Comcast Pursuing $35 Digital Dongle

Forget about an “all-digital” strategy driven by low-end, low-cost $50 set-tops. The nation’s largest cable operator is on the hunt for an even lower-end digital-to-analog converter device with a targeted price point of about $35 per unit.

Multiple cable industry sources have confirmed that Comcast Corp. (Nasdaq: CMCSA, CMCSK) issued a request for proposal (RFP) late last year for a relatively simple DTA (Digital Terminal Adapter) capable of taking in digital video and converting it into analog form. Although no such product has been produced, it’s believed that it will end up looking like a small dongle rather than a more traditional entry-level all-digital set-top such as the Motorola Inc. (NYSE: MOT) DCT700.

Rumors of the DTA project began to percolate last week when Comcast Corp. COO Steve Burke discussed on the company’s fourth quarter conference call the idea of migrating 20 percent of the MSO’s footprint to all-digital during the “back half” of 2008.

In those scenarios, it’s expected that Comcast will continue to deliver a small basic analog lineup of roughly 30 channels, but move its expanded basic analog tier to the digital domain. In doing so, it looks to reclaim upwards of 40 channels and reapply them toward expanded high-definition services or for fresh spectrum for Docsis 3.0. (See Comcast Spreads the Love and Comcast Closes In on 100 Mbit/s.)

Burke did not get into how Comcast expected to support that transition in customer homes, but it appears that the DTA project could factor heavily into the operator’s strategy.

A Comcast spokeswoman did not address the DTA project specifically, but said the MSO “looks at a number of different concepts and ideas with a number of different people. We’re very focused on the digital transition and we’re committed to helping our customers get through that transition.”

It’s believed that Comcast is looking to order about 25 million DTAs to help power an all-digital strategy cost-effectively for existing analog customers and to support existing digital customers who still have some TVs not connected to set-tops that receive analog programming. The volumes Comcast is considering are similar to what Verizon Communications Inc. (NYSE: VZ) is seeking in a set-top RFP the telco issued last summer. (See Verizon Set-Top RFP Could Be Worth Billions .)

As for the DTA’s simplicity, it’s almost easier to detail which elements likely won’t make it into the device because they are either unnecessary or cost-prohibitive enough to put the $35 target in jeopardy.

As a bare-bones, digital-to-analog converter, the DTA likely won’t house an upstream transmitter, an on-board electronic program guide, or support for the tru2way platform. (See Cable's 'tru2way' Play .)

“It [the project] keeps twisting and changing, so who knows?” says an industry source who has seen the RFP.

Likewise, there’s still some confusion about whether the DTA will support a traditional conditional access system. Because of the costs involved, there’s little chance it will contain a CableCARD interface. Sources familiar with the project suggest that Comcast may opt for a DVB-based encryption format or use even more limited protection because programming offered today on the analog basic and expanded basic tiers is already delivered “in the clear.” A downloadable CA system is another possibility, but considered a stretch at this point.

If a customer wants to use a particular cable outlet to view a premium channel, access video-on-demand content, or other more advanced digital services, they’ll require one of the more traditional (and powerful) CableCARD-based digital boxes.

The CA question
Although requirements for the DTA haven’t been finalized, the project brings up a tricky point involving the Federal Communications Commission (FCC) and the ban on integrated security set-tops that went into effect last July. (See Countdown to 'Seven-Oh-Seven'.)

The FCC has repeatedly denied Comcast’s waiver request for entry-level models with baked-in security, such as the Motorola DCT700, Scientific Atlanta Explorer 940, and the Pace Micro Technology “Chicago” DC501p. Comcast is appealing the FCC’s decision, arguing that the denials are hurting its ability to migrate to digital due to the elevated costs for lower-end set-tops with CableCARD interfaces. Comcast has claimed that the lowest-end CableCARD box from Motorola costs roughly double that of the DCT700. (See Comcast Takes CableCARD Battle to Court .)

It’s still unclear whether the DTAs would qualify for the mandate or if Comcast would require the blessing of the FCC to deploy the devices. Historically, the FCC has been more willing to grant special set-top waivers if operators were likewise willing to migrate to all-digital by the February 2009 digital TV transition. (See Verizon & Others Get Their Waivers.)

Short of going all-digital, U.S. cable operators are on the hook to deliver “must carry” TV stations in analog and digital format for three years after the switchover. (See FCC OKs Dual TV Carriage Rules.) As envisioned, Comcast’s DTA would ensure that the analog TV it’s connected to would be able to display a picture after February 17, 2009.

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An SDV threat?
If Comcast is able to go forward with its all-digital strategy, the move could pose a threat to other bandwidth management techniques under consideration at Comcast.

Chief among that group is switched digital video (SDV), which uses existing bandwidth more efficiently by streaming out only the channels in a “switched” tier when a customer in a given service group selects them for viewing. That granularity also makes SDV an attractive way to deliver targeted advertising, particularly when operators migrate from multicast to unicast.

But Comcast is not exactly giving SDV short shrift, or at least it isn’t yet. The MSO has already identified Denver and Cherry Hill, N.J., as SDV proving grounds. Last week, Comcast CFO Michael Angelakis said the MSO had set enough of the budget aside to light up SDV in about 15 percent of the Comcast footprint this year.

But if Comcast gets behind the analog reclamation project in a big way, it could also endanger the strategies of vendors that are pushing operators to expand their bandwidth to 1 GHz or more.

The DTA approach could also counter BroadLogic Network Technologies Inc. (see profile), another player in the digital-to-analog arena. BroadLogic has developed TeraPIX, a “headend on a chip” video processor that, when installed in a special cable residential gateway, converts incoming digital video to analog as it enters the home. Comcast Interactive Capital led a $17 million “strategic” round of funding in BroadLogic last summer, but that doesn’t guarantee that the cable operator side of the Comcast house will deploy the vendor’s technology. (See BroadLogic Collects More Cable Cred.)

Down with ‘RNG’?
Because there’s no product to speak of yet, it’s also unclear whether the DTA will become a formal member of Comcast’s family of “RNG” digital boxes, which are all expected to support tru2way.

The RNG 1000 is being billed as the high-end media center of the batch. The RNG 200, an HD-DVR with MPEG-4 built in, is considered the workhorse. The RNG 100 is the entry-level box with traits similar to the DCT700. There’s also word that Comcast is working on the RNG 150, another low-end box that supports high-definition.

There is no word yet on who has responded to the Comcast RFP, but industry insiders speculate that Motorola and Cisco Systems Inc. (Nasdaq: CSCO) are among the likely candidates. Due to the price point it’s targeting and the relative simplicity of the design, Comcast may also attract several off-shore manufacturers, as well.

There are also concerns whether any CE companies would be able to achieve Comcast’s desired price point. There’s a sense that vendors may take on the project as a loss-leader and then hope to shave costs as volumes ramp upward.

“I think that someone will blink,” says a source familiar with the project.

Back to the future
This song may sound familiar to people who have followed the cable industry over the past few years. It wasn’t all that long ago that Comcast and other operators were aggressively considering an all-digital plan using a cheap, $50 device as the driver.

“The idea has been kicked around for a couple of years. It’s alive again,” says one cable exec.

The 2003 National Cable Show spawned everything from a wishful idea to a product that’s still being deployed today.

As far as all-digital ideas that were never quite it (or were perhaps too early for their time), Pace Micro used that show to introduce a CA-free, dongle-looking device called the Digital Cable Adapter (DCA) . At the time, the company envisioned the DCA, with significant volume, could sell for $69 per unit. Pace showed off the hard plastic shell of the device’s form-factor, but the running joke at the show was that development on the project was in such an early state that there was likely nothing but air inside.

That show also saw the entry of the Motorola DCT700, which is still being deployed by U.S. operators, at least those who were fortunate enough to get an FCC waiver.

— Jeff Baumgartner, Site Editor, Cable Digital News