Moloney Takes Helm At Motorola Broadband

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One could question whether Dan Moloney has good timing: The new head of Motorola Inc.'s Broadband Communications Group takes over as revenues are falling and the latest MSO rebuild schedule is almost complete.

But that doesn't deter the long-time General Instrument Corp. and Motorola executive, who was named president of the broadband division on June 7.

"I'm a strong believer that this is a very good business to be in," Moloney said. "There is a lot of opportunity for long-term growth with new services in North America and outside North America.

"We have a very strong position in this marketplace. We have strength in digital video, data, cable modems, and are well-positioned in the next generation of cable-modem termination systems. You won't see a lot of change of strategy. Dave [Robinson] and I were in lockstep where we wanted to take this business."

Like other equipment vendors, Motorola and its Broadband group have suffered in recent years. The group's revenue dropped from $3.4 billion in 2000 to $2.85 billion last year. Its first-quarter 2002 revenue of $252 million was down 36 percent from the previous year's first quarter.

Operating earnings dropped to $59 million in first-quarter 2002, compared to $118 million in first-quarter 2001. The revenue falloff can be attributed to reduced spending cuts by newer service providers, like RCN Corp., which, in turn, caused incumbent MSOs to breather easier and spend less money on rebuilds.

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On the flip side, MSOs continue to spend money on new digital set-tops, modems and cable-modem termination systems. For every sector that hasn't grown as quickly as expected, such as voice-over-Internet protocol, there are other sectors that have grown faster, such as high-definition television.

"In North America, there is a very strong push with digital video and data," Moloney said. "There are continued growth opportunities with HD and the VOD footprint."

And after the Excite@Home Corp. "hiccup," Moloney said, data spending has been strong.

"That's been a good, steady business in North America," he said. "The biggest disappointment has been what's happened in the European arena."

Restructuring at both United Pan-Europe Communications N.V. and NTL Inc. will curb both operators' capital expenditures. Latin America also remains largely unhealthy, added Robinson, as economic problems continue to plague Brazil and Argentina. And there are only pockets of spending in Asia.

But the pockets of spending in the U.S. — starting with high-definition television and video-on-demand — are bigger.

"The cable industry has the opportunity to lead in HD," Moloney said. Cable's commitment to offer HDTV service to its subscribers has helped Motorola sell its 5100 series of boxes.

Most MSOs will use some type of 5100-level box, he said. "That will be a good upside for us."

"VOD offers an opportunity to reduce churn and get incremental revenue," he added. "The 2000 is the workhorse of that portfolio offering," but MSOs' interest in VOD will help spur sales of the 2500 product line, Moloney said.

"We committed that we'd have DOCSIS [Data Over Cable Service Interface Specification] 1.1 on the legacy base of installed product for tiered services," by the fourth quarter of the year, Moloney added. But "the CMTS business has been slower to accelerate than what anyone predicted a year ago," he said.

The real growth drivers will be VoIP and the need for tiered services, or high-speed data sold at various speeds for different price points, he said.

Moloney believes the maturity of softswitch technology has slowed VoIP deployments.

"Most operators are not interested in the switched-IP approach where you have a gateway to translate between the class 5 switch and the CMTS," he said. "They want to go to complete IP from the beginning."

And MSOs that provide circuit-switched telephony "don't want to make the switch until they are comfortable that the softswitch can do what the class-5 does today," he added.

There are also concerns over the operational support systems around the core VoIP technology, noted Moloney. But he expects MSOs to work through those operational management issues and be ready for VoIP next year.

"The business model works for voice," Moloney said. "It works on circuit switch and it works even better on IP. You will see IP voice take hold in 2003."

Although the rebuild cycle is almost done, MSOs "will still spend money on transmission gear," Moloney said. That could include such technologies as dense wave-division multiplexing or gigabit Ethernet.

"They can spend that money without spending the labor money" associated with other parts of a rebuild effort, she said.

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