Cable's Tech Chiefs Set a Packed Agenda

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Today's cable operators have put digital video, telephony, video-on-demand and other forms of interactive television and advanced services squarely on the agenda. But each MSO typically places each new product at a different slot in the pecking order. Some plan to aggressively pursue VOD, while others are spending a healthy portion of their time and money chasing down the promise of voice-over-cable. Cable's top engineers are grappling with the technological challenges of open access and deciding how much muscle power and functionality should reside in advanced set-tops in order to deliver on broadband's promise. At the same time, ITV applications are moving up the chart. The real trick, as cable's tech executives are quickly discovering, is tying all of these parallel efforts together. Multichannel News broadband editor Jeff Baumgartner,
CED editorial director Roger Brown and technology analyst Leslie Ellis recently hosted a technology roundtable that covered these important issues. Taking part: AT&T Broadband executive vice president and CTO Greg Braden; Cablevision Systems Corp. executive vice president of engineering Wilt Hildenbrand; Charter Communications Inc. senior vice president of corporate development and technology Steve Silva; Insight Communications Co. senior vice president of engineering Charlie Dietz; and Time Warner Cable senior vice president and CTO Jim Chiddix. An edited transcript follows:

MCN: Advanced services, in all their iterations, are the hot-button issue right now. But in terms of momentum, what's the pecking order for digital video, telephony, high-speed data, video-on-demand or other forms of interactive television at your company?

Chiddix:
Digital cable certainly is at the top, and we're hooking up customers at a furious rate. I expect we'll have more than 5 million digital boxes in customers' homes by the end of the year. [Digital] is obviously a big source of additional cash flow and happy customers, a good competitive counter to DBS.

A close second is modem deployment, where we expect to double the number of customers through this year.

Third is our multiple-ISP effort. We've got a trial up and running in Columbus [Ohio].

While we don't have hard dates, we expect to roll that out aggressively and give customers a choice of ISPs. Then there's video-on-demand. We've got three major divisions up and running, and a large number of additional divisions poised to deploy it. We continue to investigate IP [Internet-protocol] telephony and interactive television of various sorts, so there's a fair amount of energy going into that, although those are not on the deployment line yet.

MCN: Has delivery of multiple ISPs become more of a priority than VOD for Time Warner this year?

Chiddix:
This all happens in parallel. It's not as simple as one before the other. VOD is a pretty straightforward enhancement of digital services. Multiple ISP is brand new; it has a lot of systems and technical challenges. But clearly, post-merger, multiple ISP is very important to the new company.

Silva:
From our point of view, the power and value of broadband service is really the ability to deliver myriad products and to simultaneously run multiple applications. When we look at our deployment priorities, the very first thing you've got to do is digital. You've got to give a good, compelling digital service to customers, and we're completing about 21,000 net connects a week right now, and moving quickly. But we think in order to continue that pace, to bring value to the consumer, we have to roll out interactive services such as Wink [Communications Inc.], such as VOD, now. Parallel to that are data services. We think with the growth of data services and the convergence of data services with digital services, we really do deliver on the broadband mission. We're trying to do a lot of things parallel, because we have to.

Chiddix
:
Of course, the unspoken thing underlying what both of us said is: You've got to upgrade the fiber before this happens, and activate two-way, obviously.

Silva:
And hopefully you've planned ahead for the limbo of interactivity and services you deploy, so that you can do it properly.

Braden:
I think we're all facing a number of the same challenges, which is getting plant upgraded and capable of supporting all of the services that we've been talking about here. … In a number of respects, we're all on similar paths, although they're not identical paths.

In our case, we are very focused on growing our digital subscriber base. We ended the first quarter with about 3.125 million digital subs, and we're going aggressively after the high-speed Internet access service. We ended there at about 1.28 million. Of course, we're a little bit different from Jim and Steve. We are also very aggressive in the voice space at this point. We ended the quarter with about 700,000 telephony subs. Across all of those product categories, a big part of our effort is on continued rapid expansion of those this year. We'll double the number of telephone subs and see significant growth in the other areas.

In parallel with that, we're doing work on development and trial deployment of VOD. We think that's very important. Much like Jim, we're also in parallel with those things, sorting our way through the multiple-ISP environment. We've had a trial in Boulder, and we have a broader deployment that will start later this year in the Boston area.

Hildenbrand:
We're trying to finish building these networks. We can't go anywhere at all with any of these services at any level without finishing the build-out. We've got some Bronx and Brooklyn stuff to finish off. But we'll be done in 2002, I think, certainly with the rebuild. With the rebuild-slash-upgrades, there may be places that we have to go back and do some nodesplitting and things like that, based on the popularity of these cable modems at this point in time.

Generally, that goes on in parallel with the rollout of high-speed data — certainly the killer business these days.

Then deploying these Sony [Corp. set-tops] — we're up in pilot and trial right now. Maybe not quite pilot, but certainly trial. We're extending the number of homes we're putting boxes into and getting ready for the September launch. We're running VOD on them now, as part of the beta trial. It will be there for pilot; it will be there for launch. And we're diligently trying to get IP voice up and going through the set-tops for the September rollout as well. That's the list.

Behind that, we're trying to come up with ITV applications. They are a struggle, but we'll come up with some simple versions of ITV and then expand it as the rollout goes. Remember, this rollout is a change-out as well as a rollout. I suppose burying people under tons of interactive TV before they're ready for it is probably not the best idea in the world. So we'll put some things up to help people embrace and learn interactivity, and I think VOD is certainly a softball in that sort of universe, because it's easy to understand.

With VOD you also inherit certain capabilities in terms of ITV, such as launching video clips in association with certain content, full-screen video clips or full-motion video clips, and helping people walk their way through interactivity.

Silva:
I disagree a little bit with you.

Hildenbrand:
That's OK.

Silva:
I wish there were a ton of interactive services to deploy. The way we look at it right now, we pretty much have just a little bit in each category for interactive services. Seventy-four percent of the customers who have Wink available in the marketplace dramatically improved their perception of our company.

When we brought digital and cable modems, we realized that just the presence of both products in the same market improved customer retention by 38 percent.

Hildenbrand:
I don't think I necessarily disagree. There are a ton of interactive services. I just don't know which ones are going to be there. They certainly aren't well defined yet. The Internet certainly is not the model for TV.

Silva:
No, it's a piece of the pie.

Hildenbrand:
There are a ton of interactive applications. I'm not really convinced or sure yet which ones make it to TV. And then living around underneath all of this stuff somewhere is TiVo-ish, Replay [Networks Inc.]-ish type capabilities, whether you do it at the headend, at the box or somewhere else. I just don't know yet. It seems like some type of non-linear TV programming is in our future.

Dietz:
We've been pretty heavy over the last couple of years with acquisitions, so every time I think I get close to having the bulk of my plant upgraded, we take on another area as a partnership. But we're doing pretty well in that respect. We have launched digital in just about all our major systems now. We have launched it with an interactive guide.

On the content end, I can tell you the people love it. They're able to go online and get Little League scores, and see what the lunch menu is at school and things like that. It's a real differentiator from the satellite guys.

We've also launched Diva [Systems Corp. VOD systems] in three markets through the end of last year. By the end of this year, we'll be up in 12 major markets, with about 25,000 streams deployed. The integration was a bear, and it's still a bear. Every time somebody changes anything on the software side, it comes back to us pretty quick. With lab testing, you pick up a lot of it, but some of the stuff we just don't see until it hits the field, and then we have to be very reactionary. We've got some tests planned with Commerce.TV [Corp.] in one of our systems. We've got telephone started in one market. We hope to scale that to three more by the end of this year. So we're going to keep pushing everything we can as time permits. MCN: You've all had your run-ins with this notion of integration. How do you suppose that gets resolved over time? As the industry moves ahead and adds more flavors of interactivity to the set-top, how, technically, do you set forth an operations program so integration becomes less of a nightmare?

Silva:
From our point of view, we think one of the greatest challenges with integration is the limited resource capability in the box itself. It takes good-neighbor policies for these applications to cohabitate. We hope that — and it is a hope — that once we get to the thicker-client environment, where you have more processing power and middleware applications, standardized APIs, standardized testing procedures — that this can be somewhat alleviated. Although I think it's realistic to say that for the next several years, integration will be one of those things that does hit the bottom line and is a barrier.

Chiddix:
I would agree with that. I think that the one saving grace is that most of us are only running a couple of applications — guides, VOD maybe, some preliminary kind of ITV application. And that mitigates the problem some, but there is some manual labor that has to happen, not just as you add applications, but as you bring out new hardware platforms [and] even new generations of the same family of box. Over time, there are two ways to solve the problem: One is for cable companies themselves to take charge of their own software platform, and that's a big undertaking. The more likely thing, I think, really is the promise of what's going on right now with OCAP [Open Cable Application Platform], which will run on a thicker client, and will provide standardized APIs [application programming interfaces] and will substantially mitigate the integration issues. But that is still a ways out.

Braden:
I think towards the end stage, the promise of OCAP is going to help a lot on this. I think what concerns me is the speed with which OCAP will be kind of ubiquitous. I think that's something that we're all thinking about, and talking with CableLabs [Cable Television Laboratories Inc.] about and talking with each other about. While we want to get into that open environment, there's a lot of stuff that we need to accomplish between now and then. There are other things we can be doing in addition to OCAP that will help us accomplish that.

Hildenbrand:
One of the places that we've somehow managed to sidestep is this low-resource issue a little bit. I've been lucky because I don't have to deal with a resource manager or the guide holding the resource inside the box. We've been running from the beginning with a CDK, or content-developer kit. At least it mitigates the nine different flavors of [standards]. We see instances where two boxes are not equally capable, but it mitigates some of the development issues.

Silva:
One of the things we didn't talk about is the potential conflict for the user interface. When you have interactive services running simultaneously, you have to start setting navigation standards as to which application factors go one step beyond the nightmare of trying to cohabitate multiple applications.

Hildenbrand:
You do a little bit in the lower resource. This Sony [box] actually manages them fairly well because it has the CPU and the memory to do it. I've done enough with DCT-1000s, 2000s, VOD and other stuff to know exactly what I'm stepping around.

Braden:
We're envious.

Hildenbrand:
You'll get over it. This [Sony box] is fun to play with. It does everything we hoped it would. And amazingly enough, it's pretty close to on schedule. I'm on point, on the game and ready to go for September. As a matter of fact I'm ready to go for June.

MCN: What are your thoughts about the Sony rollout?

Hildenbrand:
The same as they were. Jimmy's [Chiddix's] point is the point; I think we're all dancing around it here. We've all had to deal with it, the other guys more so than me because they've actually done a digital deployment. But when you start talking about new services and new applications in a box with a new UI [user interface] — regardless of thin-client, thick-client or anything else — the customer experience is different, therefore the customer-service experience is different, therefore the headend and planned operations are different. This box, at the end of the day, is a cable modem that connects to a TV. Suddenly, things that weren't normally in our domain of things we had to worry about on TV can suddenly affect the operational impact of how you answer questions and understand the levels of detail that live in this platform.

Not to demean them, but training your headend and customer-service staff in general, as opposed to specialists, into understanding data technology, as well as any technology — [it] takes some time to train up an organization to do that. It's not that they're not capable of doing it, it's just that they are running their core businesses beyond their core responsibilities today, and learning new ones for a wholesale rollout.

That is the delay. It's not just that there's more capability. There's more complexity.

Braden:
I think that extends even outside of the video space, if you think about the stuff that we are doing in data and voice. The cultural change and the operational change that we have to take the organization through, head-to-toe, is pretty profound.

Hildenbrand:
One of the things that impacted us is that we're installing tons of these modems. The interesting news is the impact that had on the organization. I think piling a very complex set-top box on top of that would have been foolish, rather than just [waiting] a couple more months to smooth out the rough spots. Somewhere underpinning all of this, as well as having the network ready, is you've got to have the people part of the network ready. Of course, we'll make it even more exciting by putting voice-over-IP on top of it at the same time, which should be exciting.

MCN: We're talking about all these different applications and services, and everybody is saying the first thing that needs to happen is the two-way build-out and creating a backbone that everything else is connected to. Where is everybody in terms of the rebuild status, and when it will be sewn up?

Chiddix:
We're essentially done. I think we're at 95 percent now, and will be 98 percent by the end of the year. We're mopping up recent trades, but this is a plant that's been upgraded to 750 [megahertz] in most cases, and certainly [in] all cases two-way. We're using that to launch all these other services with plenty of capacity.

MCN: What's your average node size?

Chiddix:
The average node size is 500 [homes per node] in terms of physical nodes. We're doing some laser-splitting initially, until traffic demands more downstream capacity per node, but that's only a couple bucks per home passed, and only done in nodes where it's required.

Silva:
We've actually finished our upgrades in our major markets. We'll end 2001 with about 65 percent [of] markets upgraded, and we'll complete the upgrades next year. Our average node size right now is 384. We put a 500 limit on it, so that's what has driven our average down.

Hildenbrand:
We're pretty close to right about where Charter is. We're at 500 max. Average density in each market has the average house count per node somewhere in the 400s. I think, like Jim said, early on we didn't necessarily drive the cable modem, or even the set-top in this case, at discreet 500s. We did some combining, but we've been splitting that apart.

Dietz:
We had about 95 percent of our subs getting two-way service at the end of last year. Then we picked up some properties in Illinois, so we've slid back a little bit. But we expect by the middle of next year to have everything upgraded. At this point, there's less than 18 percent of our plant that's below 550 [megahertz]. We will typically take most of it, though, and get it up to 750 or higher. Average node size is 600 to 650, used by some higher-density nodes that were installed with some block conversion on the return, so that would bring that number down, at least on the return path.

Braden:
As of the end of the first quarter, we were at about 72 percent two-way capable; 74 percent of our plant was 550 [megahertz] or greater. We'll be around 78 to 80 percent upgraded by the end of this year. We still have a way to go. Part of that is a function of some of the more recent trades and swaps that we've done. On a percentage basis, we actually backslid a little because of some trades and swaps that were [completed] in the first quarter. But we're still on track to push it as quickly as we can and get it accomplished, and work towards 500 homes per node on average.

MCN: Greg, when you say two-way capable, does that mean that the amplifier has the housing for the return amplifier, but the return amplifier maybe isn't installed yet?

Braden:
No. By that I mean we are two-way activated, I should say. Not two-way capable.

MCN: There's been a lot of hullabaloo from the vendor community about AT&T Broadband's shut-off of capital spending. Have you released your 2001 spending budgets yet?

Braden:
I'm not sure, to be honest with you, if they were ever shut off, to be perfectly blunt. We had a very robust capital program last year. We have a very robust capital plan this year. I think part of what you heard from some of our vendors was the fact that we didn't keep having them flow widgets to us when we had good supplies of widgets in the warehouse already.

We spent a little over $800 million in the first quarter. In our capital program, about $115 million of that was [to] rebuild and upgrade. The balance, $423 million, was the customer-connect capital, set-tops and NIUs [network-interface units], modems — things of that nature. We're continuing to move ahead aggressively with our capital plan, although we don't publicly talk about what the overall capital expenditure is on a year-over-year basis.

MCN: For everybody else, how has your capital spending changed over the last year, in the wake of the economic slowdown?

Chiddix:
For us it has been steady. It's been a matter of shifting our spending gradually away from upgrades and into subscriber devices such as digital set-top boxes and cable modems. That continues next year. We will have quite a bit less spending on upgrade, but more spending on subscriber equipment.

Hildenbrand:
I think we're in basically the same place as Jim. As we rotate down plant, we'll migrate into set-tops and modems and the rest of that stuff.

Silva:
Same story. At this point, we're accelerating on the original plan to get to market sooner and to push more devices to the home. But it's the same plan, and we're just following through on deployments.

Braden:
Year-over-year, the total AT&T cap ex budget is running about the same, so there's not much change there. Our mix has changed somewhat. We're pushing a lot more to increase the penetration of all of the services in the areas that have been upgraded, while continuing to do some of the upgrades as well.

MCN: What do you guys make of all of these new plant-related entities that are springing up, such as Narad Networks and the Gigabit Ethernet guys? Is this something you look at and think it would be great if it was greenfield, but are not sure if it will work with legacy equipment?

Chiddix:
Well, some of these things are purely for greenfield. And some of them, I think, don't make economic sense. I remember being shown fiber-to-the-home 14 or 15 years ago at BellSouth [Corp.] and being told it was going to be a big deal within a couple of years. Five or 10 years from now, I may be told the same thing. Fiber-to-the-home or fiber-to-the-curb is very expensive, and I've been unable to discover any application for which there is [sufficient] demand. That's a bad combination.

But it's good to see innovation out there, and some of these things have the potential to let us run high-speed-data services on certain distribution legs, for example, to serve businesses. But there's an awful lot we can do with the HFC [hybrid-fiber coax] plant we have right now, just as it is. DOCSIS [Data Over Cable Service Interface Specification] will continue to evolve, and I don't think that we're going to run out of capability in our current architecture for a long, long time.

Braden:
I also like our extendibility coming off an HFC infrastructure versus twisted pair. I think to Jim's point, as these technologies evolve and we can either increase bandwidth or do extensions off of our core architecture, we're in a much better position than some of the competing networks that are out there.

Hildenbrand:
With the HFC plant, we haven't even seen the extendibility of it yet, as more and more of these services move towards interactive, be it VOD or some of these other things. The bandwidth model changes around to where you're really not talking bandwidth; you're talking traffic.

From the commercial side, if there's a cost-effective way to do it, I think this kind of network architecture is an interesting, cost-effective way to do it. We'll take a look at them for commercial use. I think it'll be a relatively long time before they are ready for home use.

MCN: I think they'd probably tell you the same thing.

Hildenbrand:
I can't afford to pull fiber to it, but it's a little more bandwidth than I want to eat up right at this early stage with coax, and especially staring down the gun of what seems to be a renewed interest in high-definition television. Maybe there's some play for advanced telecommunication services. But as a cure-all, or as a replacement to DOCSIS? I don't think so. Not for a while.

MCN: The subject of PVRs and thick-client set-tops was brought up earlier. What is the sweet spot when it comes to the price of a set-top box you can afford, and does that price eventually go higher? Can you afford to buy a more expensive one, if you're assuming you are going to sell more services?

Hildenbrand:
I won't give you a number, but I'll tell you that I can't afford to put in a much-more expensive box at the moment, until we get some revenue falling. Would I put in a PVR if I could? Maybe. And the reason I say maybe is there's a lot unknown about that. The question is do you build it in? Is it detachable? Is it replaceable? Is it bolted in? I don't want to early-obsolete the box because someone filled up our hard drive. We are looking at making one attachable, and the customer can choose to buy one, plug it in, and use it that way much like they do with a TiVo without all the invasiveness and IR blasters of TiVo. So that's one path. I don't know if we've hit the sweet spot, but we're flying pretty close to the edge.

Braden:
I like free.

Hildenbrand:
Yeah, free would be a wonderful price. I think you've got a few years to wait for that one.

Silva:
I actually disagree. I think the industry's going to change from this one-size-fits-all mentality and recognize the competitive threat from other services. And our premier customers want to integrate a DVR [digital video recorder], want home networking, want Internet services. They're going to pay for those services. I think we have to start looking at providing that kind of flexibility.

Hildenbrand:
I'm not sure you do disagree, Steve. That's one of the reasons I wanted all of these little ports and attachability to this box. If you want a PVR, you go buy it. You want an IP phone, you go buy it. Be my guest. I'm not going to build it all into the box.

Silva:
I think there are two models. I think there's the model that has the sidecar or the stackable component, and then there's the integrated model. In theory and in time, it's hard to imagine the integrated model not being more cost-efficient than these sidecars.

Hildenbrand:
No argument.

Silva:
I think less than $600 for an integrated DVR and cable modem service is an easy sell.

Braden:
I think part of what we all have to be mindful of is when you look at the innovation that the DBS guys are doing — a wider array of boxes, faster introduction of boxes, etcetera. But we also have to keep in mind that it's not clear that their current economic model is a sustainable one, when you think about the subsidies they build into the boxes. I agree that we need cost-effective boxes. I think we need a number of boxes that are available with different price points to support different application sets to consumers. But we also have to be mindful of making sure that the underlying economics of any of those makes sense, and I don't necessarily think DBS is a good long-term example of that.

Hildenbrand:
Without trying to sound like a company brochure, one of the reasons for this aggressive changeout is to set a reference platform, if you will. We want the options for customers to attach devices, or for us, if we choose, to make a device part of a level of service. I'll sell you that box, but at a baseline, we want to move the bar up.

Silva:
The reality is, if we bring into the marketplace a box with strong processing power, decent memory and a hard drive, not only are you doing DVR but you are truly enabling other applications and services that are downloadable. You are also finishing on your network architecture, where now you have data-processing capabilities at the headend, you've got a broadband pipe to the home, you've got a big client with storage capacity to manage applications. I think that's a killer infrastructure that nobody else can touch.

Chiddix:
I think box prices are coming down nicely. We are about to take delivery from a third vendor of a compatible box, and we've announced a purchase of an S-A [Scientific-Atlanta Inc. Explorer] 8000 by the end of this year with [a] hard drive built into it. We've seen the first hardware on that. We'll see what the uptake is in the market, but the price premium is not a terrible one.

MCN: Steve, just a quick question for you about the onboard PVR, and the project you're working on with Motorola Broadband Communications Sector and SONICblue Inc. What's the status of that?

Silva:
We actually have about four different PVR projects underway. [There's] the onboard one with Motorola, which is the one we've gone public with. We're actually going to have some of those boxes in the fourth quarter for trials and start deployment in the second quarter of next year. But we have other editions.

I think we've gotten to the point where waiting for individual middleware providers or set-top manufacturers is just bad business. We're trying to get as many parallel paths as we can practically manage to insure that we can deliver on the vision in 2002.

MCN: Steve, when you were at the Bear Stearns conference earlier this year, you mentioned that you had heard of a box that could rewind any channel at any time. Are you still looking at that or can you provide any more information?

Silva:
I really can't provide any more information on that. I'll just say that I'm really encouraged with the amount of development work being done by new manufacturers trying to get into the industry. They're bringing a lot of fresh ideas, and ways to grab more than one channel and [feature] more than two tuners.

MCN: On the PVR subject, there are companies that are out there talking about a headend-based PVR. That sounds like quite an undertaking. Does that have some real potential?

Chiddix:
I think it's got lots of potential, and I think we've got the bandwidth to do it. As an intriguing vision with millions of set-top boxes, these thin clients have full PVR capabilities based on servers at the headend. And the beauty of HFC is that we do have the bandwidth to support a service like that with many, many simultaneous streams.

Hildenbrand:
At the end of the day, it's another VOD application.

Silva:
It's more of a business challenge. It's not a technology challenge.

MCN: Couldn't you also run the risk that people would start canceling their expanded-basic and premium tiers just because they know they can get everything on-demand?

Hildenbrand:
Something's always going to eat something else, and it turns out they both just get stronger. On the other hand, the corollary to that is the DVR, the best business in the world, that only 40,000 people have. At the end of the day, it's a fascinating, exciting thing. It's not clear that it's a business yet.

Silva:
And as I said earlier, we can see the initial PVR utilization in phase one. What's more exciting to us is what we can start to do with the hard drive. Then you can start to do other things.

Hildenbrand:
If I had them in 100 percent of boxes, there is certain utility functionality that you can start to do, for things like targeted advertising and different levels of VOD. I'm glad Concurrent [Computer Corp.] and nCUBE [Corp.] are working on it. We're certainly looking at it as either an adjunct alternative or an addition that plugs into your own PVR. It gets rid of a lot of the cross-functionality aspects of it.

MCN: As you guys start thinking about DOCSIS 1.1, assuming it makes it through certification sometime this year, have you given any thought to what you will likely do with the dynamic quality-of-service and the fragmentation of the different kind of benefits that it would bring? What would the service mix look like?

Silva:
We already are doing multiple service tiers at this stage at Charter, and we're selling a 256 [kilobit-per-second] service, 512, 718 and up.

MCN: That's not dynamic, right?

Silva:
Right. At this point, we're doing the provisioning with multiple IP blocks at the headend and a switch to [the] Internet. The first thing for us is to really standardize that business, and more practically manage that business. We're provisioning incremental balance right now to make sure the service levels are honored, so I think it does have a lot of value. What we learned in the early trials and the early deployments was that, while we can go to market with a $24.95, 256-kilobit offer — which drives the phones to ring — 50 percent of the people will buy the 512 [kbps] service. You can start doing audio downloads and other traffic management products, such as video conferencing, that really do allow the consumer to get the benefit of broadband.

Chiddix:
DOCSIS 1.0 lets you set speed tiers. With 1.1, the obvious application is voice-over-IP, and that's what various companies are testing, including ours.

Braden:
We're kind of on the same path. Taking advantage of it near-term, there's lots of other neat stuff we'll be able to do, but I'm not sure we fully gelled exactly what that neat stuff is in our minds.

Silva:
One example of neat stuff is with the success of the [Microsoft Corp.'s] Xbox and the Sony Playstation 2. We could sell a specialty cable-modem service for gaming, which only allows [customers] to play games and not go to the Internet. We could provision a managed service at an introductory price level, and then upsell the customer later to traditional cable. There are a lot of great opportunities that come with 1.1.

MCN: Cox [Communications Inc.] has said it likes 1.1 as a means to offer commercial business tiers.

Hildenbrand:
We're doing some business services now. Business DSL [digital subscriber line] is picking up. There are still a lot of places that don't get served. We've picked up some of that. We're even offering some DSL on our own.

[DOCSIS] 1.1 gets us closer to that same marketplace where you live between the high-capacity customer and the VPN [virtual-private network] customer. Those kinds are easy to deal with. It's the smart apartment houses and things like that where being able to fractionalize and control the service a lot better with 1.1 is interesting for sure.

Chiddix:
I was talking to, of all things, a bartender last night. This bartender is running an Internet radio station out of his house and has been pricing T-1 [services] and so forth. It seemed unlikely, but there's a whole bunch of unlikely things out there. These technologies let us tailor the service to businesses and new customers.

MCN: Today the CLECs [competitive local-exchange carriers] are having their share of problems, but the incumbents are still pretty strong When you start looking at some emerging two-way broadband folks like fixed wireless and broadband satellite, how serious do you think the competition will be?

Hildenbrand:
My answer on that is, I don't vote at all. I just take every one of these guys deathly serious and the best way to be there is to get there first.

Chiddix:
Clearly, it's a much more competitive world that's coming. A cable operator who really is paying attention and doing a good job has a tremendous opportunity. But cable operators who do a poor job are going to see customers go elsewhere with viable services. Satellite has an interesting niche in deep rural, but it can also pick off markets where DSL and cable modems simply aren't doing their job.

Silva:
I think the greatest protection we have is to actually use the network that we built. If we provide true, two-way interactive services where we're using the broadband capacity to its maximum, that's an environment nobody else can touch. And that gives us a competitive advantage. Data is one of the things we can push presently. Charter has launched data and digital and we actually have customers using those services. They're eight times more likely to stay at Charter than convert. The competition is coming, but we've got a great window to take advantage of it.

Braden:
HFC, both near-term and long-term versus DSL or fixed wireless — or any of these others — clearly has an advantage, as long as we execute appropriately in terms of delivering services, good customer service, etcetera. But we keep a close eye on all of the emerging technologies. We haven't seen any one that comes along and kind of replicates the same capabilities we have in voice, video and data. As you get more of these applications delivered to an end user, the theory of the stickiness of the bundle is certainly playing out here. I think that bodes well for us, as long as we execute.

Silva:
And there's also one other aspect. It's not just technology; we're running a business. You have sales, marketing, provisioning and installation. They've got to build an entire business that runs 24/7, so I think the industry not only has a technological advantage, but we have the infrastructure in our organizations to sell and service these types of products.

Hildenbrand:
It'll be fun having somebody in satellite do high-speed data. Then, maybe the world will stop picking on us about sharing data. One of my least favorite things to read is how the computer magazines all talk about how cable is cool until a couple of people hook up and then it slows down. I think all of us are beginning to prove that's not true.

MCN: Turning to open access, we know what Time Warner Cable and AT&T Broadband are doing and what Cox and Comcast [Corp.] have in the queue, but for the other folks on this call, what's shaking as you move forward? Charlie, what can you say about the project in Lexington [Ky.]?

Dietz:
We're going to roll with some VPN and do some business over the existing @Home platform for business use during the day, and work up from there. We believe [open access] is something we're going to need to do, and we've got to find a way to do it.

MCN: And you'll do that with outside ISPs?

Dietz:
We'll do that first in a controlled environment, but we see that in a year or so we're going to have to open the network up.

MCN: And how about for you, Wilt and Steve?

Silva:
I'm having problems with my phone. [Laughter]

Hildenbrand:
You took my line. I'll run cover for you. We don't block anybody from being on the network, not that anybody on this call does. My contention is with this thing has been: We are open — AOL [America Online] sells to every one of my subscribers, as does CompuServe. If this comes down to price, I don't know of any network in the world that doesn't charge for connectivity. I'm not in a trial because we've been open from the beginning.

Silva:
In Charter's case, we have some @Home markets and some EarthLink [Inc.] markets, but for the most part our core product we deploy has a standard Explorer browser, which allows the customer to save any start page, any home page they want. So we are open.

Additionally, I struggle with the concept of starting to manage multiple ISPs. I think you could probably do two or three comfortably in the marketplace with a lot of back-office integration work. When you start to open up lines to an unlimited number or a large number, you start asking a lot of questions operationally in how do you ensure the customer service.

In Charter's case, one of the things that we're doing right now is helping to promote AOL to the PC. We actually push AOL, and turbocharge AOL for $9.95 [per month]. We add that to the $24.95 price and it's usually cheaper than DSL with AOL, and it's cheaper than traditional analog narrowband with a second phone line. But we're struggling more with the operational impact and the strategic impact. The deals that have been cut so far, if you look at the EarthLink-Time Warner deal, this is not just about cable-modem access to the PC. You start talking about other network services such as voice, video-on-demand and Internet to the TV. If you look at those things, it's not just about an ISP service anymore.

Hildenbrand:
What I'm intrigued with following DSL and the rollback of some of the [competitive DSL providers] is the sheer complexity even for the RBOC to manage multiple things. And, more importantly, having been a customer and some people in my family have been customers, there's the nightmare of meandering through three or four different handoffs.

Chiddix:
I think that's key, and one of the challenges is to keep that from happening to our customers. I think that Steve's right on that this needs to start off with just a few [ISPs], because we've got to build good, automated back-end systems to let us escalate problems gracefully. But there really is interesting potential here, because it's about having ISPs who are marketing cable modems.

As the strong ISPs differentiate themselves and begin to appear strongly to different kinds of customers, having them push those customers toward our cable modems is a very good thing.

Hildenbrand:
Nothing's stopping them from doing that right now.

Silva:
Exactly.

Dietz:
As the cable operator, we're not selling every video channel that people come up with either. We've got to do the right business arrangements.

Silva:
That's probably a great comparison to use.

MCN: There are some financial analysts who love this idea of multiple ISPs, because they like the idea of wholesale economics and they modeled it every which way and still come up smiling. Then there are others who view this as potentially pretty dangerous. As video-compression algorithms improve, there is a fear that outside ISPs will come in and start picking off your basic subs and your core video subscribers with streaming.

Braden:
That's why all of us have to be thoughtful about this process. I think there are two pieces: One is that it can happen, so you have to think about how you describe the service that you sell. The carrying arrangements, over time, are more than just speed alone, but they are probably some combination of speed, consumption, and maybe some other quality-of-service parameters. That's part of the total equation here that we need to sort out.

And while doing that, [we must make] sure that we are striking the right balance between allowing choice without putting yourself in the position of just being a connection provider, because that leads us down more of a commodity path than we want to be. Those are all pieces here that I think we're trying to triangulate against.

Hildenbrand:
On the other hand, we're leaving out a very important point that we all talked about earlier on — what type of provider you are is almost moot. All of these things are possible over cable, DSL or satellite. Earlier on, we talked about the need and responsibility to execute, and that's execute not only from the technical perspective, but from the customer-service perspective, from the operations perspective and the billing perspective.

I promise you this: If we deliver these services over whatever our wire is, and we do them early and first — execute and have good service — you are going to be competed with, but you also are going to be the best out there, and you'll hold the market share.

MCN: On the back-office customer-care software side, is there a suite of software out there today that you can buy and put together? Are we headed in that direction, or is everyone in the mode of putting this thing together with bailing wire, gum and other stuff?

Hildenbrand:
As far as I know, there's no one magic-bullet system out there that integrates all of this stuff, but I resent having you characterize it as bailing wire or bubble gum, or whatever.

MCN: The question is, then, do you end up building it yourself?

Hildenbrand:
You end up taking best-of-breed, and working with some really good vendors, and start planning about how you are going to do your integration.

Silva:
There are also issues beyond just the technology. You can have an ISP where the customer's paying his bills with a credit card, and he's current, but he's not current on his video service.

So when you go to disconnect, is the ISP going to guarantee a monthly minimum rate for that service? Do we have to roll a truck and put a filter on the plant? Who's coordinating that?

There are so many variables on the day-to-day operational side for managing multiple ISPs. I think that these business considerations, these operational considerations, really do stack up more so as an issue than the technology right now. And the technology is far from bailing wire. I think there are some very sound architectures being designed and built right now.

Braden:
I would agree there are a lot of business and operational issues to work through. I don't think there is any one OSS, billing, provisioning system suite that you can buy off the shelf and, voila, you are running with this. I think there are major chunks of those that are available that do pieces of that very well, and then figuring out how you integrate that.

From our perspective, one of the things that we're still working through here at AT&T Broadband is, regardless of what the application is, I wish I had the application everywhere. Because of the acquisitions and the trades that MediaOne [Group Inc.] went through before it merged with AT&T [Corp.], or TCI that it went through before it merged with AT&T, we still have a fair amount of dispersion of billing systems, which we are working hard to correct. The idea is to get everything common, then get it all integrated. There's a step function to go through to get the commonality and integration and scaling capabilities.

Chiddix:
There is some very creative work going that's insulating us from various billing systems, and certainly there's nothing off the shelf. But there are interesting solutions that are well down the development road. It depends how complex you make the task by the business assumptions that you build in that you then have to support.

Hildenbrand:
Legacy is not trivial. Catching up to the legacy stuff makes life very interesting.

MCN: Jumping to the return path, CableLabs has basically jumpstarted the work on advanced PHY to make the return path more symmetrical. Taking a look at your needs today, how important is this undertaking when it comes to your company's future?

Chiddix:
I think it's important, mostly for the future. At one point, advanced PHY was touted as something that was going to let cable modems work in lousy cable plant, and I think that's folly. I think that having lousy cable plant is a real dangerous strategy. But getting more bits upstream in the same bandwidth is certainly a good thing, and there's a lot of innovation going on out there, and we should avail ourselves of that. By the same token, we need to look further into the future, to much more symmetrical systems for the data we need either for business or, eventually, for residential services. So I think that advanced PHY is just a next step in the evolution of DOCSIS, but it's one of many to come.

Braden:
I don't think I'm overly concerned about not having it available today, because a number of data users that are doing a lot of upstream stuff is a fairly small percentage. But you certainly see the applications coming out at a more rapid pace, which is going to require that.

We saw some fairly interesting changes in the traffic patterns across our networks attributable to Napster [Inc.]. I think we'll get more and more of those types of things happening, which will increase the importance of the efforts that CableLabs has under way.

MCN: Have any of you guys had to split nodes yet? Have you had to deal with that issue?

Hildenbrand:
Other than what I said earlier about a physical network architecture at 500 [subs] per CMTS [cable-modem termination system], we did some combining back at the headend, so we've had to take apart some of the combining. But, no, we haven't had to physically split a node yet.

Silva:
We've done only a few, and in all cases it was tied to pre-Charter architecture — networks that we'd purchased that were supposedly already upgraded to the appropriate level.

Chiddix:
We'll eventually have to split, driven by things like video-on-demand and high-speed data, but we're still a ways from having to do that for stuff that meets our guidelines.

Braden:
We're in the same boat.

MCN: A lot of this comes down to traffic modeling, traffic engineering or bandwidth. Could you explain the need or the vision of this brand-new CableLabs bandwidth-management and modeling initiative?

Chiddix:
I think it is a discipline that is just in its infancy for our kinds of plant, just as the telephone business decades ago had to figure out how to manage its shared resources, whether they were trunks or switches. We're going to have to figure that out, too, and it's going to keep changing. There are tools we're going to have to develop. We're still just the leading edge of all that. I think we're all thinking about it. We have enough bandwidth where it's not pressing us yet, but I think we're all doing some preparations.

Hildenbrand:
We're looking at the traffic going through the CMTSs. We're looking at the processor on the CMTS, looking at the number of combined modems up on the node. You can monitor the traffic back from the node. We've built a NOC [network-operations center] just to pay attention to this stuff and to start monitoring, because you get an additional benefit out of it. I've had less of an issue keeping up with the traffic in the node than just buying pipes out to the Internet. The network hasn't even been dented yet. It's the aggregated amount of data that these people move that's frightening.

MCN: On the subject of streaming and this whole notion of legacy set-tops versus set-tops that have an IP path, whether it's DAVIC or DOCSIS, what are your thoughts about video streaming to the TV?

Hildenbrand:

The only people that really seriously talk about streaming are those without networks. Why anybody would put high-quality, 33 [frames] per second, high bandwidth, high resolution radio on a contingent-based network is beyond me. I look at the streaming people, and they are all people with twisted pair, and no place else to go. Horsepower is king.

Chiddix:
We've got a great digital-video delivery system. That's absolutely true.

Hildenbrand:
That doesn't mean none of us are looking at it.

Silva:
There are a lot advantages with streaming products, but the greatest advantage right now that's apparent is really for personalized content from the Internet.

MCN: On the PC side?

Silva:
Yes, on the PC side, and bringing some of that to the TV in a smaller picture-frame environment.

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