Forum: Internet Protocol: The Key to Cables Future - Multichannel

Forum: Internet Protocol: The Key to Cables Future

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Hard facts: Broadcast programming alone is no longer enough
to assure a cable operator's future success. True interactivity, and not just passive
broadcasting, is the proposition upon which the cable industry's future rests.

That's also why the cable-television industry is undergoing
a subtle but powerful and inexorable transformation. It's shifting from the conventional
role of delivering broadcast television to the far more complex and lucrative role of
being a full-range provider of interactive entertainment, information and communication
services.

Interactive, Internet-compatible digital-cable networks are
the prerequisite to making this transition possible. A cornerstone of these networks is a
buzzword from the computer industry: Internet protocol. What MPEG (Motion Picture Expert
Group) is to video, IP is to data. Think of IP as the springboard that launches cable
operators into a new era served by interconnected global communications networks.

The cable industry first ventured on the IP path in 1994,
before the Internet's commercial popularity mushroomed. With the exploding usage that
we're seeing now, it's apparent that the industry's decision to rely on IP, now validated
by OpenCable, was truly visionary.

It's now clear that packet-based communications -- using
the global MPEG transport standard for downstream video transport and IP for data
transport and interactive communications -- will be the fundamental enabler of multiple
communications media (video, data and voice) by a single broadband delivery network. This
combination of bandwidth and open technology gives cable operators an unmatched
competitive advantage.

Other big players are keenly aware of this potential, as
evidenced by recent news of the AT&T Corp./Tele-Communications Inc. merger; by
Microsoft Corp.'s acquisitions and its investment in Comcast Corp.; and by Microsoft
cofounder Paul Allen's purchases of Marcus Cable Co. L.P. and Charter Communications Inc.

WHAT IS IP?

IP is the standard that supports most networking
technologies. It's become so mainstream that even news publications are now talking about
it: Internet protocol, says Time magazine, "sits at the heart of the Web and
e-mail revolution."

IP technology enables the rapid flow of digital data
"packets" back and forth on networks. Like mailed letters, IP packets include
both the source and destination addresses, so that messages may be efficiently routed. As Time
notes, "These packages can be anything -- a frame of video, a few lines of a fax or a
split second of conversation. The computers don't care what kind of data they are moving,
which makes for a faster, cheaper way to send information."

With IP as their common ground, data and video networks can
interconnect. This opens up a range of opportunities for HFC (hybrid fiber-coaxial)
networks that are not available with other approaches.

WHAT IP MEANS

TO SUBSCRIBERS

To put IP in perspective, let's examine its near-future
impact on a hypothetical cable household, the Harrises.

One of the first "killer applications" is likely
to be video-on-demand, which can be linked with advertising, e-mail and Web services.
After ordering the movie of their choice, the Harris family pauses the event for a phone
call, backs up to see an action scene again and fast-forwards through a boring segment.
The kids are getting hungry, so Dad pauses the video and calls up a display of a local
pizza store's menu directly from the VOD application. There's no need for Dad to give the
address -- that information comes from the network automatically. Within minutes, a
delivery driver is on the way to the Harris household with a large pepperoni pizza.

After the movie, the Harris teens connect to the Internet
and order the movie's soundtrack, which is automatically downloaded over the network
through an "in-home" fire-wire network to the teen's minidisk player. The same
security system that verified the VOD transaction and the pizza transaction is now brought
into play to secure the CD transaction.

IP may be coupled with a conditional-access system, which
provides the security foundation for all sorts of e-commerce and home shopping
applications. Strong security features, in fact, convinced the Harrises to try home
banking. And sometimes, when the Harrises are watching a gardening show, they
"hyperlink" for more information on a featured product; send a secure e-mail,
ordering the product from a Web retailer; and resume watching the show within a few
minutes.

IP also enables reliable voice traffic over the cable
network, which is known as IP telephony. Finally, the Harrises have a cost-effective
alternative to the local phone company, so now, they can get voice, video and Internet
services on one monthly bill from the broadband provider.

Because the Harrises have an advanced digital set-top
linked to an IP-based interactive network, they can enjoy all of these services and many
others. Just as the television has quickly become the focal point for the convergence of
digital entertainment and Internet access, IP enables digital set-tops and systems to tap
into a global network of interconnected networks, including the Internet.

HOW CABLE

GRAVITATED TO IP

Much of the architecture needed for the modern interactive
digital network has its genesis from early trials, particularly Time Warner Cable's Full
Service Network, which was deployed in 1994.

Participants in the FSN project sought a suitable network
architecture for a new generation of two-way, addressable digital applications. MPEG
standards, it was clear, would be the digital workhorse for video applications, but the
industry needed some way to support multiple applications -- especially data services and
interactive applications. The companies concluded that IP, as an open architecture without
proprietary ties, would support efforts in developing a variety of interactive services.

Given the explosion of the Internet and the dramatic
endorsement by AT&T of IP telephony, this turned out to be a sound conclusion. In
fact, the potential of the HFC architecture extends far beyond cable modems and set-top
boxes.

The broadband-cable pipeline is in the leadership position
to become the gateway to the in-home network of the future because of its foundation of
open standards, including IP, MPEG, DOCSIS (Data Over Cable Service/Interoperability
Specification) and the IEEE 1394 "fire-wire" standard.

In the networked home of the future, telephones, DVD
players, printers, fax machines, energy monitors and security cameras are some of the
devices that can be interconnected. The cable system, as a wide-area network, can connect
the home's local-area network with the Internet and with private networks anywhere.

Let's say that at 4 p.m., you learn that you'll be working
late. Send a message from your office computer to your home to change the thermostat
setting at 7 p.m., instead of at 5 p.m. Tell the DVD to record the 7 p.m. news for you,
and order the oven to warm up to 350 degrees by 8 p.m.

CHARACTERISTICS OF

IP-BASED INTERACTIVE

What else characterizes the IP-based interactive digital
network?

As we've emphasized, IP is one prerequisite for success in
the cable industry's rapidly emerging digital era. For an end-to-end IP-based network,
four other keys must be in place:

• Advanced, two-way digital set-tops. These are the
"client" computers of a complete client-server network. The set-top can receive
data in IP format, and it has an IP address assigned to it.

• Scaleable reverse path. Networks must be capable of
growing to meet demand. To enable Internet access, VOD and a wide variety of other two-way
services, the digital network needs a real-time, scaleable reverse-path solution.

• A highly secure conditional-access system.
Public/private-key conditional access, which is becoming the de facto standard for cable
telecommunications, is the only practical way to handle scaleable, spontaneous e-commerce
with secure messages to and from subscribers.

• The digital network-control system plays a vital
role in network salability. It makes sure that bandwidth and frequency resources are
smoothly assigned and dynamically reallocated as an operator offers more interactive
services on the network and two-way traffic increases.

All of these requirements are inseparably linked with
support of an IP-based, real-time, two-way digital network. Indeed, the network described
is the only network capable of fulfilling the cable industry's promise to deliver
consumers a host of value-adding, two-way digital services.

IP, then, is much more than a technical buzzword; it's a
service enabler with clear business ramifications. It opens the door to delivering video,
voice and data services over one network. The increasing practicality of these
opportunities, in turn, is ratcheting up the value of MSO assets.

Cable systems, formerly "worth" about $2,000 per
subscriber in merger-and-acquisition transactions, are now commanding much more. As Multichannel
News
noted in its Aug. 3 issue, Paul Allen is paying $3,700 per subscriber for
Charter. Why? Cable controls a pipeline to the home, with global reach. By capitalizing on
this asset, operators can potentially increase cable revenue per subscriber by two to
three times over current levels.

Steve Necessary is vice president of marketing for
Scientific-Atlanta Inc.

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