CA Switches: A Concise Business History

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We interrupt this unintended miniseries on “downloadable security” to stroll through Charter’s recharged arrangements with Sony, which have everything to do with how to retool the locks anyway.

It’s easy to look at the new Charter Communications Inc.-Sony Corp. deal (see Matt Stump’s related story) and tag it, perhaps with a sigh, as another attempt to “break the duopoly,” or open the installed base of digital headends made by the two incumbent suppliers, Motorola Broadband and Scientific-Atlanta Inc.

Making that logic leap is easy, but it overlooks the business triggers for all prior and ongoing attempts — which turn out to be different, one to the next.

ALL-DIGITAL DRIVER

The business triggers driving Charter’s new work with Sony, and its “Passage” system, are more about edging closer to “all digital.” Recall that Charter’s technology team led the industry with “digital simulcast,” in Long Beach, Calif., two years ago. In figuring out what comes next, Charter, like other MSOs, saw the need for a low-cost, digital-to-analog converter to serve the non-digital TVs in peoples’ homes.

That goal, in turn, revealed the conditional-access (CA) portion as a ripe candidate for cost reduction. Why not make the headend portion of conditional access as removable as CableCARDS are in digital cable-ready devices, or future set-tops?

Modularize the headend parts. Open conditional access to competitive bidding, but make the architecture so it can be removed and replaced later, if necessary — without having to reconstruct the thick goo of maneuvers commonly handled by digital video headend controllers.

It follows that if Charter can modularize the headend part of conditional access, it can also attract better pricing on the CableCARDs themselves (or, the downloadable equivalent, in time). CableCARDs now cost operators around $75 each. Logic: It’s kind of hard to get to that $50 converter, if $75 is sitting in the card that slides into it.

How is that different from prior efforts? This translation focuses on the business reasons for the many attempts to retool digital headend controllers.

PRIOR PASSAGES

Because Sony is involved, the mind tends to flash cut to Cablevision Systems Corp., which etched that $1 billion set-top deal with Sony in 1999. The original business goal was to bring on innovation; Sony clearly qualifies in that department.

In order for those boxes to handle any premium services, though, Cablevision needed to open its existing CA systems to accept Sony’s boxes. Enter NDS Group plc, and later Scientific-Atlanta (for boxes).

One difference between Cablevision’s and Charter’s work is this: Cablevision didn’t see a need to make the CA system removable; Charter does.

Today’s digital-video headend controllers, made by the two incumbents, contain multiple interconnections to other systems — not just conditional access, but billing, provisioning, session management, inventory, guide data, and on-demand servers, too. (And that’s a partial list.)

To install a new CA system, prior to the new Charter-Sony quest, is to relink all those subsystems to the new CA provider. It’s profoundly complicated. (Imagine replacing your own heart.)

Charter’s version of Passage will rebuild those linkages, using open, off-the-shelf components. Conditional access is but one of them. By not forging all business links directly to the new CA provider, Charter avoids the risk of what it calls a “triopoly.”

BEGAN WITH 'HARMONY’

But let’s go back a little further. Eight years ago, there was “the Harmony agreement.” It emerged from Cable Television Laboratories Inc. as a way for cable providers to use either one CA system or the other. The goal was to prevent vendor lock-in, and to give operators a negotiating lever. (“Do this or I’ll use the other guy.”)

Alas, headend costs escalated enough that nobody went too far with “harmony.”

Then there’s “the way the Europeans do it,” sometimes called “simulcrypt.” The big business difference over there is, European conditional-access providers tend not to also sell digital boxes. That’s why you hear of more feature and price competition in European cable boxes. Service providers are still locked to the CA providers they’re using, but they’re locked in on one end (headend), not the other (set-top).

Two years ago, Sony emerged with “Passage.” Technologists lauded it as an inspired approach to a tricky problem; Charter and Comcast signed on for tests. At the time, Passage wasn’t tooled to make a conditional access system “replaceable,” but it did offer a clever method to add new CA systems into the mix.

More recently, Scientific-Atlanta came out with its “overlay” technique, which is similar in intent to Harmony: It gives operators a way to use digital set-tops from both incumbent suppliers. If an operator’s service footprint contains a mix of S-A and Motorola systems, the Motorola systems could be “overlaid” to use S-A’s boxes.

COMCAST VENTURE

And, while still formative, one can’t ignore the second of the two joint ventures Comcast crafted with Motorola in early March, which aim to retool Moto’s CA system to be more “open.”

Charter’s plan with Sony is undeniably ambitious, but its business goals go way beyond simply “breaking the duopoly.” In addition to building a replaceable CA system — which it sees as a gap not covered by existing industrial efforts, including NGNA (Next Generation Network Architecture) — Charter intends to cleave to other, ongoing efforts, especially downloadable security.

In the end, though, it’s all about removing the obstacles from the path to “all digital.” Trimming CA costs from the headend and the cards moves Charter one step closer to a low-cost gizmo for analog TVs and VCRs, which moves one step closer to reclaiming analog spectrum.

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