Pace's Patience Finally Paying Off

U.K.-based set-top maker Pace Micro Technology jumped the pond in 1999, carrying with it the hopes and dreams that it could crack the rock-hard North American set-top market and those legendarily lengthy cable MSO sales cycles. Only recently has that strategy started to make a considerable impact on the company's bottom line.

Late last month, Pace posted fiscal full-year revenues of £386.5 million (US$781.5 million), more than doubling the previous year's £178.1 million ($360.1 million). More than half of those revenues came by way of its North American division, which helped Pace return to profitability. Shipments to the Americas surged to 1.2 million units, versus 200,000 in the previous fiscal year.

Even so, Michael Pulli, president of Pace Micro Technology Americas, admits his company is not making much of a dent on the market share enjoyed by Motorola Inc. (NYSE: MOT) and Scientific Atlanta , which still hold a duopoly position in the U.S. for cable set-tops and conditional access systems.

"If you look at the installed base, it's a decimal point," Pulli says of Pace's share in the United States. "By no stretch have we figured the market out. But we've turned the corner a little bit. We're on a pretty good path."

Pulli estimates Pace has shipped 2.5 million set-tops in North America, split relatively evenly among cable operators and satellite TV providers. Its MSO customers include Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Bright House Networks , Bresnan Communications LLC , Rogers Communications Inc. (NYSE: RG; Toronto: RCI), Vidéotron Telecom Ltd. , and smaller operators that buy equipment through the National Cable Television Cooperative Inc. (NCTC) .

Being responsible for over half of Pace's revenues is "nice… but the show doesn't end," Pulli notes, "because Motorola and SA are good competitors."

Since planting its flag on American soil more than seven years ago, Pulli's division has grown to 100 people, with engineering and sales teams dedicated to specific segments such as cable and satellite.

"They live, breathe, and die based on how their customer account team does," Pulli says. [Ed. note: It's Extreme Engineering!]

Pace has not disclosed how much money it's put into its Americas strategy, but Pulli believes the company has recouped most of its investment.

Pace is also a different animal from some of the others that have tried to attack the U.S. set-top duopoly, as it has licenses for both the Motorola and Scientific Atlanta conditional access systems. Pioneer (USA) Inc. , which bowed out of the direct-to-MSO set-top business in 2004, made boxes only based on the SA PowerKey system.

Eventually, opportunities for Pace, TiVo Inc. (Nasdaq: TIVO), Digeo Inc. , Samsung Electronics Co. Ltd. (Korea: SEC), Ambit Microsystems Corp. , and other CE suppliers should open further now that U.S. cable operators -- barring special Federal Communications Commission (FCC) waivers -- are required to deploy set-tops with separable security, handled primarily by the CableCARD until downloadable CA systems enter the picture. (See Son of 'Waiver Central' .)

In the early going, Pace, Motorola, and SA have all created CableCARD host versions of their respective set-top families, and look to get most of that business in the early going. (See Boxing Up 'Seven-Oh-Seven' .)

For its part, Pace has developed set-tops that can cut across both systems but, for now, are able to run on legacy Motorola systems as well as those set up to run the OpenCable Platform. For SA-based systems, Pace is waiting for operators to introduce OpenCable.

One vendor that hopes to win business when MSOs migrate to the OpenCable Platform is Advanced Digital Broadcast (ADB) , which recently resurrected its strategy for the Americas. But even they are trying to keep things in perspective. In June, Michael Hawkey, president of ADB Americas, said a 5 percent slice of the pie "would be a great upside." (See ADB Aims for US Set-Top Market .)

— Jeff Baumgartner, Site Editor, Cable Digital News

Jeff Baumgartner 12/5/2012 | 3:04:07 PM
re: Pace's Patience Finally Paying Off I agree that the duopoly will continue on for a long, long time, despite CableCARD, DCAS, etc. That market won't change overnight, but the hope is that more players will join the mix (even at retail) and spur innovation. Will that all happen? Don't know. We'll have to re-ask that question in 2-3 years to see what kind of progress has been made.

As for DSG, the deployment status is worth checking into with MSOs. These new STBs are supposed to support it, but that doesn't mean operators have unleashed it yet.

Kshitij_Kumar 12/5/2012 | 3:04:07 PM
re: Pace's Patience Finally Paying Off Jeff,

It appears that the duopoly of SA(Cisco)/Moto is here to stay, even with the advent of OCAP/Cablecard, etc. Small differences in applications, etc. will not be enough to Cablecos one way or the other. And with open security, it might be a race to $0 for the STB manufacturers - the small (relatively) guys can't survive that.

I'm curious if DOCSIS Set Top Gateways are real yet - has there been any major adoption happening or expected to happen soon?

I'm thinking a DSG STB will enable some exciting things - think a combo TiVo/Sling/Pace STB, throw in Packetcable, open security, OCAP... Now we're talking some exciting potential for applications!

Of course, it'll probably cost too much...
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