The newest line of DOCSIS 3.0 modems offer operators the ability to bond 16 or 24 downstream channels, with even newer gear on the horizon that can bond 32 channels and deliver speed bursts well above 1 Gigabit per second.
But those devices are priced at a premium and provide capacities that might not be needed for years, if ever.
How, then, can operators future-proof their DOCSIS modem base without ponying up for all those costs up front?
One idea on the horizon: channel licensing. It’s currently just a blip, but it’s evident that operators and vendors are starting to take a serious look at a pay-as-you-go approach to D3 modem-channel capacity.
If it does become a trend, vendors could be faced with a significant shift in their business models. Port licensing has been common in the DOCSIS cable-modem termination system market for years and has already caused product margins to fluctuate.
According to multiple industry sources, Arris and Time Warner Cable are discussing a proposal in which Arris would sell the operator DOCSIS 3.0 modems or gateways with the ability to bond 16 downstream channels and four upstream channels, but priced and activated as if they were configured with settings at 8x4.
TWC would then have the option to activate the other disabled channels later in exchange for a licensing fee. The devices themselves would be upgraded with new channel-freeing firmware.
That same type of licensing scenario might also come into play as operators consider purchases of 24x8 and 32x8 D3 modems.
Arris and TWC declined to comment about financial terms tied to their commercial agreements, so it’s not clear if the proposal is tied to a larger purchase of other equipment , such as CMTS chassis, blades or even set-tops. That, of course, could alter the economics of a modem deal that uses channel licensing.
But word of the proposal has caught the attention of DOCSIS modem vendors, and some are already starting to weigh the benefits and risks.
The benefits are obvious: Next-gen models would move in greater volume. Margins would take a hit early on, though, and without a firm commitment for future firmware upgrades, the vendor may never realize the full value of the product.
On top of that, operator DOCSIS upgrade strategies are fragmented. While some operators are expected to roll out 24x8 gear eventually, some might skip 16/4 and 24/8 D3 modems altogether and focus on DOCSIS 3.1.
Some suppliers are not convinced that the model makes financial sense. “There’s definitely a challenge to overcome from a capex perspective,” said an exec with one DOCSIS modem vendor. Even if a core 16/4 DOCSIS chip were to cost two times that of an 8x4, other incremental costs factor into the overall bill of materials, including a larger case, a bigger heat sink, and, if they are D3 gateways, Wi-Fi chips.
And there are other challenges — keeping tabs on when capacity is turned up on a device. “I don’t see how it’s easy to manage and to ensure that you’re getting the accounting right,” said another exec who is weighing the idea. “We would want an end date on when capacity would have to be added. It would be hard to accept a deal that would let it lapse into perpetuity.”
“It’s a challenge to make the numbers work,” another source with a DOCSIS customer-premesis equipment vendor added, but acknowledged that the pay-as-you-go approach with modems “has always been discussed in the industry.”
Depending on how TWC and Arris decide to move forward, those discussions could soon turn into a hard reality for DOCSIS modem suppliers.
Operators are considering a pay-as-you-go approach to future-proof their DOCSIS modem base without breaking the bank.