Cable Sees a Lot to Like In an All-Digital World

5/18/2003 8:00 PM Eastern

Philadelphia —Word that Comcast Corp. and other MSOs are seriously considering a more rapid transition to an all-digital network – first revealed by Comcast executives in Multichannel News
May 12 – transmitted quickly throughout the cable-engineers' conference held here last week.

Equipment vendors and other MSOs weighed in on reactions to Comcast's vision to transition in the next three years to an all-digital network, possibly relying on low-end, $30 to $50 digital set-tops to persuade analog customers to buy into a digital-service tier.

Part of Comcast's thinking, as chief technical officer David Fellows disclosed, is that the top MSO's scale economics combined with diminishing costs of electronics could help drive set-top costs, which would benefit other operators.

"Set-top boxes look a lot more like computers than they do old clunky analog things, so that means they are on Moore's Law," Fellows had said in an interview. "You've seen cable modem prices go below $50. So it's not out of the question we could get a sub $50 set-top here, sometime."

Other operators and analysts said the low-end box cost might be more like $70 or $60, but the impact would still be great. Low-end digital set-tops now cost Comcast about $140 apiece.

A conversion to digital has long been on the drawing boards for cable, although Fellows said his past thinking had been cable would convert only after all broadcasters convert to digital.

Cablelabs input

But momentum picked up early this year when some of the major MSOs asked the executive committee of the industry's research arm, Cable Television Laboratories Inc., to figure out what elements would be needed to put an all-digital network in place over the next several years.

Some MSOs may do it quicker than others, with one source saying Comcast was taking the lead, followed by Cox Communications Inc. and Time Warner Cable further behind.

"The $35 box has to be supported by changes in the headend," one cable engineer said. "But companies have innovative ideas to make that work. It's not just a box, it's a system," he added.

Last week, overall reactions were mixed. While many saw the benefits to an all-digital cable plant, others saw plenty of hurdles.

"We are really happy to see David [Fellows] and other folks openly talking about the transition to digital," said Bob Van Orden, Scientific-Atlanta Inc.'s vice president of strategy and product planning. "We definitely strategically think that is something the cable industry needs to think a lot harder about, and probably go do. In fact, I'd say the question is not should they do it – it's really the timing. I almost see it as inevitable at this point."

Insight Communications Co. was one of the companies looking forward to the prospect of digital set-tops falling below current $200-plus levels to well below $100 each. But during a panel session at the Society of Cable Telecommunications Engineers conference, Insight's CTO Charlie Dietz pointed out that although going all-digital would be desirable, his company alone could not force the industry to create and back a $35 set-top box.

"Unless it is embraced by other companies, it dies on the vine," Dietz told the engineering crowd.

One of the more enthusiastic reactions was from Cisco Systems Inc., a company that has long touted an all-digital network philosophy.

"The $30 to $50 box is evolving for what is almost the most important step this industry will take," said Paul Bosco, Cisco's vice president of broadband and cable-industry development. "Our ability now, on the coax infrastructure, to deliver a portfolio of services that is all-digital has its benefits and challenges."

Saying a 100% digital world "is much more than the box," Bosco noted the move anticipates a world where plug-and-play devices are all linked across a common network.

"We clearly are at a point where all consumer devices in the home can exist on a network and can be transaction-oriented," he said.

Bosco said his company would do its part by working with various consumer electronics makers on networking issues.

More than a box

"I think a Fellows-type vision is not just about a lower-cost box," Bosco observed. "I think it is a pretty robust vision about where the industry is going over time. And it's a more healthy concept than the days when we were talking about your piano connected to the network. I think it is much more practical."

But while a $35 set-top might bring reluctant analog customers into the digital world, the reality is the device would be extremely limited in function, according to Dan Ward, director of marketing for Pioneer Electronics Inc.'s cable and communications division.

Ward acknowledged that if a cable operator requested a vastly simplified $35 digital box at a sufficient volume, the electronics maker would consider building it. But such a box would pose some strategic problems.

"You want to give the best service to the customer, and if you scale down the memory and scale down the processing in the box, you are not going to be able to offer all of the fancy new services everyone is thinking about," he said, standing in the Pioneer booth next to a display of the box provider's new Voyager 3510 HD box. "If you want to keep the customer happy, you have to keep evolving the boxes, because satellite is going to keep doing it – they are evolving their box architectures, and we need to be able to offer products that will squash that competition."

Scientific-Atlanta's Van Orden also pointed to all-digital satellite-video competition, noting that in many consumer minds, all-digital is better. In cable, the reality is digital TV isn't so digital after all.

"You get a digital box, and still the majority of what you are viewing is analog channels, because the top 70 channels are still analog," Van Orden pointed out. "So you are watching analog content on a digital box."

More remotes

Another issue has to do with maintaining analog customers' service level if cablers opt to use a boiled-down converter to migrate them to the digital world. John Gleiter, director of marketing for cable modem and voice over IP products at Broadcom Corp., pointed out that brings up issues of how customers tie in their older VCR units and their television remote controls – particularly if the digital device is very basic and has no channel-control functions.

"How do you control that through the consumer TV – that might mean there is another remote required," Gleiter said.

But it's not all downside for the box vendors. Being able to eliminate the analog decoder from existing digital set-top boxes would cut the cost, and that could be beneficial to operators, Ward said.

"There will be some good profit models for that because they are cutting the cost of the box while being able to offer new services," Ward said.

Other MSOs also chimed in on the all-digital conversion. Mediacom Communications Corp. chairman and CEO Rocco Commisso expressed optimism about moves by the industry to develop a $35 digital set-top box, one without all the bells and whistles of existing set-tops. It is expected that such an entry-level low-cost box could be available in the next 24 to 36 months and would drive the conversion of cable systems to fully digital technology.

"In multimedia homes, or homes with more than one [television] set, our company has not put four or five converter boxes in those homes because that's an investment of about $1,000," Commisso said during the MSO's first-quarter earnings call last week. "If we had a $35 box, or even one that was less than $80, we'd be pushing the hell out of those boxes so we can find the means of converting everything on the analog side to digital."

Build a $70 Box
Analyst Ray Katz envisions Comcast getting a basic digital set-top for an average $70, driving a digital conversion.
Key cost elements:
Source: Bear, Stearns & Co.
Tuners: $8-$14
Decoder: $15
Integration: $8.70-$9.40
Installation: $10-$20
Total per sub: $58.94-$78.26

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