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Docsis 3.0: The Competitive Hedge

Will 2008 be the cable industry's big kickoff year for Docsis 3.0?

Judging from the recent pronouncements by several major North American MSOs, there's good reason to believe it might. In its earnings call last month, Comcast Corp. (Nasdaq: CMCSA, CMCSK) affirmed plans to roll out the next-gen broadband spec to 20 percent of its footprint by year's end. Both Charter Communications Inc. and Mediacom Communications Corp. say they plan to start testing Docsis 3.0 equipment later this year. And Vidéotron Telecom Ltd. , one of Canada's biggest cable operators, has unveiled a new ultra-fast wideband service that uses "pre-Docsis 3.0" technology.

And yet, as we'll explore in Docsis 3.0 Strategies, a Light Reading Live! event being held March 19 in Denver, the answer to this question appears to be more of a decided maybe. While some major cable operators around the world are scrambling to deploy Docsis 3.0 as soon as possible, others are taking their time.

For example, take Time Warner Cable Inc. (NYSE: TWC) and Cox Communications Inc. . Unlike Comcast, neither TWC nor Cox is expected to launch Docsis 3.0 in 2008. Both seem content to wait until sometime next year to introduce the channel-bonding spec, which will enable cable operators to offer shared speeds of more than 100 Mbit/s upstream and downstream. As Jay Rolls, senior vice president of technology for Cox, put it at an industry forum last year: "We're not dying for this. We don't need it tomorrow."

Or take Rogers Communications Inc. (NYSE: RG; Toronto: RCI): Unlike the bolder Videotron, Canada's largest MSO has adopted a wait-and-see attitude about Docsis 3.0. Like Time Warner and Cox, Rogers doesn't plan to begin rolling out Docsis 3.0 until 2009, at the earliest.

The same contrasts in MSO strategies can be seen elsewhere in the world, even within the same companies. In Japan, for example, Liberty Global Inc. (Nasdaq: LBTY)'s Jupiter Telecommunications Co. Ltd. (J:COM) has already signed up 17,000 subscribers for its new pre-Docsis-3.0 wideband service, which offers shared download speeds of up to 160 Mbit/s. But in its Western European and Latin American markets, the international MSO has no intention of introducing such blazing speeds any time soon.

The chief reason why some cable operators are embracing Docsis 3.0 so tightly and others are not is the state of telco competition. Comcast is facing strong challenges from Verizon Communications Inc. (NYSE: VZ)'s growing fiber-to-the-home (FTTH) network, FiOS. Verizon, which tangles with Comcast up and down the East Coast, has now signed up more than 1 million FiOS TV customers and more than 1.5 million FiOS Internet users.

Similarly, in Japan, J:Com is fighting an uphill battle against the entrenched FTTH networks of the incumbent phone companies. So the MSO, like Comcast and others, is turning to Docsis 3.0 as a way to match the soaring transmission speeds of its rivals.

But the threat of stiff competition is not prompting all MSOs to move so fast. In the New York area, for example, Cablevision Systems Corp. (NYSE: CVC) doesn't aim to deploy Docsis 3.0 until at least the end of the year, even though it arguably faces greater FiOS competition from Verizon than anybody else.

Clearly, there are other factors at play, as well. Some MSOs are not racing to test and deploy Docsis 3.0 because, well, there simply isn't all that much equipment to test and deploy right now. While Cable Television Laboratories Inc. (CableLabs) has so far approved cable modem termination systems (CMTSs) from three vendors – Arris Group Inc. (Nasdaq: ARRS), Casa Systems Inc. , and Cisco Systems Inc. (Nasdaq: CSCO) – it has not yet certified any cable data or voice modems. So cable operators must either take their chances with gear that hasn't been approved, or wait until the first certified modems pass muster this spring or summer.

At the same time, other big MSOs, such as Cablevision, are proceeding cautiously because they don't see the crying consumer need for Docsis 3.0's high speeds just yet. They believe they can match any telco offering (for the time being) with their existing Docsis 2.0 networks, which they are confident can deliver download speeds of 30 Mbit/s or more.

Indeed, even Videotron, the North American poster child for Docsis 3.0, isn't using its new channel-bonding, wideband architecture to offer shared downstream speeds higher than 30 Mbit/s and 50 Mbit/s; nor does it plan to do so in the near future, even though it successfully tested download speeds of 100 Mbit/s and greater in beta trials with Cisco.

"We want to gear our services to the majority," Manon Brouillette, Videotron's senior vice president of marketing, content, and product development, told analysts last month. She noted that Videotron officials "determined that speeds of 30 Mbit/s and 50 Mbit/s suited the needs of the market, as well as consumer demand, existing technological capabilities, and the Internet chain."

So yes, the Docsis 3.0 era may be starting this year. But it's going to be a while before it firmly takes hold.

– Alan Breznick, Senior Analyst, Heavy Reading

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