Cable operators with plant not built out to 750 MHz or greater are faced with a dilemma as they try to find the necessary headroom for video-on-demand (VOD), high-definition television (HDTV), and other services that soak up valuable spectrum.

The big question: If they operate 450 MHz or 550 MHz systems, should they bite the bullet on a bandwidth expansion to 1 GHz or more, or should they consider migrating everything to digital and thus reclaim all that spectrum being set aside for analog services?

With the February 2009 digital TV transition roughly a year away, some operators, particularly smaller ones with manageable subscriber bases (or even some larger ones that still serve some pastoral areas), are starting to take a close look at the all-digital option. For example, RCN Corp. is giving it a shot in Chicago, hoping to shift its entire sub base to digital by mid-April. (See RCN's All-Digital Challenge and RCN Reclaims Analog in Chicago .)

But it's the smaller cable system with a few thousand subscribers that's drawing the interest of Transparent Video Systems Inc. (TVS) . The San Carlos, Calif.-based company has entered this segment of the market with a platform, dubbed "Challenger," that enables operators to migrate to all-digital at reasonable cost.

Along the way, it could help break the duopoly enjoyed by Motorola Inc. (NYSE: MOT) and Scientific Atlanta in set-tops and conditional access (CA) systems.

TVS has signed on its first customer: Coaxial Cable TV, a rural operator that serves about 4,000 customers in Edinboro, Pa., off plant built out to 550 MHz.

The decision to give TVS a shot came down to simple numbers, says Coaxial Cable general manager Chris Lovell. While a rebuild would have cost the operator $3 million to $4 million, TVS's approach, which starts off with digital simulcast with a path toward total analog reclamation, came in at less than $1 million.

For its part, TVS is offering cable operators an integrated set of headend encoding, multiplexing, and QAM units, coupled with the Conax AS conditional access system.

TVS bases its system on Digital Video Broadcast (DVB), an "open" approach popular in Europe that has attracted at least 200 set-top box makers. So far, TVS has completed integrations for boxes made by Homecast Co. Ltd. and Kaon Media Co. Ltd., among others. Coaxial Cable is deploying (and selling outright) boxes from Homecast.

Coaxial Cable still receives digital program streams from Headend in the Sky (HITS), a product of Comcast Media Center (CMC) , but the operator no longer relies on Motorola-based headends and set-tops. "They [HITS] are just the transport stream for us now," Lovell explains.

Coaxial has also cut the cord on the interactive program guide (IPG) from Gemstar-TV Guide International Inc. (Nasdaq: GMST). It's instead using Homecast's homegrown IPG and purchasing program data directly from Tribune Media Services Inc.

Cost savings aside, Coaxial has another incentive to use TVS: competition. Like other small operators, Coaxial is under siege by satellite TV operators and their generally broader standard-def and high-def video lineups.

While the HITS-Moto combo was a "decent product…we were getting zero growth with it. We were just flat," Lovell says. "All of the marketing campaigns in the world didn't help." Coaxial reports that its digital sub base has growth by more than 60 percent since installing the new system in July.

Presently, Coaxial Cable is simulcasting its lineup in analog and digital, but the operator aims to move all its customers to digital as early as the end of 2008. About 1,000, or roughly 25 percent, of its customers have taken the digital service since the operator went live with the TVS system.

"It's an inevitability that we will get there," Lovell says. "We will go 100 percent digital."

Once the migration is complete, Coaxial Cable plans to drop analog and begin turning up VOD and HD services. Lovell wouldn't specify timelines for those new services, adding that it will all hinge on how quickly the operator can cut everything over.

To spur demand and to help speed and ease the transition, Coaxial Cable is offering three standard-def digital boxes (with remote controls) to each customer for no additional cost. Customers can rent the Homecast SD-DVR box for $8.75 per month.

"My belief is that we need to remove barriers of entry for consumers, and try to make it so [they] can get into a digital product affordably," Lovell says.

To Page 2

The Separable Security Question
Lovell is confident that his digital implementation satisfies the Federal Communications Commission (FCC) ban on integrated set-top security that went into effect last July and aims to create an open retail market for digital boxes. (See Countdown to 'Seven-Oh-Seven'.)

In Edinboro, Coaxial Cable is using a Conax-based CA system that uses removable SmartCards. While that does provide Coaxial with a separable security system, there are still questions about how the FCC views SmartCard implementations. Cablevision Systems Corp. (NYSE: CVC)'s digital system uses Scientific Atlanta boxes with NDS Ltd. SmartCards. The FCC awarded Cablevision a temporary waiver that expires on July 1, 2009. After that date, the MSO must migrate to an FCC-approved separable security system such as the CableCARD or one that is downloadable. (See Son of 'Waiver Central' .)

Despite those questions, Coaxial Cable is already making Homecast set-tops available for outright sale. For $80, customers can purchase the basic SD Homecast box. The SD-DVR sells for about $200.

TVS president Norman Gillaspie says his company is also developing a "hosted" conditional access and subscriber management system. TVS is thinking about ways to provision CableCARDs, as well.

Lovell is equally unconcerned that the path he has chosen diverges from that of the larger U.S. cable industry, which plans to install and deploy headends and set-tops based on tru2way (formerly OpenCable Platform) technology. (See Cable's 'tru2way' Play .)

"Quite frankly, I see this as a good move for us. I can't judge myself against the Comcasts and Time Warners. I have to judge myself against myself and what is best for my customers," he says.

Beating the drum
Gillaspie says cable systems with 2,500 to 10,000 subscribers represent the "base market" for the Challenger platform. He's confident that TVS will hit its deployment target of 300 systems in fewer than three years.

But it has a way to go. The company, which is keeping operator costs at less than $300 per subscriber, hopes to drum up interest when it shows off at the Cable Television Laboratories Inc. (CableLabs) Winter Conference, set for Feb. 10-13 in Colorado Springs, Colo. TVS also expects to announce two more cable deployment deals in time for the National Cable Television Cooperative Inc. (NCTC) and American Cable Association (ACA) Winter Education Conference, set for Feb. 18-19 in Phoenix.

TVS is far from the only option out there, though.

The Comcast Media Center and SES Americom offer what they call the Total Digital Solution, which teams the CMC's content management system with SES Americom's 50-state AMC-4 satellite. That system, based on Motorola conditional access and set-tops, is designed to support both digital simulcast and all-digital options, and offers north of 200 video networks and audio services.

A CMC spokesman says some announcements are coming ahead of the NCTC/ACA conference concerning additional ways that HITS will support affiliates as they migrate to all-digital environments and the tru2way platform.

Another option in the works comes from Beyond Broadband Technology LLC (BBT) , a consortium that's developing a downloadable conditional access system and a digital programming service. (See BBT Exits Alpha and BBT Inches Toward DCAS Solution.)

— Jeff Baumgartner, Site Editor, Cable Digital News