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Cable/Video

Arris Wins at Time Warner Cable

Arris Group Inc. (Nasdaq: ARRS) and LiquidxStream Systems Inc. have together scored a sizeable chunk of Time Warner Cable Inc. (NYSE: TWC)'s edge QAM business through the end of 2011, a buying decision that will put significant pressure on one of the MSO's other key suppliers, BigBand Networks Inc. (Nasdaq: BBND).

Arris has secured the bulk of that business in this round, in line for between 55 percent to 65 percent of it, multiple industry sources tell Light Reading Cable, noting that the cable operator's decisions were handed down earlier this week. The financial terms aren't specifically known, but it's believed that TWC edge QAM capacity needs -- for switched digital video (SDV), video-on-demand (VoD), and Docsis 3.0 -- through the end of next year could be worth $25 million or more.

Notching the TWC deal is a big boon for Arris and its D5 edge QAM. Comcast Corp. (Nasdaq: CMCSA, CMCSK) selected the Arris edge QAM (along with gear from Harmonic Inc. (Nasdaq: HLIT)) for SDV back in 2007, but the MSO is just now starting to get aggressive with rollouts of the bandwidth-saving technology. (See Comcast Taps Arris for Edge QAM Initiative and Comcast Getting Ready to Uncork SDV.)

Getting in at TWC serves as a springboard for LiquidxStream, a startup (see our profile) headquartered in Montreal and run by former Videotron Ltd. exec François Laflamme. It officially entered the cable edge QAM sector in early 2008, touting one of densest edge QAMs in the market at 36 QAM channels per RF port, or 576 QAMs per device. (See LiquidxStream Enters E-QAM Race .)

But how much of the TWC edge QAM business LiquidxStream has obtained so far isn't known. One source put it in the neighborhood of 30 percent, but another with more direct knowledge of the MSO's purchasing activities said that number "is far, far too high" for LiquidxStream, but pretty much spot-on for Arris. Regardless of how the share shakes out, both Arris and LiquidxStream were indeed qualified for edge QAMs at TWC going forward.

Likewise, other suppliers are still in line to compete for the balance of the business that has not already been secured by Arris. So that means BigBand, along with edge QAM rivals such as Harmonic, Cisco Systems Inc. (Nasdaq: CSCO), and Motorola Inc. (NYSE: MOT), still have a shot.

"More [edge QAM] business will be up for grabs in 2011," a source said, noting that TWC is just now entering its 2011 budgeting process

But how that goes could be especially critical for BigBand, which currently counts TWC, a champion of SDV technology, as its largest customer. In the second quarter, TWC accounted for 36 percent of BigBand revenues, followed by Verizon Communications Inc. (NYSE: VZ) (22 percent).

BigBand is already predicting a soft third quarter due to expected sluggishness for SDV and edge QAM orders as MSOs assess their capacity expansion plans. (See BigBand: SDV Demand Still Strong.)

Edge QAM pricing 'game-changer'
But, given the latest purchasing round at TWC came up roses for Arris, BigBand will likely have to cut prices if it's to have a chance of winning a significant piece of the edge QAM business that still remains at TWC.

Cable's always been good at pinching vendors on pricing, but TWC is said to be taking it to the next level by hiring Accenture to help negotiate bulk deals and squeeze costs even further. Accenture's screw-turning negotiations tactics were characterized as "ruthless," according to one industry source who's seen them firsthand. Arris, BigBand, and LiquidxStream declined to comment on TWC's edge QAM purchasing activities. A TWC spokesman also declined comment on any new awards, but did note that the MSO "continues to talk to all [edge QAM] vendors."

However, in the case of this round of edge QAM negotiations, TWC, it's been said, wanted suppliers to come in at about $99 per QAM channel. Arris and LiquidxStream were in that ballpark, but BigBand's proposal is believed to be at least 10 percent higher, which put it out of the running. It's unknown if TWC's desired target price also factored in elements such as professional services.

Hitting the sub-$100 threshold comes as somewhat of a surprise. "I didn't think they would get there that quickly," says Infonetics Research Inc. directing analyst of broadband video Jeff Heynen. "That's a game-changer in this space. I thought we had another year left of $120 to $110 or $105."

But turning a decent profit at that price could prove difficult. "Until you get to the volume shipments on the components side, it's going to be hard to make significant margins on that business," Heynen adds, noting that BigBand was believed to be around $150 per QAM channel for TWC's big, relatively recent SDV expansions in Dallas, New York, and Los Angeles. (See Time Warner Cable Relights Its SDV Fire .)

— Jeff Baumgartner, Site Editor, Light Reading Cable

Jeff Baumgartner 12/5/2012 | 4:26:45 PM
re: Arris Wins at Time Warner Cable

Three years ago you couldn't swing a cat without hitting a company that made edge QAMs... since then we've had a relatively natural shakout as some quietly dumped product lines or just didnt' emphasize them so much. But with qam channel pricing hitting $99 it's gonna take some big volumes to make that business work? Is there enough to sustain all of these folks, or at least enough there to keep them all in this game:  Arris, BBND, Cisco, Moto, Harmonic, Vecima... who am i missing who's still a real player here? JB

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