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Cable/Video

No Oasis in Cable Market

ANAHEIM, Calif. -- For networking vendors trying to woo cable MSOs (Multiple System Operators) here, making the sale is easy, but closing the deal requires a saint's patience.

The good news for equipment hawkers is that the case for upgrading cable plants and adding network capacity has been made a thousand times over. The bad news is that in this tough economy, many of the services that would chew the largest chunks of network capacity, such as voice over IP, are painfully slow in coming.

Cable operators are now getting broadcast competition from satellite providers such as Echostar Communications Corp.'s Dish Network and Hughes Electronics Corp.'s (NYSE: GMH) DirecTV. In order to hang onto customers and win new ones, they've got to offer digital services such as high-speed Internet access and phone service, industry watchers say; therefore, MSOs need to have the network capacity to handle new services.

But there are some problems. For one thing, there are the RBOCs, which don't take kindly to the thought of losing their stronghold to a bunch of cable guys. "Competitive forces in the voice market are daunting," says Richard Greene, president and CEO of Cable Television Laboratories Inc. (CableLabs).

Also, voice services have not been the most profitable thing for providers yet. UnitedGlobalCom Inc. (UGC) chief financial officer Rick Westerman says that high-speed Internet is the most profitable service his company offers. Telephony services were third on the list in the markets UGC serves and, therefore, aren't getting as much investment.

There's also the problem that some new service rollouts are hampered by cable providers needing to figure out how to bill for them properly and integrate the new services with the old. Cable has the potential to deliver many services over one pipe, says Vincent Dureau, chief technology officer of OpenTV Inc. However, many times the MSO's back office operations are "just silos of different services and billing systems."

But what about the overseas markets? Weren't they supposed to be the savior of the slumping U.S. networking equipment business? "Yes," say attendees here. But at the same time, many wonder whether the marked growth seen in some Asian markets signals another bubble waiting to burst. "You don't hear a lot about profitability in China, yet you see a lot of money chasing money there," says Michelle Sie Whitten, president and CEO of Encore International Inc..

As if that weren't enough to give equipment vendors some more stomach acid, there's also the age-old story of the declining capital spending. Westerman, for example, says that UGC's capex has fallen to about $400 million in 2002 from "just under $2 billion" in 2000. Largely, he says, it is because the company has completed its network upgrades.

So where does that leave equipment vendors? They have to do what they've always done -- build faster boxes, for less money, while giving operators the option of turning on incremental features so they can bring in more revenues. "One of the best ways to reduce capital expenditures is to try and put as many services across the same network instead of running two or three different networks," says Carson Chen, vice president of Cisco Systems Inc.'s (Nasdaq: CSCO) cable business unit.

Putting its money where its mouth is, Cisco announced upgrades to two of its cable head end routers -- the uBR10012 and the much smaller uBR7246VXR -- on Tuesday (see Cisco Spruces Up Products). In both cases, Cisco beefed up the capacity of the routers and baked in the ability to turn on services such as MPLS virtual private networks, giving operators another tool with which to extract revenues from the pockets of their subscriber base.

Chen and others here say that when the cable network upgrades do happen, the equipment in demand will more resemble the highly reliable carrier-class gear in telecom networks with optical interfaces that rival the T1 services provided by the RBOCs.

How fast the MSOs will move, however, is anyone's guess.

— Phil Harvey, Senior Editor, Light Reading
www.lightreading.com
whyiswhy 12/4/2012 | 9:14:59 PM
re: No Oasis in Cable Market "Also, voice services have not been the most profitable thing for providers yet. UnitedGlobalCom Inc. (UGC) chief financial officer Rick Westerman says that high-speed Internet is the most profitable service his company offers. Telephony services were third on the list in the markets UGC serves and, therefore, aren't getting as much investment."

1) With the most expensive portion of the job being the install of the backhaul, high speed internet and voice services basically happen at the same time.
2) RBOCs are too busy fighting in the wireless frontier to fend off serious atttacks on what had been their exclusive turf. They depend on the positive returns from voice and internet to give away wireless phones and minutes.
3) Cable rates are going up, and people are going to satellite...true. But satellite cannot do local calls (or the internet for that matter) without the time delay to GEO and back. That is very irritating on voice, and at least an annoyance on the internet.
4) Bundling TV, VOD, IP, and VoIP services with a net discount is the game for cable to play, and they are the only ones that can.

Cable MSOs are positioned to take it all...if they wake up and move.

JMHO

-Why


MrLight 12/4/2012 | 9:14:53 PM
re: No Oasis in Cable Market WhyIswhy your statement "Cable MSOs are positioned to take it all...if they wake up and move." could be appended with - and if the ILECs don't wake up and move.

The MSO game plan of wiring as many homes as possible, first analog TV, then analog radio, then upstream security alarm monitoring, then pay-TV, then specialty content, then digital TV (DTV), then with cable-modem service, then telephone service, then digital radio, next high definition television (HDTV) etc is a good plan.

Clearly the high-bandwidth of coaxial cable has its advantage over the ILEC's twisted pair and the MSOs are using it for almost all it is worth.

But the ILECs have made it much easier for the MSOs. Look at the past with ISDN as an example where the ILECs had an early opportunity to control data on the network and they let it pass. The ILECs could have billed for data per minute, now it is free. [Hey that is a good thing though for the users.]

But more importantly the ILEC's replace "3 to 4 per cent of their copper twisted-pair subscriber lines because of physical detioration. They also add 1.5 million lines annually to newly built homes."

But the ILECs are "largely ignoring the opportunity to use fiber for these installations." or even run fiber and twisted pair at the same time for these installations. Amazing.

So MSOs, wake up and move while the ILECs sleep or ILECs wake up and move while the MSOs sleep.

Personally I hope both wake up and start moving.

One last point, we must not forget that the MSO's coax tree infrastructure that is so great for residential broadband services is their achilles heel for business users. The opposite could be said about the ILEC twisted-pair point-to-point infrastructure.

MrLight ;-)

P.S. Source for my numbers above is from "Paving the Last Mile with Glass", by Paul E.Green Jr. , IEEE Spectrum Dec.2002.
whyiswhy 12/4/2012 | 9:14:43 PM
re: No Oasis in Cable Market Only the threat of competition got them moving in 98...even then it took them two years to figure out that someone was really going to threaten them. Then they overbuilt long haul and forgot local, because the FCC got bought off.

The lesson is: only forced competition can get a natural monopoly to spend: it is much more profitable to just milk the cow on fully depreciated assets.

Don't get me wrong: the MSO's have their own game plan: only enough backhaul bandwidth for VoIP is all they really want to provide in step one. Low speed (DSL) internet at first, then up the speed a bit...slowly, slowly....as you raise the rates. Minimal investment / maximum revenue.

But I agree: they better move, RWDVD is here and it is cheap. That threatens their VoD revenue stream big time.

-Why
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