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Some New Year's Resolutions for Cable

Michael Harris
12/28/2006

Entering the New Year, we can't help but reflect on the past year, and of course, set resolutions for a new-and-improved annum. Whether it's making more time for friends and family, eating less, exercising more, or giving generously, one can't help but turn toward virtue.

Inspired by such holiday high-mindedness, consider these 2007 New Year's resolutions for the cable industry.

1. Avoid the temptation to degrade video quality. Cable operators are always eager to squeeze more bits into the same bandwidth. For years, MSOs have used digital compression and encoding techniques to pack their 6 MHz channels with standard definition (SD) programming. Typically, it's about 10 (SD) MPEG-2 streams per channel. But, using techniques like transrating or dual-pass encoding, some MSOs hope to push that to 14 or 16 channels.

Similarly, cable operators usually deliver two high-definition (HD) streams per channel today, with an eye to pushing that to three. It's pennywise and pound foolish. As TV screen sizes continue to grow, cable stands to look bad, literally. (See Cable's Big-Screen Bonanza).

2. Accelerate CE integration. The first business trip of the New Year for many cable execs will be to Las Vegas for the Consumer Electronics Show. There, they will be blasted by CE officials for delays in opening up the cable set-top box market. Despite the one-way CableCARD debacle to date, the FCC may well force the issue this year. (See Cable MSOs Fight for Set-top Status Quo). It's up to MSOs and their suppliers to speed DCAS solutions to market, providing a technically and economically rational path for integrating digital cable services with a wide range of CE devices, like TVs, DVD players, and DVRs.

3. Encourage trade-show sanity. Once again, the National Cable & Telecommunications Association (NCTA) Cable Show and Society of Cable Telecommunications Engineers (SCTE) Cable-Tec Expo will be held in back-to-back months in 2007 -- May in Las Vegas and June in Orlando -- respectively. Make all the excuses you want about differences in attendee profiles and session content, the shows have the same vendors talking to the same customers within six weeks. It's nuts. One of these shows needs to move to the fall. Note to NCTA and SCTE execs for 2007: Book a room, lock the door, and don't come out until this issue is resolved.

4. Get serious about business services. Cable operators have talked a good game in business services for years, and are finally making some headway. 2007 is the year to put the pedal to the metal. The telcos say they want to play in residential video? Fine, but hit them where it really hurts, in higher-margin business services. Comcast Corp. (Nasdaq: CMCSA, CMCSK) CEO Brian Roberts recently highlighted business services as "the next big thing" for the MSO. It's about time. (See Comcast Racing Ahead, But Not Sprinting. )

5. Sell more than speed. Many cable operators are still obsessed with megabit marketing for their high-speed Internet services. It's a dicey proposition. If consumers are trained to value broadband service based solely on speed, all a competitor like Verizon Communications Inc. (NYSE: VZ) needs to do is tout a higher number. Even in the absence of a competitor that can match cable claims, MSOs are essentially rewarding their least profitable (i.e., bandwidth-hogging) customers with every speed boost. Selling speed is so passé. Focus on quality, features, and value for the entire service bundle.

6. Take responsibility for rational Docsis CPE pricing. After years of wrangling over prices with proprietary set-top box and cable modem manufacturers, cable operators cannot contain their glee about the cost reductions that they've seen, thanks to the Docsis standard. Unfortunately, even with Docsis modems now selling for under $30 apiece and PacketCable E-MTAs for less than $60, MSOs continue to tighten the screws on vendors. At the same time they're pushing further price cuts, MSOs are asking chip suppliers to spin new silicon for Docsis 3.0 and vendors to deliver new product.

Get a grip. These are products that generate $30 to $70 per customer in perpetual monthly revenue. An extra buck or two on the box price gives vendors enough margin to keep investing in cable innovation. The capital payback period for MSOs on the extra nickels and dimes? Probably about a week. It's a good investment.

7. Lift wireless off the ground. Through their Sprint Corp. (NYSE: S) joint venture, several leading MSOs have been testing mobile services in the U.S. The coming year is the year to start deploying them, and not just as a quad-play add-on. Let's see cable's initial mobile offering fully integrated with residential telephony and Internet communications -- linking voicemail and email, with call forwarding/following coming next. For 2008, dual-mode handsets and video integration top the to-do-list.

— Michael Harris, Chief Analyst, Cable Digital News

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