Helsinki Televisio's (HTV) cable network is undergoing fundamental changes: the network is being digitalized and return channels are implemented. This new infrastructure offers a variety of possible products and services. The possibilities open for pay-TV business are not discussed in this seminar study.
Although HTV has a strong background in being an operator and has Finland's largest cable TV infrastructure, HTV has opted for a different concept: they are building a content concept for broadband market. This decision to focus on content instead of infrastructure is naturally influenced by HTV's ownership: the company is held by Helsinki Media Company (HMC), a large national publisher with a strong position in electronic content too (HMC part owner of the new national TV channel Nelonen, CD-ROM production and distribution).
This broadband content consept or brand is under development, but it will certainly strongly focus on creating new services that are targetted on a large audience (i.e. regular TV viewers) and those services will take advantage of the higher transmission capacity. The heavy user market segment is also addressed: cable modems that can be connected to a regular PC are available for those customers.
So the whole concept at this stage has two segments:
HTV's effort is currently a development project. It started in fall 1997 as the KAMU10 project will continue under the KAMU programme until the end of summer '98. After this the product concept will be finalized and service will be opened for the 100 000 households in central Helsinki by the end of 1998.
HTV's target market has two segments: heavy users and regular users.
"Heavy users" refers to those users that are proficient with computers, the Internet and perhaps even work an information technology related business area. They are motivated by the increased speed and transmission capacity that is offered by the digital cable network.
Currently these are the users that use the test network in the Pasila area sub-network. The test network has approximately 150 users of the potential of 15 000 - 16 000 connected household in the area [29]. Their choice of equipment is the cable modem manufactured by Motorola.
The size of this market segment is rather low. The possible market penetration for cable modems is approximately 5% [29]. However this segment is particularly interesting, because these users are the innovators or early adaptors that thrive on the chance to try out something new. Thus they can provide valuable feedback and of course revenue in the early stages of the market development.
Regular users refers to ordinary cable TV subscribers: they are not interested in fancy technology because of itself but look for new, value added services. These new services could include such as child welfare clinic using video conferencing, email (which is not new, but certainly a value added service), on-demand access to e.g. weather forecasts or news bulletins.
The size of this market segment is significantly bigger than that of the heavy user market segment. To penetrate this market segment the product positioning has to be very different from the cable modem market: advertising and marketing will play a significant role, reseller outlets and customer support is needed. Fortunately for HTV they already are rather good at this. HTV has been selling to customers its pay-TV services, which has required a "set-top box" (decrypter), for quite some time. HTV already has a reseller network, which is capable of selling the set-top boxes needed for the digital, interactive access.
As the marketing pieces are in place along with a strong experience in customer service, the development focus has to be on the product, or more precisely the content and services offered. HTV has to offer new, innovative broadband products that make use of the increased capacity. The services offered by a set-top box will partly compete with the services offered webTV systems such as the iNET TV from Sonera Corporation. Actually HTV is planning to possibly have two products: digital TV (set-top box and a regular TV set) and webTV (set-top box, TV set and web access).
One possible way to introduce the new set-top box to the homes is to make it compatible with the pay-TV systems and push the new system to the market through the existing subscribers.
Quite a few smaller companies have expressed their desire to use the cable network as their Internet connection [29]. Regarding market positioning this segment is quite close to the heavy user market: access method would be by cable modem and driving factor is quite similar (increased transfer capacity at a relatively low price).
The services offered by HTV's system can roughly be divided into two categories
Access services are offered by many operators and the markets are very competitive. Although HTV's network offers currently higher transfer rates than other solutions offered to end users, this difference will dimish considerably after the large scale introduction of xDSL modems.
Access services will probably play an important role in the beginning phases as development process of new services both HTV's own and third party is still "under construction". However as the number of new services increase the significance of access services will decrease.
The new, localized broadband content will be the basis of the success of the system. These could be
Videoconferencing is only one step from video telephony. HTV strategic decision is not to enter this market segment at this point and is at least partly influenced by their co-operation with the Finnet group which is the largest privately held telecom operator in Finland.
Later on the services could include shopping and pay-per-use services such as newspaper articles, video clips etc. The new services will also have an impact on the existing pay-TV services: interactive TV (see chapter 2.) has many attractive service concepts that could be offered to HTV's customers.
HTV is aiming at bringing smaller third party content and service producers. HTV is planning a start up kit that will include tools, manuals and regulations needed to start content creation for the HTV network [12]. HTV will also provide websites of some of the TV channel operators whose channels it redistributes such as CNN, BBC, MSNBC [12]. The company will most probably have direct arrangement with the largest content providers and have a small number of "moderators" act as a frontend for the smaller content providers [7]. Third party players can significantly add to the number and quality of services offered.
7.4. Markets
7.4.1. Overall Finnish situation
HTV aims for a wider audience than just the metropolitan area. HTV's strategic focus is on the content and the brand, not so much on the infrastructure or operator business. A lot of effort has gone into developing the concept, the necessary infrastructure (hardware and software) and frameworks for content and services. HTV plans to package their expertise together and sell it to other cable TV operators.
Heikki Hänninen, manager at Helsinki Televisio, believes that the Finnish markets could sustain two or three strong brands [12]. In his opinion the markets is threatened by fragmentation: if the different operators choose incompatible standards and solutions, none of the services will become interesting enough to attract large scale audiences [12].
With the exception of few regional, "independent" cable TV operators the cable TV business is dominated by telecom operators (Sonera Corporation and the Finnet group). Sonera Corporation has been experimenting with twoway digital networks for some time and has most probably developed their own infrastructure which might not be compatible with HTV's. Considering HTV's good relations with HPY, the largest company in the Finnet group, HTV might have good chances of distributing their concept in the cable networks operated by the Finnet group.
The total Finnish cable TV market size is over 800 000 households (with a cable TV connection).
Helsinki metropolitan area presents the largest concentration of capital, companies and people in Finland with close to a million inhabitants. HTV is sole cable TV operator in the Helsinki area and has close 200 000 households with cable connection.
Currently the KAMU10 network (the test network in the Pasila area) has 15 000 - 16 000 potential households [29]. The upgrade process is progressing so that central Helsinki (with approximately 100 000 households) will be ready for the product launch at fall/winter 1998 and the whole process will be complete by the end of the year 2000 [29].
7.5. Helsinki Televisio's strategic approach
Helsinki Televisio is held by Helsinki Media Company, which is an affiliate company of the Sanomat group (see chapter 2).
Helsinki Media Company (HMC) is a publishing house but also much more. It has a major share in the new national TV channel Nelonen and produces and publishes CD-ROMs. HMC has significant knowledge in branding and content creation. This has had a major impact on HTV strategy regarding the digital broadband network.
HTV has recognized the possibility to create a concept, a brand of its own by packaging together its experiences and infrastructure solutions (hardware and software). HTV targets this package on the other cable TV operators in Finland. However the underlying infrastructure doesn't have to be a cable network - HTV believes also xDSL techniques can be used for distributing the content.
This doesn't dimish the value of HTV business with the cable network in Helsinki area. If successful, the new digital cable network will not only provide HTV with a rapid increase in customer base but also a completely new business concept that will extend the lifecycle of the cable network dramatically. The change doesn't only create new services but it also effects the existing pay-TV services HTV offers: near video on demand (NVOD) and other ITV services could create significant demand. When properly executed all this means higher rates of return and higher customer satisfaction.
One of the key issues in HTV's strategy is active partnering. In the KAMU10 project HTV partnered with e.g. [29]:
The underlying infrastructure of HTV products is naturally the good old cable network that is now being digitalized for bidirectional use. The advantages of the cable over the more traditional communications media, PSTN, are huge: Since the old telephone network restricts the modem connections to about 50 kbps and the highly advertised ISDN can reach 'only' 128 kbps, the cable access with potentially 30 Mbps available obviously attracts the users. Thus the cable is able to deliver multimedia, real-time services and ITV programs to the wide audience.
The cable network (e.g. in the capital area) consists of nodes - one of these nodes cover, say, one district of a city and they are currently designed to carry the load of 3000-15000 households [30]. The network must be converted to operate in a bidirectional mode so that it can be used for e.g. Internet applications or interactive HTV services. The transformation of the network is achieved (at node level) by installing a return-channel amplifier in the nodes. This costs roughly 10 million Finnish marks, but the investment certainly is worth it because the set-top boxes and digital TV will increase the value of and the lifespan of the network [29].
The new xDSL systems using twisted pair as the transfer media, could compete with the HTV cable access, but the prices for e.g. ADSL are still too high for the mass markets. There are other problems, too: the xDSL techniques have not yet been able to reach the needed high level of quality so that the xDSL systems could be used reliably and they could really be worth purchasing. Many foresee, however, that this year the xDSL systems might eventually reach their potential and therefore they could really compete with cable. Thus HTV does not restrict its system to just cable, but other systems giving similar bandwidth (GSM phase 3, UTMS) may also be offered in the future - i.e. the PSTN could be utilized when xDSL systems are mature enough for the markets [12].
The HTV server machines are designed to be able to carry the load produced by the future customers. They have four Hewlett-Packard Unix 9000 servers to carry the load in the testing phase [30]. The system is called Broadband Internet Delivery System (BIDS) and it consists of various server subsystems (e.g. content and web servers) which must be connected to the other systems with a high-speed link such as ATM or FDDI [7].
The BIDS server system is divided into five modules [7]:
This hardware, however, will not be adequate when the HTV products rush into markets. HTV assures that their system is scalable so they don't need that many extra server machines when the user volumes start growing quickly. Heikki Hänninen of HTV has estimated that a user group of ten thousand requires at least seven server machines of the previously mentioned level [12].
The power of the servers does not guarantee the high-speed response times to the user alone. Therefore the HTV systems have included a 40 gigabyte RAID disk system to increase reliability and disk space and all the server machines are connected with a 155 Mbps ATM links [12].
The HTV system applies a large variety of different standards, as the system uses features from many areas of communication technology. The digital broadcasting technique is based on the DVB and MPEG (MPEG-1 and -2) standards, which will be widely used in the broadband products globally (following the well-supported standards won't hurt). HTV offers many IP-based services too, so the widely popular TCP/IP protocol family is supported, too (e.g. in Internet access implementation). [7]
The data security is a integral part of the HTV system. The passwords and other confidential user information is transferred in encrypted form. Moreover, every cable modem can be individualized so that e.g. if a user has not paid his bill or he has violated rules of the HTV net etiquette, his modem access can be closed without interfering the other connections in the service area. The Internet connection is an essential service also in the HTV cable system, so to enhance the data security it is isolated from the cable network with a firewall installation.
The customers have actually two different possible hardware configurations in the future:
Although it is estimated that 40% of the households in the Helsinki area owns a PC machine of some kind, still only a small amount of the users will actually be interested in purchasing the cable modem services for the increased bit rate. The cable modems offered in the testing phase come from Motorola, but other possibilities will surely be considered in the future when the actual productization takes place.
The cable modems are currently only rented (by HTV), but in the future it may be possible for the most enthusiastic users to acquire the cable modems from ordinary stores. The renting will probably be extended to various retail dealers so that people living in the outskirts of the capital area does not have to visit the head office of HTV for the renting and other service. [29]
The cable modems are asynchronous - they can send data upstream with a significantly lower bit rate (3 Mbps with 2 Mhz) than receive downstream (30 Mbps with 6 Mhz) [7]; the actual effective bit rates are significantly lower, as we will see in subchapter 7.9.. The modems are connected to the cable network through the antenna plug (this is left to be done by the end user). This, however, is not enough for the PC user - he needs a network card that does not currently come with the cable modem package. The card can be acquired from the HTV (that sells 3Com cards) or elsewhere, but the card must be Ethernet compatible so that it can be used in the HTV system. The connector standard used at the moment is 10Base-T with 10 Mbps twisted pair cable [30].
The requirements on the PC hardware itself are set with 800 kbps connection as the basis. The PC must be at least Pentium 100 to be able to handle this bit rate and data flow and Pentium 133 with 16 megabytes of main memory should be able to handle up to 2 Mbps speeds and the playing of video clips. This is unfortunately not enough if other applications are used concurrently with the HTV connection - Pentium of 166 Mhz with at least 32 megabytes of main memory is the minimum requirement for that [12].
These are not very hard requirements considering the fact that this service is positioned only to the more experienced users (of which many have PCs that fill the requirements) and even the prices of e.g. the Pentium 166 -level machines are not too high any more as more powerful processors have taken their place. PCs have naturally other advantages over the TV and set-top box system, too: set-top boxes have very few other functions than those they were originally created for, while many end users can enjoy a lot of other PC applications besides the ones HTV offers.
The supported software platforms in the testing phase include Windows 95, Nt 3.51 as well as NT 4.0. Therefore the main interface to the net is offered with Internet Explorer 4.0. This is a good choice, since the heavy users are obviously very familiar with the browser already. The package consists of some extra applications also, but currently HTV is developing a Java-based user application that is platform independent, so the heavy users are not restricted to the Microsoft operating systems in the future [30].
The HTV product for mass markets in Finland can not rely on PCs, for the share of powerful PCs among the cable subscribers is not very large and the features of PCs are not necessarily needed in using the services. Therefore the mass market is based on set-top box - TV -combination, that needs less investments than the PC - cable modem -system, if the end user does not originally have powerful PC. Moreover, not every people need or even want a multimedia-PC to their homes, since e.g. many users can use e-mail, word processors and other functions in their working places.
The set-top boxes that HTV delivers when this service opens come presumably from Nokia. HTV will rent the set-top boxes to the end users, at least in the near future. The set-top boxes are installed to the network system with a LAN connection [30].
The requirements for the TV set are not high, since TV only needs to be able to produce the picture from the signal coming from the set-top box. However some of the very old TV sets are not able to handle all the frequencies that are needed to get the various foreign TV channels from the HTV system. In the future the digital TV sets with interactive TV features will most likely enhance this type of service quite a lot, especially if the prices of the digital TV sets are competitive with the costs of personal computers of the 21th century.
The TV comes nowadays with a small remote control that usually has very restricted control features, as the only controllable functions have been the browsing of text TV pages besides the primitive picture and sound controls and channel tuning. In the future this will not be enough - the remote control must be able to close the gap e.g. to the keyboard system of PCs. This will eventually happen when ITV products are brought to the markets, but already in the near future some 'intelligent' remote controls have a demand. This device could for instance be a remote keyboard that communicates with the set-top box on infrared waves. The problems with this solutions are that the remote keyboard has to be light and easy to use, since it must inherit some of the advantages of the small traditional remote controls. User feedback would be very important (e.g. from the tester group) in this case also, so that the mass markets are not afraid to purchase the control devices.
The user interface is an essential point in those broadband products that want to reach the mass markets. The interface to the user is the only channel through which the end user - no matter if the user is an experienced hacker or an ancient grandma from Westend. =) The only user interface was the IE 4.0 browser on one of the newer Windows operating systems. The web interface is popular, so it was an obvious choice to the testing phase.
The interface is currently rather simple and presumably according to some testers 'naive' [29]. It has a dollhouse-style picture of a home in the center of the interface, through which a various different services can be accessed. The surroundings include some local sights, like the tower of Pasila, as well as logos of the co-operation partners working as links to their homepages.
The previously described interface may or may not be the basis for the interface of the 'real' product, but user interface of this style would at least be easy to use, but when the amount and diversity of services increase, it may turn out to be inadequate. Moreover, a subtle point must be introduced: since the same services can be used through the interfaces of both PC screen and TV screen with set-top box connected to it, the interface must be even more carefully designed - the colours, resolution and functionality of the interface in both environments must be taken care of. Since the TV and set-top box system is for the great masses, this alternative should perhaps dominate the design.
As we mentioned before, the modems are capable of transferring data 30 Mbps downstream. The bit rates - even in ideal circumstances - of today are much lower due to many reasons: First, the connectors and the twisted pair offered in the user end are currently only 10 Mbps compatible (10Base-T). Secondly, the essential firewall installations decrease the bit rate towards the Internet [30]. Moreover, the transmission errors and other problems in the non-ideal networks of the real world lower the actual available bit rate.
In addition, the access to the network is not personal at all - all users that are connected to the same network node use the same band, so this decreases the available bandwidth significantly (especially when there is high traffic in the network, e.g. in the evenings) and may cause unexpected latency when many users download resource-eating streams from the HTV network. This is a major difference between PSTN and the cable network, in the former the access is completely personal - the kilobytes or in the future megabytes with xDSL systems are guaranteed, no one else can influence the quality of the connection.
The problem is not so overwhelming, however: in principle HTV can guarantee 500 kbps - 1 Mbps access to every household, since not every user is connected to the net and downloading data all the time [30]. The use of the network is irregular during the day, i.e. the traffic peaks presumably exist between 17-24. Some people probably do not even use all of the services from the home, as many have network access in the working places - and it often costs nothing. We must also remember, that HTV network and user hardware aren't the only possible bottlenecks - as the Internet (or World Wide Wait as some call the web service) may produce completely unexpected lags and the bandwidth from more exotic sites may be unbelievably low (or the servers may be unreachable even). In the contrary - those HTV's own services that do not utilize the Internet, work more reliably and with higher bit rate.
The Tietokone magazine tested the HTV services of testing phase and published an article of it in February 1998 [30]: the installation of the service package was quite complex although it could be completed well - the installation and user guide was not entirely adequate, and before the mass market phase this flaw should evidently be corrected. Both the Internet and HTV services were available at high-speed, according to Tietokone, but this is obvious as the large masses not yet have access to the system. The video downloading didn't work properly, however: the picture frames did not flow constantly. All of the promised services were not in place in the server or did not work as they've should, but these problems are understandable since HTV is just testing their features currently.
The ultimate accounting system - as in almost every project of this kind - is not yet clinched. In the testing phase the rates are flat - every end user is charged 99 marks and every business company 299 marks per month [31]. The HTV services are completely free, but the Internet services are charged 30 p/min after 60 hours of monthly use. The volume-based charging may also be added to the accounting of HTV services (e.g. 0.001 pennies per one transferred byte) [29].
With these low prices in testing phase HTV wanted to get enough interested heavy users to test their system. In the actual commercial phase the prices for the cable modem service will probably double or perhaps triple themselves. It is not decided yet how the end users and business companies are charged of the services.
The majority of the end users acquires a set-top box, which may enable HTV to integrate the pay-TV with it, since the pay-TV always needs a decoder box of some kind. This way the accounting can be handled with the same hardware - set-top box - than the necessary decoding functions of a pay-TV decoder device [29].
Other accounting systems are also being considered. Discussions have been made with Luottokunta to take the SET system within the testing of HTV services. This, however, may not lead to any further development, for the future of electronic commerce is still quite uncertain. The other test with electronic cash has been arranged with Merita. This test involves purchasing small entities in the net that are charged in a fine-grained way. This is accomplished with giving the users a 'electronic coin purse' from which the user can withdraw very small amounts of electronic cash [29]. However, the success electronic cash is still far away and more traditional ways of accounting will be in use for quite some time.
HTV has two major challenges ahead:
High penetration rates are crucial as proof-of-concept. HTV would have a rather hard time reselling the concept to other cable operators if it couldn't make the concept work on its own front yard. High penetration rates also essential for the business: with out large customer bases, content providers are hesitant to commit resources which leads to lower quality of services. With out number of quality services subscribers aren't attracted to use the system.
To break this "circle of death", high penetration must be achieved. The set-top box systems should very aggressively priced, preferably there should be no starting costs. This would attract as many subscribers as possible. The costs can be covered by charging monthly fees - with the customer base expanding rapidly the monthly revenues expand also.
Every cable operator even slightly interested in retaining its business and subscribers should be interested in the digitalization of its network. If HTVs concept succeeds in Helsinki, it should be provide a strong incentive for other operators to adopt its system.
This would be open new markets for Helsinki Media's content and service business. With markets of scale advantages and the first comer experiences, Helsinki Media could take its lessons learned abroad and vastly expand its markets.