Beyond The [Set-Top] Box
Cash and Competition Fuel Spending on VOD, HD, Advanced Services
By George Winslow -- Multichannel News, 8/19/2007 6:00:00 PM MT
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Operators Go Above and 'Beyond’
While the big cable operators continue to dominate the equipment market, vendors are seeing growing demand for advanced services from independent operators and are increasingly developing products more specifically targeted to meet that demand.
“When we were developing our products, we kept hearing that we shouldn’t forget the little guy,” said Rafael Fonseca, vice president of product evolution for integrated voice-over-Internet Protocol switching technologies provider Cedar Point. As a result, “a main requirement for our products from day one was that they not only scale up to the large [multiple-system operators], but that they also can be economically scaled down to almost any market.”
Similar sentiments can also be found at C-COR, Comcast Media Center, SeaChange International, SES Americom and a number of other vendors that have developed products specifically aimed at operators in small markets that service fewer than 25,000 to 50,000 subscribers.
“They tend to be more price conscious and they are very interested in out-of-the-box solutions that minimize the amount of integration and the demands that new product can place on their management and limited staff,” said Curt Champion, vice president of market and product strategy at customer care and billing services provider Convergys.
Gary Travers, chief operating officer for the Comcast Media Center, which has been working with small operators for some time and this year rolled out a VOD In A Box solution with C-COR pointed out that “systems with fewer than 50,000 subscribers total about 25 million of the 60.6 million cable subscribers in the U.S. and many of those are owned by independent operators.”
Small operators are also increasing their spending, thanks to stronger balance sheets and some serious competitive and regulatory challenges.
In 2006, the members of the National Cable Television Cooperative spent $273.8 million on hardware purchases, an increase of $141.1 million or a 107% jump over 2005.
Set-top boxes topped the NCTC shopping list in 2006, as coop members purchased 467,000 Motorola boxes. But interviews with nearly two dozen operators and vendors indicate that products for rolling out triple-play services, HDTV, video on demand, commercial services, ad insertion and improving customer services are also high on their immediate shopping lists.
Others are already exploring interactive TV and Internet Protocol TV, as well as Data Over Cable Service Interface Specification 3.0 and so-called wideband products.
In recent years, one of the biggest saviors for independent operators has been the rollout of triple-play packages of video, voice and data services.
The success of those packages in reducing churn and creating new revenue is convincing smaller and smaller operators to launch voice services, said Cedar Point’s Fonseca.
“We’ve been out in the market for some time with operators like Atlantic Broadband and Bresnan [Communications], but now we are seeing demand from” operators as small as 2,000 subscribers for the vendor’s Safari product, Fonseca said.
While the deployment of high-speed data and phone services has bolstered the bottom line of many operators, they also face some serious bandwidth constraints. “Everyone to a certain extent is under bandwidth pressure,” said Mark Palazzo, vice president and general manager of the Access Networks Business Unit at Scientific Atlanta.
As satellite providers aggressively deploy HD services, Palazzo and others said that operators are looking for new ways to launch competitive packages and free up bandwidth for more content and newer services.
Bresnan, for example, is already far along in the process of upgrading its systems for the triple play. Vice president of strategic engineering Pragash Pillai noted that about 95% of Bresnan’s homes passed are HDTV ready and 92% are VoIP enabled. About 94% of its systems are at 550 Megahertz or better and about 40% have been upgraded to 860 MHz even though they operate many smaller systems.
But mounting competition from satellite is forcing Bresnan to add more HD services and putting additional pressure on their bandwidth.
“Because it costs more per subscriber to upgrade rural systems, we have to be very conscious of how soon we introduce a technology because it can have a significant impact on capital and operations,” Pillai admitted. “We can’t be too early and can’t be too late. Our timing has to be perfect.”
One immediate concern is the Federal Communications Commission’s ban on set-tops with integrated security features. While a few systems obtained waivers for the FCC’s July 1 deadline, most didn’t and will have to spend extra for the new boxes, at least until prices fall.
“The idea of trying to open up the box market and create competition to lower prices is a very good idea,” Sunflower Broadband general manager Patrick Knorr said. “But how it was implemented is catastrophic. The additional cost for the boxes turns the clock back two years for interactive TV and VOD for systems that haven’t done it already.”
Others complain that vendors were so busy catering to the needs of larger operators that smaller operators weren’t able to get the boxes they needed by the deadline.
Scientific Atlanta and Motorola said they are ramping up set-top production and costs will drop.
“As volume goes up, prices will drop,” said Floyd Wagoner, senior manager of global marketing and marketing communications for Motorola Access Networks.
In the meantime, other vendors, such as Beyond Broadband Technology and ADB, are hoping that the need for lower cost boxes will allow them to break into the market.
Michael Hawkey, president of the Americas at ADB, said the company is a major supplier of IPTV boxes in Europe but had not moved into the U.S. because it was so dominated by two suppliers.
“Now, with OpenCable [Applications Platform] and the CableCard regulations, we saw a way into the market,” Hawkey said.
“Independent operators can get a HD box from us that is a lot cheaper, even at lower volumes and that is driving a lot of interest in IPTV. You don’t have to deal with DOCSIS. You don’t have three tuners. You don’t have as big of a memory system. It is not as complex and you don’t have super expensive complex CableCard.” That can save operators about $90 a on a box, he said.
Meanwhile, Beyond Broadband Technology is developing a low-cost box using downloadable security and open standards that is designed to help operators make the transition to digital with minimal investments.
Bill Schreffler, CEO of independent operator Millennium Digital Media, noted that “we favor open standards and we would much prefer downloadable security as opposed to the CableCard [for digital set-tops]. But unfortunately, we are still nine months or so away from downloadable security.”
VOD is also high on the shopping lists of many operators, thanks to the low-cost solutions targeting smaller operators.
“Because some of the larger operators like Comcast have been so aggressive with VOD, there is now a perception among subscribers that digital cable implies VOD,” SeaChange director of on demand solutions Phil Simpson said. “It is now something they have to have.”
Falling costs are also boosting demand. Simpson argued that costs have fallen to about $30 a stream, a 50% drop in the last two years, making it economical for systems with as few as 1,500 to 2,000 subscribers to deploy VOD.
Basil Badawiyeh, vice president of on-demand strategy at C-COR, said launching the company’s VOD In a Box product also helps operators lay the foundation for additional service. “It prepares the system to offer more advanced products that can help operators eventually expand their bandwidth by deploying switched digital and it can help them develop new revenue streams from digital ad insertion and network [digital video recorders].”
Developing more bandwidth becomes particularly important as satellite providers prepare to roll out large HDTV packages with upwards of 150 channels. “It looks like we are seeing an arms race for HD channels,” said Sunflower’s Knorr.
CMC’s Travers said it added five HDTV channels to the HITS Quantum lineup of digital channels they provide independent operators, with more to come.
Jon Russo, senior vice president of marketing and product management at SES Americom, added that the satellite distributor has been expanding capacity to provide operators with more HD content.
“AMC-18 [which provides capacity for five HD channels on HITS Quantum] is the newest example of the capacity we have for HD,” Russo said.
In addition, SES has launched a triple-feed antenna program. Operators who have antennas to receive signals from their satellites at 101 degrees west or 103 degrees west, can upgrade to a triple feed antenna at no additional cost. That will allow them to get signals from the 105 degree orbital position that is served by AMC-18, as well as the 101 and 103 degree positions. More than 20 operators have already signed up for the program.
A number of operators are still undecided about the best way to expand their bandwidth for HD and other services.
“Longer term we don’t see a clear path,” New Wave Communications president Jim Gleason said. “We’re looking at both IP and switched digital.”
To prepare for the demand for HDTV and the digital transition, Bresnan has deployed digital simulcast in Montana and in a few systems in Wyoming. “The plan is to begin reclaiming bandwidth from analog channels but we haven’t started doing that yet,” Pillai said.
Still, Pillai doesn’t expect analog channels to disappear with the February 2009 digital transition deadline. “We want to deliver the digital experience, but there are a number of people who are using analog TV to get service and they won’t go away,” he said.
Pillai and others believe that these analog services will actually provide cable operators a competitive advantage. “We think it will be a strategic advantage to have some sort of an analog lineup and continue to provide that to consumers,” said Sunflower’s Knorr. He expects that about 75% to 80% of Sunflower’s subscribers will be all digital within two years.
“Being able to continue to supply analog service has some distinct advantages,” said Chris Gordon, vice president of product market at EGT. As a result, EGT is seeing growing demand for products that convert digital signals back to analog.
Gordon and others are also seeing increasing demand for switched digital solutions.
“A year ago, it wasn’t on the map,” BigBand Networks senior product marketing manager of cable video Peter Lowten said. “Then the HD issue came to a head. If they want to compete, they have to have the bandwidth to offer HD and switched digital is a very attractive way to achieve that.”
Lowten argues that the costs for upgrading plant from a 550-Mhz to a 750-Mhz system can range from $500 to $700 per home. “The fact that you can do switched digital for about one-tenth of that cost makes it a very attractive solution for bandwidth issues,” he said.
“Almost universally we find that operators are seeing bandwidth challenges to their HFC plant,” Vyyo vice president of marketing Tee Harton said. “That was not the case three years ago. Everyone was saying they had all the bandwidth they would ever need.”
To finance those upgrades, smaller operators are increasingly focusing on commercial services, a move that is fueling demand for so called wideband services.
Harton said Vyyo’s UltraBand spectrum overlay platform doubles downstream and quadruples upstream bandwidth, allowing operators to provide T1 and 145 Megabits per second DOCSIS 3.0 high-speed data services.
“T1 lines are a great service that can provide revenue 5 to 10 times higher than the best Ethernet product,” he said. “Major operators like Comcast have declared that 2007 is the year they will focus on business services and we are now seeing a lot of interest among independent operators as well.”
Ad sales are another way to recoup the cost of upgrading systems. “Ad sales were an important part of Bresnan’s decision to do digital simulcast,” said EGT’s Gordon.
While most of the operators are focusing on digital insertion in linear cable networks, some are looking beyond that to dynamic insertion on VOD content. This spring Sunflower became the first independent operator to deploy a dynamic insertion system, using SeaChange.
Some operators are also exploring the potential of interactive TV and converged services. “Those are two important areas for us to figure out,” said Knorr.
According to Jeff Miller, president and CEO of ICTV, they are working with Sunflower and Texas over-builder Grande Communications on interactive applications.
Grande deployed a variety of interactive news and games, as well as personalized video mosaic product that allows subscribers to simultaneously view up to five of their favorite channels on a TV screen.
Sunflower is testing systems from ICTV that allow users to access Internet content on their TV as a way of improving the broadband and TV experience.
The growing complexity of services offered by independent operators is also boosting demand for customer service solutions.
Convergys’s Champion said the company in early August inked a contract with Midcontinent Communications for their Lifetime Value Optimization solution.
The product allows operators to augment their existing customer service systems to target their efforts much more closely to the customer’s history and specific needs.
“It allows them to look at the customer and react according to their individual needs,” Champion said.
While Convergys also supplies a variety of back-office services that allow cable operators to outsource their calling centers, Champion said that most prefer to manage those operations themselves.
“One of the key advantages of independents has always been their localization and connection to the individual community,” he said. “What they really want is something that helps them get even closer to that community.”
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