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.