Comcast: We Want Digital Really Soon - Multichannel

Comcast: We Want Digital Really Soon

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Comcast Corp. executives are pondering a more rapid shift to an all-digital cable transmission platform — perhaps in the next three years — to free up bandwidth for expanded video-on-demand, HDTV and data offerings that satellite would be hard-pressed to match.

The accelerated timetable is a crucial shift in cable operator thinking, and is largely built on the premise that a low-cost, perhaps $35 set-top/converter can be developed in the next 24 to 36 months for the millions of legacy analog TV sets.

The shift in cable's time horizon, especially on Comcast's part, stems from a number of reasons. One is the pressure the government has brought to speed along the digital transition, and the political benefit cable would enjoy by beating broadcasters to the punch.

Second is the popularity — and competitive advantage — offered by VOD and HDTV, which will require much more bandwidth.

Third is the scale Comcast brings to the market, as well as further expected drops in the price of set-tops. Both factors would make a $35 set-top/converter possible.

"If I look at my own evolution of thinking in this area, I originally had thought: We're going to have analog signals after everyone else in the world, including broadcasters, have gone digital," said Comcast executive vice president and chief technology officer Dave Fellows. (See interview, Broadband Week, page 33).

The introduction of VOD and HDTV — and government mandates on broadcasters to go all-digital by Dec. 31, 2006 — have hastened the timetable, Fellows said.

"I've now come to the point and think, hey, bandwidth is really precious," said Fellows. "People like this VOD in Philadelphia. I can use my bandwidth like that to make customers really happy.

"In addition, the government is sitting there in Washington trying to decide how do we foster this over-the-air transition. Comcast has been launching digital signals and high-definition signals. Maybe it fits into government's desire to have a quicker transition rather than later. The last remaining question is the price tag around that."

Fellows believes with Comcast's buying scale, and the reduction in chip costs via Moore's law, the MSO could get a set-top that would convert digital signals to analog for legacy analog TV sets in the $30 to $50 range, making it affordable to complete a wholesale transition to digital.

"If we could get a set-top box that was in that price range, it would probably be worth our while to go 100% digital, sooner rather than later," he said.

And Fellows believes those prices could be achieved in the next few years.

"Let's say it's 30 million devices at $33 a piece, that's $1 billion," Fellows said. "We have actually $1 billion. If it's attractive enough, we have the money to do that. This is not an inconceivable thing."

Price vs. function

The thought is intriguing to some equipment makers.

"That box is very interesting to us," said Mark DePetro, vice president of marketing and systems engineering at Motorola Inc.'s Broadband Communications Sector. "We certainly believe in the next couple years we can get well under $100."

The question on how low it could go depends on "how much do you want that box to do," he said.

"I think a very simple analog to digital converter — which is what would be required here — is very achievable at prices of less than $100, and that might be in the $35 to $50 range," said Insight Communications Co. vice chairman and CEO Michael Willner. "It might be $60, but it is something very inexpensive and manageable.

"It won't do much — it won't be delivering stereo audio and things like that — but it will make old TVs continue to work until people are ready to replace them. And that's the only critical missing issue in the whole digital transition."

Indeed, Comcast counts 6.7 digital subscribers across its base of 21.3 million homes. That would leave at least 15 million analog homes, plus millions of secondary sets in both digital and analog homes that would require a low-cost converter. But that scale can help Comcast get a set-top price few thought possible six months ago.

'They have the scale'

"They have the scale to change the industry," said Ray Katz, a Bear, Stearns & Co. analyst who authored a report in February that centered on how Comcast could convert to all digital to free up bandwidth to compete against direct broadcast satellite, bolstering its superior HDTV and VOD offerings.

"As Grant did to Lee and Eisenhower did to Kesselring, when you've got the tonnage, you throw it at the enemy," Katz said.

Although Katz thinks a $70 is a more realistic converter price point, he thinks an all-digital conversion makes sense — not only for HDTV and VOD, but for business data services. Recapturing the 70% of the cable plant dedicated to analog video would allow MSOs to offer symmetrical high-speed data services to small and medium-sized businesses in the later years of this decade, which would ensure continued MSO revenue growth.

"I think it is important that we get it done, for the sake of consumers, for the sake of the government's interest and for the sake of our own interests," Willner said. "I don't think it is going to be as long as a lot of people think it is going to be. I think government has every interest and motivation in the world to complete the digital transition."

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