Mid-Atlantic CLEC Cavalier Telephone has made a dash to the front of the pack in the race to launch next-generation IPTV, setting in motion developments that could roil the market far beyond the carrier’s 2-million household footprint.

In November, the company said it would launch IPTV over an MPEG-4 platform in Richmond, Va., by sometime in December, which would be the first commercial use of the advanced compression technology for delivery of television service in this country. AT&T Inc. (formerly SBC Communications Inc.) said it, too, was set to move forward from its initial field trial to a “controlled launch” in San Antonio around the turn of the year, but plans annunciated by that carrier’s executives suggest the initial launch will be more limited in scope than the rollout described by Cavalier.

Bragging rights to being first aside, the move by Cavalier is significant for a number of reasons having to do with the company’s status as a small CLEC taking on major players like Verizon Communications Inc., Comcast Corp. and other cable companies in other markets beyond Richmond at a more aggressive pace than much larger telcos have been willing to embrace. “We think we’ll give everyone a run for their money,” says Cavalier CEO Brad Evans.

If Cavalier pulls it off, it will be showing the rest of the market that it’s possible to win major content suppliers’ support for MPEG-4 delivery of their programs over an ADSL2+ network and that it can be done without relying on pre-integrated solutions from major suppliers. A demonstration that IPTV over MPEG-4 is ready for prime time could trigger a rash of service launches among telcos who have been reluctant to move forward without assurance that it can be done, say industry suppliers.

But, first, there still were some loose ends at press time that Cavalier had to address before it could be assured of a successful launch on schedule. These included completion of negotiations with the City of Richmond that would allow the company to proceed without a cable TV franchise. And there still were some content rights negotiations to be completed, although company officials expressed confidence that those contracts would be finished in time to fill out the programming slate.

Assuming these issues are handled, Cavalier — branding itself Cavalier Telephone and TV — will offer a bundle of 105-plus TV channels, VoD and 45 music channels together with high-speed Internet access and a feature-rich circuit-switched or IP voice service for a total price of $95.95 per month. That represents about a $50 discount from a comparable package of services from other providers, Evans says.

While Comcast has a switched voice service operative in the Richmond area, it is not actively marketing a triple-play bundle, waiting instead to roll out its new VoIP platform. Verizon has not indicated when it plans to bring video service to Richmond, though the carrier has obtained a franchise for Fairfax County in northern Virginia, where it overlaps with Cavalier in some areas. Verizon has not signaled when it will launch TV service there.

Thus, for some period of time, Cavalier will be the only triple-play provider in its initial market. The CLEC, which presently serves about 30,000 customers in Richmond with voice, high-speed data or both, will offer IPTV to all residents in reach of ADSL2+ bit streams totaling 9mbps or higher, Evans says, adding that the top rate for the technology is 15mbps. This target area consists of about 150,000 homes passed out of the total of 300,000 passed by the carrier’s Richmond network.

“We’re calibrating the video streams at approximately 2mbps, which allows us to offer multiple streams of video and to provide a good broadband service as well,” Evans notes. By operating the ADSL2+ ports from DSLAMs supplied by the Paradyne unit of Zhone Technologies Inc. at “full throttle,” Cavalier ensures that whatever bandwidth isn’t being used for TV channels at any given time automatically defaults to the Internet access service.

“This dynamic bandwidth capability is a big advantage for us,” Evans says. “We’ll communicate with individual customers as to what their bandwidth limits are and how many TV sets we can serve.”

Cavalier, with more than 200,000 residential and 35,000 business customers throughout its mid-Atlantic territory, intends to expand rapidly its video service footprint next year with the goal of offering service to a base of 2 million households by the end of the second quarter. The ADSL2+ network already is built out to these markets, which in addition to Richmond, includes Fredericksburg, Hampton Roads and parts of northern Virginia; Baltimore and the Eastern Shore of Maryland; the greater Philadelphia metro area; three Delaware counties; and Atlantic City and other parts of New Jersey near Philadelphia.

One reason Cavalier has been able to jump out ahead of other telcos who are counting on rolling out IPTV over the MPEG-4 compression platform is the company is using a single-chip set-top box supplied by Amino Technologies plc that relies on a DSP from Texas Instruments Inc. Most telcos are waiting for the lower-cost single-chip solutions that Amino and other set-top suppliers are committed to supplying when new ASICs from STMicroelectronics, Sigma Designs Inc. and other manufacturers become available.

Vendors say these set-top on a chip (SoC) solutions will be available for mass production in terminals by sometime in the first quarter. While some suppliers suggest the terminals will be ready for deployment by then, others say it will take several weeks to complete software integration with various IPTV middleware suppliers and other components before deployments are feasible commercially.

“The thing holding back IPTV over MPEG-4 has been the cost of the CPE,” notes Ryan Petty, vice president of product management at Siemens’ Myrio unit. “The market will take off with the availability of SoCs. At that point, MPEG-4 becomes a drop-in replacement for MPEG-2 set-tops.”

But, Petty cautions, “you’ll see announcements from various parties releasing set-tops in the Q1 timeframe, but, knowing the status of the software from the chip manufacturers, it will be Q2 before those boxes are turned up in the field.” Myrio has been working with the decoder chip suppliers and encoder manufacturers on the integration process with H.264 compression, the Advanced Video Coding technique now used in MPEG-4. But, still, it will take time once the final versions of the chips are incorporated into set-tops to ensure smooth operations, Petty says.

Concern over program licensing to untested MPEG-4 IPTV platforms also has been a delaying factor as many telcos wait to see what happens beyond Q2. By demonstrating a small telco can achieve the systems integration challenges across all IPTV hardware and software components from disparate vendors to the satisfaction of content suppliers, Cavalier may be breaking the barriers that have held back many other companies.

“A lot of companies, including Tier 2 independents, have been holding back, but when they see smaller telcos like Cavalier moving forward, that could trigger a lot of activity,” says Keith Wymbs, director of strategic marketing at Tut Systems Inc., which is supplying the encoding system for the Cavalier rollout and for a number of other smaller telcos that are planning service launches in the first half of ’06. Wymbs notes that many larger independents have been leaning toward use of the Microsoft MSTV platform but now may be reassessing their strategies in light of the quickening pace of IPTV rollouts over alternative platforms.

Others agree. An executive with another IPTV technology supplier, speaking on background, reports his company is close to announcing a contract with a Tier 2 independent (Tier 2 telcos are the next group down from the Bell companies). He says most Tier 2 companies were waiting for the market leaders “to bring their solutions to them, but they’re seeing the delays and technology challenges on that side and are becoming impatient. I don’t think they’re going to wait if other telcos are demonstrating you can move forward on different platforms.”

Getting programmers to sign up for carriage over an MPEG-4 IPTV network has been a painstaking task involving completion of detailed technical questionnaires and, in some cases, on-site visits from media company engineers, notes Andy Lobred, vice president of product management and marketing at Cavalier. But, he adds, when these people saw the system in operation in the pre-launch field trial, they were easily won over.

“When you see 100 percent digital side by side with analog TV, the difference is night and day,” Lobred says. “Once the programmers see the quality of our picture, they don’t have an issue with MPEG-4.”

But at press time there still were some significant, unnamed programmers not yet on board. All told, a little more than 100 programmers were signed up, including premium channels as well as most of the networks that are included in the 150-channel basic bundle of video and music services. Three of the four major local TV stations were signed up as well.

Another MPEG-4 licensing challenge is the motion picture studios, which have to sign off on the technology if their movies are to be offered over Cavalier’s VoD system. Movie aggregation for VoD is being handled by ViewNow, a unit of Kasenna Inc., which is supplying the middleware platform and software development kit for Cavalier’s IPTV service. “That process [with the studios] is moving forward quickly,” Lobred says. “We’d like to see all the studios on board as soon as possible. We’re not at the finish line yet, but we’re getting close.”

The other major unresolved issue in the pre-launch phase had to do with the cable franchise question. A bill that would replace local franchising with a state-granted license was introduced in the state legislature in early 2005 but was still in committee awaiting further action at the start of the year.

Evans says Cavalier has been in communication with Richmond officials but sees no need for a cable franchise insofar as it simply is launching another IP service over its existing infrastructure. “This puts us in a different light from some other telephone companies,” he says, echoing AT&T’s argument that a new video network like Verizon’s fiber infrastructure is a different case from delivery over DSL.

Asked whether Richmond was willing to forego requiring a franchise for Cavalier, Richmond Mayor L. Douglas Wilder issued a statement to xchange saying, “As you know, the cable franchise agreement is up for renewal, and it would be premature to speak on anything relevant to that at this time.”

The reference was to the 15-year cable franchise held by Comcast Cable. A spokesman for the mayor declines further comment. “That’s all I’ve been authorized to say,” he says, leaving unanswered the question of how a move into video by Cavalier would affect Comcast’s renewal. But, clearly, the two have become linked in some way that could spell difficulties for Cavalier unless Comcast wins a “level-playing field” type agreement with the city.

Evans is confident the state franchise bill will move in the months ahead. And he notes other state legislation is in play in New Jersey as well as federal legislation that would eliminate local franchise requirements. If Cavalier succeeds in persuading local officials there’s no need for a franchise when IPTV is delivered over an existing DSL network, it will be breaking ground that could further accelerate IPTV deployments elsewhere.

It was a year of contradictions and reversals for tech companies.

The layoffs continued for many big firms, and an air of caution lingered — five years after the dot-com bust crippled the industry. Fearing that customer spending wouldn’t rebound soon, companies scrambled to find merger partners.

But investors showed no lack of enthusiasm for Google, (GOOG) whose torrid stock growth recalled the go-go 1990s. And their zeal helped propel other Internet stocks, including Yahoo (YHOO) and Amazon.com. (AMZN)

It also was a year of old dogs learning new tricks. Microsoft (MSFT) looked beyond traditional software toward Web services. And it had its biggest hit of the year with the Xbox 360, a game machine that sold out within hours of its release in November.

Hewlett-Packard (HPQ) changed CEOs, slimmed down and set its sights on new markets, such as flat-screen TVs. Investors liked what they saw, bidding up shares 37% last year.

Apple Computer, (AAPL) meanwhile, cemented its status as an entertainment giant. Sales of its iPod music player soared. And it unveiled a video version of the device, replete with TV content from studios.

On the flip side: Dell, (DELL) the former darling of the personal computer industry, slipped into a funk. The company missed financial targets and watched its stock fall more than 25% last year.

In the end, most of the news in 2005 was good. Companies changed for the better. And the industry geared up for a new era of computing and communication.

These are our choices as the biggest tech stories of 2005:

• 1. Google’s stock seems to know no bounds. After debuting at $85 in August 2004, shares of the search engine rocketed past 200 in February, surged past 300 over the summer and topped 400 in November. The stock trades near 415.

How high will Google shares go? It’s hard to say, though some analysts have already set their sights on the 500 mark.

Google doesn’t provide earnings guidance, which has made every quarterly report a surprise — and so far, an upside surprise. The firm has blown past analyst expectations every quarter since it went public.

In this respect, Google’s last quarterly report was typical. The company posted earnings of $1.51 a share — excluding one-time items — up 116% from the year-ago period. Analysts had expected $1.36 a share. Sales nearly doubled to $1.6 billion. Almost all of Google’s sales come from online advertising.

The company is bound to face more competition in the future — especially from Yahoo and Microsoft. But Google’s recent plan to invest $1 billion in Time Warner’s (TWX) America Online unit could help it reach even more advertisers.

• 2. The iPod cements its dominance. Apple’s iPod, an unexpected hit when it debuted in 2001, has grown into a worldwide phenomenon. Apple sold an estimated 20 million of the devices last year. It’s expected to sell 43 million in 2006.

Despite a flurry of competing products, the iPod remained the market share leader last year by a wide margin. And Apple didn’t rest on its laurels. The company released a video iPod in October and began selling downloadable TV shows for $2 a pop. Within 20 days, it had sold 20 million videos.

IPod accessories also have flourished. More than 1,000 items work with Apple’s device, creating an iPod economy. But Apple will face tougher challenges in 2006, when more music-equipped cell phones hit the market.

• 3. Podcasts and other portable media take root. The iPod also helped create a new form of media: podcasts — radio shows that listeners download to their iPods. The idea is to let people have their own radio show and instantly distribute it all over the world.

If blogging was the trendy form of communication in 2004, podcasts certainly held that distinction in 2005. As podcasts attracted more listeners, established media companies and advertisers scrambled to get into the act. And now that video-equipped iPods and cell phones are taking off, podcasts are increasingly adding video.

• 4. Hewlett-Packard stages comeback. Carly Fiorina’s 4 1/2-year stint as chief executive of HP came to an end in February. After she pushed through the merger of HP and Compaq in 2002, the promised payoff never quite materialized. Fiorina, once lionized by the media, took the fall.

The company replaced Fiorina with former NCR (NCR) Chief Executive Mark Hurd, who had a reputation as a cost cutter. Indeed, Hurd unveiled a plan in July to cut 14,500 jobs and save $1.9 billion a year.

The company’s finances have already improved under Hurd — though he’s quick to admit that the comeback was under way when he arrived. The company has beaten earnings expectations in recent quarters, and investors have bid up shares 45% since Hurd was hired.

But some want Hurd to take more dramatic steps to streamline the hulking maker of computers and printers. A vocal faction would like to see HP broken into parts — fully undoing the empire-building strategy of his predecessor. So far, Hurd hasn’t moved in that direction.

• 5. Tech layoffs continue. HP wasn’t alone in announcing big staff reductions last year. IBM said it would trim some 13,000 jobs — mainly in Europe. And almost all of the tech industry’s myriad mergers in 2005 resulted in staff cuts.

In fact, tech layoffs grew in the first nine months of 2005 vs. the same period of 2004 — despite signs of an improving economy. U.S. tech firms trimmed more than 140,000 jobs, according to Challenger, Gray & Christmas. That was up from 118,000 in the year-ago period.

• 6. EBay and others bet big on VoIP. Every tech company seemed to have a plan to add VoIP last year. The technology — short for voice over Internet protocol — lets users place phone calls online, often at little or no cost. After Vonage and Skype popularized the idea, more established firms wanted a piece of the action.

That included eBay, (EBAY) which in September announced it would buy Skype for around $4 billion. Not everyone saw the deal as a perfect fit for the online auctioneer. But Skype could help eBay’s buyers and sellers communicate more easily. And the acquisition creates a new source of revenue for eBay, which is starting to see its breakneck growth slow.

Others, including AOL, Google, Microsoft, Sony (SNE) and Yahoo, are investing in the idea. Voice calls have emerged as part of the next generation of instant messaging — now mainly just text. And everyone is taking note.

• 7. Mergers reshape telecom field. The phone industry’s high-stakes game of musical chairs continued in 2005 with a number of megadeals. The companies that once dominated long-distance phone service — AT&T (T) and MCI (MCIP) — were swallowed up by rivals. And Sprint closed its acquisition of Nextel, creating Sprint Nextel. (S)

SBC, which bought AT&T for $16 billion in November, decided to take the name and ticker of its more storied acquisition.

Verizon Communications’ (VZ) $8.6 billion purchase of MCI, meanwhile, is expected to close early in 2006. Verizon beat out another regional Bell, Qwest Communications International, (Q) to make the deal — despite a higher bid by Qwest. Qwest, which is crawling out of debt, was seen as a riskier suitor.

The consolidation should help the telecom firms compete in the cutthroat long-distance phone service market. And with more heft, they expect to make deeper inroads into Internet services.

• 8. Oracle continues acquisition spree. After closing a hostile takeover of PeopleSoft in January, Oracle (ORCL) didn’t let up. The company snapped up a number of smaller firms and then set its sights on Siebel Systems (SEBL) in September. The $5.8 billion deal should help Oracle compete with Germany’s SAP, (SAP) the No. 1 maker of business applications.

And it represents a full circle for Tom Siebel, Siebel’s founder, who used to work for Oracle.

But size alone may not help Oracle and SAP prepare for software’s future. Customers increasingly want their programs delivered online — as a service. Though all the major software makers, including Microsoft, look to provide that option, upstarts may have an advantage.

• 9. Supreme Court rules against Grokster. Peer-to-peer Internet networks, which let users swap songs, videos and other files for free, suffered another blow in June. The Supreme Court ruled that the Grokster P2P service was illegal and that it was responsible for the copyright violations of its users. The Grokster site closed in November.

Though other P2P sites are still going strong, the ruling appears to have dampened the number of illegal downloads.

Six months after the ruling, the research firm NPD Group found that families using illegal P2P sites fell by 11%.

• 10. DVD giants part ways. A looming showdown between rival next-generation DVD standards added a bit of drama to the consumer electronics field last year. Two camps touting different technologies — Blu-ray and HD DVD — failed to come to a compromise.

That means we could have another VHS vs. Betamax-style battle in the coming year.

Both technologies have the same basic goal: switching the red laser on current digital video disc players with a blue laser. That helps the discs handle higher-definition video and other features.

As for which standard is better, consumers might have to decide.

Blu-ray’s backers include Sony, Samsung, Philips Electronics, (PHG) Apple and Dell.

On the HD DVD side: Toshiba, Intel, (INTC) Microsoft and others.

The Blu-ray movement is expected to get a jump on its rival this month, when Panasonic unveils a Blu-ray player at the Consumer Electronics Show in Las Vegas.

One additional wrinkle: Some companies, including HP, are expected to support both standards.

Finally, there was an interesting story on Wednesday regarding a new report from AT&T Inc. and the International Association of Emergency Managers (IAEM) which reveals that companies in the Western region of the United States are not as prepared for natural disasters and terrorist attacks as companies elsewhere in the country. The report, “Disaster Planning in the Private Sector: A Look at the State of Business Continuity in the U.S.,” surveyed 100 senior technology executives with direct business-planning responsibilities in Arizona, New Mexico, Nevada and Utah. It found that barely half of the companies in these states have a business-continuity plan. Furthermore, 38 percent said having a business continuity plan is not an important priority for them. The report theorizes that a lack of natural disasters in the West in recent years has led to a certain level of complacency among business owners.

Certainly, those of us who live in the Northeast can relate to the fact that when you have “no weather,” to speak of, it’s easy to become complacent about the potential for natural disasters. We’ve barely seen any winter weather so far here in Connecticut. But then again, it’s only December!

Don’t forget about the TMC INTERNET TELEPHONY Conference & EXPO, to be held Jan. 24-27 in Ft. Lauderdale, Fla. Keynote speakers include Ron Insana, anchor of “Street Signs” on MSNBC; Former Secretary of the U.S. Homeland Security Department Tom Ridge; and a “who’s who” list of telcom industry executives. With registrations up more than 200 percent from last year, this will be a big event. Be there!