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Cable MSOs Set to Win?

Light Reading
News Analysis
Light Reading
2/21/2002
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Cable operators stand at the threshold of a massive broadband opportunity, one that could put them in possession of a substantial portion of the next-generation services market. But getting there will be a life-threatening challenge.

So says the latest report from the Optical Oracle, Light Reading's monthly subscription research service. Titled "Cable Broadband: The Sleeping Giant?" the report describes the evolution of cable TV providers into multiple system operators (MSOs) whose potential in the broadband market equals or exceeds that of their telecom rivals.

These MSOs will spend roughly $13 billion this year on capital equipment, much of which will go toward optical equipment and fiber to upgrade their broadband facilities. They're already developing their own state-of-the-art router backbones, rather than relying on third-party providers for Internet connectivity. They're also becoming tougher competitors with telecom carriers, developing tools that enable them to offer services with higher levels of quality and security, erasing a major differentiator for traditional telecom broadband providers.

It's a process that's evolved over the past decade. Since the early 1990s, MSOs have aggressively built out their last-mile fiber and access facilities and run rings around metropolitan areas in a bid to compete with telecom providers. Now, the demise of many CLECs, a series of mergers and acquisitions, and the bankruptcy of [email protected] have set the stage for a small group of regionally dominant companies to take the market by storm.

"Cable is now a formidable competitor against all established broadband access players," says Optical Oracle research analyst Christopher Bulkey. "The cable operators are now well positioned. They have a good grip on a broadband customer base."

The MSOs are in a more financially favorable place than many of their telecom counterparts. Among a series of comparisons, the report breaks out the ratios of capital spending to revenues, over time, for telecom providers versus MSOs. While the telecom providers allowed their capital spending to exceed revenue by better than 100 percent in 2000, the MSOs held their ratios below 50 percent. Now, while telecom providers continue to pay the price of overbuilding, cable operators aren't as strapped.

Bulkey anticipates MSO spending in 2002 to be comparable to the $13 billion figure of 2001, perhaps slightly lower. The telecom carriers, in contrast, could see capex reductions higher than 30 percent.

But nothing's guaranteed. The MSOs face considerable challenges if they're to make use of the opportunity ahead. And there's plenty of chance to drop the ball.

Key will be picking the right services mix. Misreading subscribers’ and potential subscribers’ desires can lead to dire consequences. Video on demand, voice over IP, residential TDM phone service, games, and other emerging broadband services have separate sets of pros and cons, outlined in the report. Weighing these carefully will be vital to planning successful strategies.

For example, if the MSOs invest too heavily in VOIP (voice over Internet protocol) and the market takes too long to develop, they could be at financial risk.

The risks are high, but the rewards are in sight. Depending on how well they can step up to the plate, MSOs could move up to the first string of broadband service providers.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.

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ivehadit
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ivehadit,
User Rank: Light Beer
12/4/2012 | 10:54:38 PM
re: Cable MSOs Set to Win?
i understand the need to preserve the real meat of the analysis for paid customers, but mary's article leaves one hanging a little. For example, it would be nice to know why cable can just tumble if VoIP doesn't take off. Is that such a big part of the expense/revenue equation? Will the new broadband network need user fees for premium content, and if so, what kind of content is envisioned. If nothing else, Mary, at least give us a table of contents of the Oracle report. Or tell us about the key business case factors that will make this investment work. Right now you leave us hanging. (i know the rhetorical answer to this, so please spare us, scott).
Lighteating
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Lighteating,
User Rank: Light Beer
12/4/2012 | 10:54:34 PM
re: Cable MSOs Set to Win?
Rogers Cablesystems in Canada is rolling out VOD for its subscribers, first for those in Toronto area and the balance of subscribers later this year. Interesting for a number of reasons -
1) Posters to CORV list consistently said VOD would never happen.
2) Rogers runs video rental outlets and must see VOD market and rental market as 2 discrete markets such that they do not cannibalize rental revenue through VOD introduction. Assume they see availability of VOD as acting to increase cable subscriber base.

WOuld be interersting for LR to illuminate suppliers and network config Rogers is using. If this works others will likely seek to duplicate.
Cheers!
johnjohn
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johnjohn,
User Rank: Light Beer
12/4/2012 | 10:54:32 PM
re: Cable MSOs Set to Win?
If there is any hope for a recovery in the telecom market, it will be because the MSOs represent the only threat to the incumbent service providers.
Ray L.
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Ray L.,
User Rank: Light Beer
12/4/2012 | 10:54:31 PM
re: Cable MSOs Set to Win?
The planned capex from top 7 (now 6) MSOs is about $14.5 billion. Hard to believe that 90% goes into optical equipment & fiber.
fanfare
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fanfare,
User Rank: Light Beer
12/4/2012 | 10:54:23 PM
re: Cable MSOs Set to Win?
Insight Communication (I believe the ticker is ICCI) has offered VOD for about 3 years now. This Cable Co IPO'd about 3 yrs ago(if memory serves) and had a VOD called DIVA prior to the IPO.

Could someone shed some light on how cable companies recieve their programming? Are they all Sat Coms? Do any of them, currently recieve programming via optical transport?
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/4/2012 | 10:54:20 PM
re: Cable MSOs Set to Win?
Insight Communication (I believe the ticker is ICCI) has offered VOD for about 3 years now. This Cable Co IPO'd about 3 yrs ago(if memory serves) and had a VOD called DIVA prior to the IPO.

Could someone shed some light on how cable companies recieve their programming? Are they all Sat Coms? Do any of them, currently recieve programming via optical transport?
_____________________

Your post seems to be an attempt to influence people into buying ICCI. I'll play devils advocate and let people choose for themselves.

First, I won't buy stock when insiders are selling regardless of their diversification claims. It reveals to me they believe the market has overpriced the stock. They wouldn't sell if they believed it were undervalued even to diversify. Would anyone?

Second, the arguement of losing money when gaining subscribers doesn't scale. Figuring out how to make money with new subsribers seems preferred.

"Net loss before extraordinary item applicable to Common totaled $52.3 million vs. an income of $3.4 million. Results reflect an increased number of subscribers, offset by the absence of investment gains."

To your VOD distribution question, I was told most MSOs use use satellite from content owner to MSO VOD server. Eventually these satellite links will be replaced by fiber networks.
sauron5
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sauron5,
User Rank: Light Beer
12/4/2012 | 10:54:08 PM
re: Cable MSOs Set to Win?
As an employee in telecom, I like to discuss tech
just as much as anyone else. As a consumer I am
really fed up with paying Verizon $30 for local
phone service, Cable Co. brand of the month $40
for cable, and not to mention ADSL, Cable Modem
or whatever for Data. I rejected ADSL and Cable
Modem and use NetZero on dialup for e-mail etc.
(hey, it's free)

As a consumer what I really want is all of this
combined on Optical Fiber, Cable or whatever for
less than $50 a month. They can lick their chops
all they want but the industry won't move forward
until it happens. We can all just watch telecom
die for lack of CLEC vs. RBOC vs. CO vs. etc. real
competition. It's only my job at stake after all?



Sauron (Why can't I have a T1) MellonCollie
fanfare
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fanfare,
User Rank: Light Beer
12/4/2012 | 10:53:40 PM
re: Cable MSOs Set to Win?
Thanx for addressing my question. As for me trying to influence ppl regarding ICCI... I'm not sure what part of my post you are referring to ... I have no interest in ICCI other than they seemed to be a pioneer for VOD. I mentioned it only to respond to a post about VOD. I'm more concerned about Sat Comms being replaced by fiber .. as I am heavy in telecom. I hope you are right about that.

rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/4/2012 | 10:53:39 PM
re: Cable MSOs Set to Win?
Thanx for addressing my question. As for me trying to influence ppl regarding ICCI... I'm not sure what part of my post you are referring to ... I have no interest in ICCI other than they seemed to be a pioneer for VOD. I mentioned it only to respond to a post about VOD. I'm more concerned about Sat Comms being replaced by fiber .. as I am heavy in telecom. I hope you are right about that.
_______________

Sorry for my misjudgment of your intentions.

As an FYI, distribution of video to the head ends via fiber, head ends numbered in the tens of thousands, is more of a convenenience than a need. Also note, tens of thousands of somethings with expected lifetimes of 5-10 years doesn't generate enough revenue for an equipment vendor, in my opinion.

PS. It may be prudent for those that remain heavy in telecom after the effects of the burst to look to other industries for their next investment dollars. Personally, the industries which I find interesting are healthcare (not including the human genome), home improvement, natural gas, and water filtration. (I also dabble in next gen consumer electronics because their fun)

Those chasing the remains of what's left in the telecom industry should realize that the big and smart money will be buying back their quality young companies and the established companies will likely consolidate. This probably won't benefit the individual investor nor the startup too much.
gregt
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gregt,
User Rank: Light Beer
12/4/2012 | 10:51:39 PM
re: Cable MSOs Set to Win?
The biggest use of new optical network equipment by MSOs will likely be in support of their roll-outs of VOD, but its not as much for content distribution to the video servers (where you only need to transfer each new title once), but in supporting MPEG-2 video transport from centralized video servers in the regional headends or primary hubs over the fiber rings to "EdgeQAM" devices in the secondary hubs. The "EdgeQAM" devices perform the MPEG-2 multiplexing, QAM modulation, and RF upconversion functions which then feed the QAM channels use for VOD into the RF combiners used to feed the HFC optical nodes for each service area.

I see this most likely using emerging GigE over DWDM technology (as in Metropolitan GigE) possibly optimized for VOD with unidirectional GigE link support to save long-reach ITU-T Grid DWDM transmitter and mux costs in delivering the basically unidirectional MPEG-2 SPTS video stream flows over UDP/IP/GigE.

The decreasing cost of transport combined with the operational cost benefits of a more centralized server deployment I believe are making this a preferred approach down the road for VOD deployments.
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