Back to the (converging?) future

Tue, 12/31/1996 - 7:00pm
Michael Lafferty

As the new year gets underway, a fair number of the technology, new service and roll-out predictions of 1996 have fallen to the wayside. Whether it's financial woes, technical glitches or regulatory hassles, the converging telecommunications nirvana has not quite lived up to its hype...again.

A good deal of the resulting frustration can probably be laid at the door of one T.M. Anticipation, known as Too Much to friend and foe alike. But as the cable modem specification effort of the MCNS group takes hold and digital set-tops are finally being delivered to frustrated, foot-tapping operators, a growing number of industry professionals seem to be welcoming Mr. Anticipation back in the door.

CED took to the phone and fax lines to query a handful of industry insiders to get their views on what 1997 may have in store for one and all, as well as what's the one piece of equipment they would produce if the R&D genie (who lives in a beat-up Sprucer set-top in a New Jersey warehouse) gave them just one wish.

This informal panel consists of: Alex Best, senior vice president of engineering for Cox Communications Inc.; Jim Chiddix, senior vice president of engineering and technology for Time Warner Cable; Pete Smith, vice president of engineering for Rifkin & Associates; and Joe Van Loan, senior vice president and chief operating officer at MediaCom.

An edited transcript of their replies follows.

What's the one emerging technology you've heard about or seen recently that you think will have a big impact on the industry?

Alex Best: "Statistical multiplexing. It takes compression one step further, where we can put not just six channels in a 6 MHz bandwidth, but possibly in the neighborhood of 10 to 20 channels, depending upon the nature of the video. Obviously, that would provide a great boost to systems that are already full of analog services and need to remove some of those to have digital services. Of course, Imedia is the first company to demonstrate this product. But I wouldn't be surprised to see other companies offering similar products before too long."

Joe Van Loan: "Well, probably a little further in the future, compression will undoubtedly change our business. On the plus side, it will enable companies like ourselves to offer more programming. On the other hand, once the broadcaster gets something like Imedia, and in 6 MHz he's able to put perhaps 18 or 20 independent streams on his channel, that means more and more combinations.

"And cable modems are going to have an impact to the extent we get going with them and not lose our window of opportunity. It's not a necessarily tight window, but the sooner, the better. I still think we're still OK on this, but the clock is running."

What's a realistic timetable for general deployment of digital cable TV? When will you deploy it widely?

Alex Best: "We, as have several other companies, have an agreement with General Instrument to purchase up to 350,000 (digital) boxes. We've taken delivery of 50,000 before the end of 1996. We have a lot of digital boxes now, and deployment, from Cox' standpoint, will occur toward the end of the first quarter in 1997. The delay for us is not the digital box, but the fact we're an investor in StarSight and we'd like to use the StarSight electronic programming guide, and they are working very diligently to get their software into the GI box.

"As far as the industry in general, I think certainly TCI, Cox, Comcast and Charter Communications have all been very vocal about rolling out digital boxes very quickly. Of course, it's both a defensive and offensive tool. It's a defense against the 150-channel satellite service. Offensively, it will enable us to offer more new tiers of service, more multiplexed pay services and lots more pay-per-view services. In its own right, forget the competitive issues. It can help add additional services and therefore increase revenues."

Jim Chiddix: "Well, it's being deployed initially right now by TCI in Hartford. I think we'll see significant volumes this year, and I think we'll see essentially unlimited supplies of hardware in 1998."

Pete Smith: "In general, I see a worthwhile deployment of digital television in the second half of this year. When will we deploy it widely? Phew! That's going to depend an awful lot on the cost of the box. I think there's still a problem here with the $400 box cost.

"Here's an interesting thought for you, though. There are rumors around that the cost of the digital set-top that's being used by folks like DirecTV and Echostar is around $200. That box is essentially, in nearly all respects, very similar to the box that we're proposing to use. So why is our box $400? Do we simply have the wrong manufacturers involved, that are looking for higher profit margins? Or, have we put artificially high parameters on what that box has got to have in it and that sort of thing?"

In regard to firing up the reverse channel/path, on a percentage basis, how much do you have fired up now? How much do you think you will have fired up a year from now (percentage-wise)?

Alex Best: "Cox, throughout all of its franchise areas, has 50,000 route miles of coaxial cable. By the end of 1996, 10,000 of those miles will be two-way activated, which represents 20 percent of the total. And we will activate approximately another 20 percent each year for the next four years. So, we're on track to completely convert our systems to two-way cable."

Jim Chiddix: "We have 6 million homes passed with upgraded HFC, two-way plant at the end of 1996. We'll have 9 million by the end of 1997, and we'll have essentially all of our systems upgraded by the year 2000."

Pete Smith: "Right now, we've got about 5 percent of our plant fired up. A year from now, it's going to be in the 20 to 25 percent area.

"As we're activating rebuilds, it turns out manufacturers like to sell you the reverse path stuff because it's easier for them to make one model than it is to have several variations of that model. So, they kind of provide incentives for us to buy things with reverse active. In terms of the amplifiers, it's somewhat true. Also in the fiber equipment. So, we're going and putting the stuff in because it's not that much extra cost, and then the cost to activate, as long as you're doing the forward path as well, is not huge. It makes huge economic sense now, because it's a lot less expensive to go back into an older system, buying the modules and going out and installing them as a separate task."

Are technologies that provide Internet access through TVs a compliment or a threat to PC/cable modem development?

Alex Best: "Well, we see it as a complimentary service. Basically, somewhere between 30 and 40 percent of the homes have PCs. Of course, that obviously isn't going to 100 percent anytime soon. So there's going to be a relatively large percentage of the market without a PC, and therefore, a Web TV-type service would be very attractive to those customers. On the other hand, those with PCs, obviously we'd like to serve using the high-speed data modems that have been in development for a number of years."

Jim Chiddix: "It's clearly complimentary. But, we'll see how it works. The WorldGate stuff is for analog set-tops. The Pegasus digital set-top has built-in capabilities to do Internet television with the addition of the appropriate software application. All the communication and computing capability is already there."

Joe Van Loan: "I spent a day with them (WorldGate) recently. It's kind of interesting technology. In some ways, it can be a complimentary service. On the other hand, 'Net surfing is a very personal thing, and TV watching tends to be a group thing. And I don't think there's going to be anything more boring than 'Net surfing with a crowd. If you think remote channel surfing causes people grief, wait until they start surfing the 'Net in a room full of people.

"But there are certain activities that WorldGate is talking about, what they call hyperlinks where somebody pops up an Internet address on TV, and you can actually branch out and go to that address. That's sort of a keen idea."

As a viable service, has the cable telephone line gone dead? Do you think it will be re-connected as a viable service before the year 2000?

Alex Best: "We're pursuing both high-speed data and cablephone service with an equal amount of enthusiasm. There's no question that with respect to high-speed data, we don't have any real competitor you might say, other than ISDN, and that's a lot slower and not universally available. So, I can understand the enthusiasm to go after the data service. And besides, quite frankly, it's a little easier from a regulatory standpoint. It doesn't take an interconnection agreement with a Bell company.

"On the other hand, we've done some surveys in our systems and we've spent a lot of time and effort on customer care over the last five to 10 years since I've been at Cox. And at least our surveys say somewhere between 20 and 40 percent of our customers would take cablephone service from us. So, we view that as a very strong response and a great opportunity. So, we're putting into place all the pieces that we need to do cablephone service, such as NEBs compliant headend facilities, and we've bought eight switches and are upgrading our powering system to be central-node powered. We're going after both services with the same amount of enthusiasm."

Jim Chiddix: "Well, I think there are regulatory uncertainties right now. But we're very confident the technology and the plant will work very well, based on our Rochester experience.

"As far as large-scale industry deployment of the service by the year 2000, I think there are some unknowns. Again, if the business case makes sense, we can clearly do it, but the question is, what will the regulatory landscape be like?"

Joe Van Loan: "You have to remember it took MCI nearly 20 years to get to a 10 percent penetration level. And when you're talking about cable entry into telephone, we'll be successful if we have 10 percent in maybe 15 or 20 years. Obviously, we've got a lot of work to do, so I wouldn't say, 'Don't worry.' We've got an education (process) we've got to get over with. We ought to be making a flurry about this as we get the experience and get some recognition as a provider of something other than entertainment."

Pete Smith: "I think there are still some technical issues there that need to be solved. They are primarily power and reliability. But that doesn't mean we can't be in the 'telephone business' through other means. There's the English model in which they ran fiber out to the nodes, and then they ran twisted pair from there along side of the coax. There's resale. Maybe there's a business there which would use more of our marketing capabilities. It doesn't necessarily mean we have to run it through our network. There's a lot of guys out there that make a ton of money in long distance resale, and they've got virtually no facilities whatsoever."

There were rumblings in CED's 1996 salary survey that the cable industry wasn't prepared for competition and that it was due, in many respects, to inadequate training of industry personnel. In your view, where are the critical training needs for operators?

Alex Best: "We've hired the people with the technical skills in telephony, data networking and computers. We have written and put together training programs which we're now beginning to roll out into the systems where we're going to offer those services first. So, we're training our technical people to be able to deal with both telephone and data services in the home.

"But, let me say, our point-of-view is that when one of our cable technicians enters a home and comes face-to-face with, in many cases, a very complex internal wiring scheme for video, VCRs and set-top convertors, and then they try to put those pieces together so that they can be easily used by the consumer, I would contend that hooking up a computer or telephone is certainly no more difficult. It may be different, but it's not more difficult than what we've done in the past. I feel confident about it, although we may stub our toes a time or two, we'll overcome it. I contend we'll be the first to get the call when the customer needs help with their computer or with their telephone, as we do today with their television."

Joe Van Loan: "I think it's going to take better training in the fundamentals. If we're going to offer good customer service, our people have to know how to do their jobs both from a customer service standpoint and from an efficient use of resources standpoint. As I go around, people more and more are training their office people to help the customers through problems by phone, rather than having them take a day off work to wait for the cable man. Even small companies are doing that. They appreciate not only the customer service aspects of that, but the efficiencies they're building into their organization. If they can cut their service call rate in half, then they can put those technicians on to other activities."

If you could wave your magic R&D wand, what product would you create that doesn't exist today? Why?

Alex Best: "Basically, what I would like to see is a box you would mount on the side of the home that would let you provide multi-functions, such as video, voice and data, as opposed to what we call the appliance solution which we have today.

"This solution means a different box for each service. So, if I had a customer that wanted digital video, voice and data from me, I'd essentially have to put three boxes in the home. And those boxes are all in the neighborhood of $400 each, so I would have $1,200 invested in the home in just appliance hardware.

"Since they're all services coming down the network in a digital bitstream, it appeared to us that a large degree of integration was possible. Such that this box on the side of the home could be connected to the internal telephone network, to the computer through a computer cable and to the television set, and possibly what we would call a "dumb" set-top/MPEG-2 decoder.

"We've actually been to Stockholm and seen a demonstration of this product at the Ericsson lab. Of course, digital set-tops have the ability to provide a data stream imbedded in the video bitstream. So you're already starting to see some of the vendors trying to at least put two of the three together."

Jim Chiddix: "Full-blown, large scale integrated circuits or the next generation large-scale integrated circuits that will speed the introduction and lower the costs on modems and set-tops. It will take time, the next generation is probably a year or so away."

Joe Van Loan: "As we get into a more competitive arena, with lots of channels, navigational aids are going to become increasingly important. I see it as one of the things that are maybe not fully developed on the advanced analog set-tops as of yet. Even things to make the VCR easier to use, we've still got opportunities there."

Pete Smith: "What I would really like to see is a $100 cable modem. That's because it would kick-start the business. It would jolt the Internet access business and really get things going. Plus, it becomes a consumer device rather than a cable operator device. If it's a standardized modem that everybody's making, then a guy goes to the store to buy a computer and they say, 'Which modem do you want? RF or telephone?' And if they buy it with their computer at the store, I just have to hook it up.

"As far as how much this would speed up modem penetration, I don't really know. People are asking me all the time to predict where we're going to be in terms of Internet access penetration in the next couple of years. And that's very tough to do because there is absolutely zero history out there. But, I would say probably it could come close to doubling it. That's because if you lower the price of that thing, that gives me more flexibility in terms of how I market service. And the financial folks are going to be a little more lenient about budgeting things up front. Whereas, if I've got a $400 modem that I'm buying now, I'm less inclined to be giving a whole bunch of that away. I'll probably do some discounting, but not much more."



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