Rising costs and shorter shelf lives for new andsophisticated equipment and technologies are prompting cable operators to explore asecondary market for increasingly valuable used equipment.
A new industry -- and a valuable market -- has been spawnedby the extended life of cable-related equipment such as analog and early digital set-topboxes; line gear for 450- megahertz and 550-MHz systems and related equipment; and thecomplex hardware and software required to launch new services such as digital video, cablemodems and Internet-protocol telephony.
"When cable systems are upgraded to add bandwidth,that equipment can be used in smaller systems. And with the advent of Internet access, itwill mean big business for us," said Dave Showalter, cofounder of BroadbandRemarketing International Ltd., a cable-equipment reseller.
Transmission equipment, converter boxes, modems and headendequipment are the most marketable products in today's used market, Showalter said,adding, "All equipment that's reusable in upgrades is very valuable. But thekeys are condition, vintage of specific equipment, brands and features."
With the cable industry's thirst for upgrades andrebuilds, sparked by competition and the promise of fresh revenue from new services, MSOssuch as Cox Communications Inc. find the used-equipment market to be a growing, valuableoutlet.
"Most of our upgraded systems have been good-sizedclusters, and our model is 750 MHz, so equipment that comes out is usually 550 MHz orbelow, and there is a call for that equipment from smaller cable operators," Cox vicepresident of materials management Dick Wallace said. "There's a good market forthat equipment."
A growing number of MSOs see the value of used equipment intheir supply chain. Rather than wiping it off their books through depreciation, usedequipment is now seen as a revenue source.
"The whole materials-management supply chain isgetting more emphasis than ever before," Wallace said. "There's just moretraditional headend equipment coming into, and going out of, the used-equipmentmarket."
More MSOs are realizing that they can recoup a significantamount of used-equipment value simply by paying attention to it.
"MSOs are becoming much more savvy in moving materialswithin their organizations. They tend to identify mid-tier and smaller systems andtransfer equipment and materials internally," Scientific-Atlanta Inc. manager ofaftermarket-business development George McIlvain said
Cox, for instance, incorporated a used-materials processinto its overall business strategy, Wallace said. It calls for the company to first lookat internal use of equipment, then determine if it can be used at one of its smallersystems or put up for sale.
"We coordinate the sales of used equipment through ourmain office because there may be applications of some used equipment at our othersystems," Wallace said, "but our upgrades are significant, and there's lotsof material coming out."
Much of that material is going to smaller operators, saidJon Cooke, president of Apex Communications Supply Inc., an equipment reseller in Hayden,Idaho. "The past year has seen a big demand from the cable industry for equipmentbecause of the competitive threat by the satellite business," he said."We've seen every small system adding channels and upgrading cable plant andequipment."
Headend equipment, IRDs (integrated receiver-decoders) andmodulators are top sellers, Cooke added. "There's lots of it coming out with thecollapsing of headends and because of fiber installs." The average cost of this usedequipment is between 30 percent and 40 percent of its new cost.
The market is down for analog converter boxes, though."There's not the demand there used to be, except for digital converters.Addressable equipment we sold for $90 two years ago, we now sell for $5," Cooke said.
But it's that type of sticker shock that is drivingthe used-equipment business, McIlvain said.
"We're seeing huge amounts of money being tied tonew equipment, and it's a tough situation for cable operators because of the shorterlife of technology and equipment," he added. "Assets they bought four years agowere supposed to last seven years, and resale value is a shock with how low it is."
To combat the free-falling resale value of used equipment,operators are now getting the used-equipment message. "They're focusing on wherethe expanded life of equipment is, like transferring internally, and that is driving thegrowth in the used-equipment business. Technology just has to last longer for them,"McIlvain said.
Y2K also affects the used-equipment market, McIlvain noted."Control-system-management products like scramblers and computers that run the boxesare very much in demand because of Y2K," he said.
What's hot in used equipment today, however, may coolby tomorrow. For example, all General Instrument Corp. digital receivers are hot, saidJohn Noojin, national sales manager for Lee Enterprise, an equipment sales and repaircompany.
"Cost of equipment may vary from $65 one day to $150the next. It's all market-driven, and the older the equipment, the lessvaluable," Noojin added.
In the case of used equipment, however, value is certainlyin the eye of the beholder. "There are still thousands of smaller operators out therethat are upgrading and integrating their systems," Noojin said. "If we canprovide them with a product for 25 percent less than new, that's big for them."
It's big for MSOs such as Cox, too. Noted Wallace:"With our large clusters and service centers, we have significant inventory. Ifwe're not careful, we'll have obsolete equipment coming back, and that takes uplots of space. It needs to be disposed of properly."