for JetVideo, but the software demo I saw quoted $7 a movie on a pay-per-view basis. The company acknowledges there would be little point to the service if each film cost more than the standard DVD rental at Video Ezy or Blockbuster. Telecom's Russell Locke says it has the ability to split billing between JetVideo and regular JetStream surfing.

All of which will make Joe JetStream-subscriber scratch his chin and wonder, "Hmm, how come it costs me around $400 to download two gigabytes of data if I'm web surfing, but only $7 if I download two gigs in the form of a movie?" Answer: because the movie will be coming from a local Telecom server. But then again, a lot of websites and services are local, too, and have a pretty short trip to your PC.

"We will have to look at the whole JetStream billing model before we launch this product commercially," says Telecom group marketing manager for consumer, Sandra Geange. You can say that again. The choice is pretty stark: leave JetStream pricing as it is and have a bunch of mutinous JetStreamers on its hands, or slash prices, which could have the happy side effect of finally pushing DSL into the mainstream.

What's a couple of movies between friends?

Lately there have been rumours - officially denied - that Telecom is thinking of selling its 12% stake in Sky TV (Telecom also owns 10% of INL, which in turn is owned by News Corp, which has a 66% stake in Sky).

So far, the cross-ownership has manifested itself in cosy ways, such as the SkyFi deal that bundles your Telecom and Sky monthly bills into one convenient account. Now, Telecom's JetVideo trial is set to test the relationship. Some participants will use a set-top box to watch internet-downloaded movies on their TVs - and that will include all recent A-list releases, thanks to the distribution deals that Telecom's Singapore partner, Intertainer, enjoys with the major Hollywood studios. Television shows could follow as Telecom aims to offer 500 hours of programming a month, says the company's Russell Locke.

That's starting to sound like a viable alternative to Sky TV. At the same time, Sky's $2 a month SkyMail service is offering email through your television - via Xtra, if that happens to be your ISP, but the service also comes with pre-sets for Ihug, TelstraClear's and Clear plus a default account from Sky itself (effectively making Skymail a self-contained ISP in competition with Xtra). Is this something these two pals can talk through?

"We'd love to be part of it, but it's their call," says Sky chief executive John Fellet, talking about whether Telecom uses Sky content for future JetVideo services. Fellet says Telecom's stake in Sky should never be confused with Sky's commercial obligation to pursue the best deals for shareholders. For Fellet, that means getting Sky content delivered through as many platforms as possible. DSL could boost future options, but if Telecom's not interested he has other avenues. In the capital, for example, TelstraClear delivers Sky content via the Telecom rival's cable network (an extra option that Fellet says has boosted Sky penetration to 50% in the capital versus an average 37% nationwide as TelstraClear and Telecom have pushed rival Sky bundles). "We've talked to Vodafone about 3G. We've talked to power utilities who're looking at delivering programming over electrical wiring. We'll talk to anybody."

Telecom is tight-lipped about what could be called Fellet's "open marriage" approach, but there are hints of a snit. After the JetVideo trial launch on December 9, Telecom's website listed the SkyFi deal as "temporarily unavailable". Fellet says the deal was taken offline while the two sides mulled what they've got out of a two-year marketing partnership that was set to expire this February, and haggled over its potential renewal.

Currently, less than 2% of New Zealand's 1.5 million homes are hooked up to a JetStream DSL (digital subscriber line) connection to the internet - a prerequisite for JetVideo. So it's not yet grounds for divorce. But if JetVideo helps to push down JetStream pricing, DSL could suddenly explode in popularity and if Telecom keeps looking beyond Sky for content, some irreconcilable differences could rapidly emerge.

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