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The Broadband Forecast

Tue, 12/31/2002 - 7:00pm
Roger Brown, Jeff Baumgartner and Duffy Hayes

We’ve consulted the double doppler of broadband to help us create a forecast for 2003, estimating which sectors will be hit with cold fronts and which
ones will enjoy sunny skies for much of the year.

VIDEO-ON-DEMAND

Forecast: Hot, hot, hot!

Video-on-demand will continue its scorching momentum in 2003, easily becoming the new service of choice among cable operators.

While MSOs such as Comcast Corp., Time Warner Cable, Charter Communications and Insight Communications drive VOD deeper into their respective markets, 2003 will be marked by the final land grab in the U.S. video-on-demand sector, namely systems operated by Mediacom Communications, Cox Communications and, of course, those former AT&T Broadband systems now under Comcast's wing. Although the three primary VOD players (Concurrent Computer Corp., nCUBE Corp. and SeaChange International Inc.) will get their share of the action, don't be surprised to see a start-up vendor share some business, as well.

In fact, thanks to deployments based on VOD specifications, 2003 will also be the year in which incumbent server vendors share elbow room with budding companies such as MidStream Technologies.

While the fresh-faced server vendors will make some noise in 2003, the sector might see some consolidation among the top three. Expect the ranks of that trio (Concurrent, nCUBE and SeaChange) to be pared down to two–either through a merger or a pull-out by year end.

Regarding content, subscription-VOD will run rampant this year, and I expect more than half of all U.S. VOD deployments to support some form of it before 2003 is out. "Free-on-demand"–a.k.a. "basic-on-demand"–content also will thrive, with at least half of all deployments offering some form of FOD or BOD service by the start of 2004. –JB

HOME NETWORKING

Forecast: Clear and sunny

This is likely the year when home networking technologies turn the corner, at least in the cable operator channel.

Up until now, the market for home routing and connection sharing gear has been limited to a small percentage of tech-savvy early adopters who bought their basic home networking equipment at retail and jiggered basic home configurations themselves. But this year, the demand from the mass market seems to finally be catching up to the technology, as more and more homes add additional PCs and create the need to split their broadband connection and share files among all of their PCs and related devices.

For cable operators, offering home networking set-up, service and support is potentially another way that they can wring some additional dollars from their subscribers every month–and that's just the stuff they're looking for under pressure to develop new sources of recurring revenue. And as the technology continues its evolution toward cheaper and simpler designs, operators will be even more inclined to develop programs to bring these systems home to their subscribers.

This year, expect to see a majority of MSOs adopt at least basic programs that offer home networking gear and support across their footprints. Cox has already laid the groundwork by testing a program regionally that engages its technicians in supporting home networks in customers' homes, and if it can manage to keep the costs down, the MSO will roll it out across all of its markets in the next year. Time Warner Cable has selectively developed similar home networking programs with the same goal. If there's any level of success by any operator, the rest of the market is likely to follow. –DH

CABLE TELEPHONY

Forecast: Partly cloudy, rain possible

Traditional, circuit-switched (a.k.a. constant bit rate, or CBR) telephony technology will again rule the majority of the cable talkways in 2003 as cable operators allow the technology behind its more advanced IP-based brother to sit in the oven for just a tad longer than initially expected.

Cox Communications, which already has dabbled in VoIP, will continue to support its current deployments and possibly add a few new CBR markets to the mix before moving on more advanced trials of a pure-IP telephony set-up, not just IP in the access network.

All eyes will be fixed on Comcast, though, as it supports the telephony-able systems it acquired from AT&T Broadband, and prepares for a mid-2003 launch of VoIP services in the Philadelphia area.

There's no doubt that Comcast's Philly deployment will be a monster event on all accounts, and could serve as a linchpin moment for the domestic cable IP telephony industry. But, if the technology doesn't work as advertised, or if there's a big, extended set-back, it will send crippling ripples throughout the sector. By the same token, if it works relatively swimmingly, it could be the spark that the VoIP industry has been searching for all these long years. A success will also tee up 2004 as the first "boom year" for IP telephony.

In the meantime, the word "integration," which often was blamed as the culprit behind what was considered a slow moving VOD rollout in 2001, will take its act to the VoIP realm in 2003. Before 2002 was out, vendors began forming their own VoIP integration clubs. Expect Cisco Systems Inc., which was not involved in the two coalitions formed last year, to lead the way with one of its own in 2003.

CableLabs will also make progress on PacketCable. Cable's R&D house, which was already testing multimedia terminal adapters and CMTSs for PacketCable 1.0 last year, will extend testing in 2003 to other equipment and elements that make up the PacketCable infrastructure. By the end of 2003, expect to see at least a baker's dozen of embedded MTAs and about six CMTSs get the nod for PacketCable 1.0. –JB

INTERACTIVE TV

Forecast: Gloomy

It's been a long time in waiting for interactive television to round the corner and finally make it into the mainstream. And unfortunately, looking out into 2003, proponents of the anticipated interactive revolution are likely to be singing a similar tune around this time next year, under overcast skies.

Why? Well, like everything else associated with advanced services rollouts by cable operators, it comes down to money, and how operators are likely to spend what little they have for the year.

Operators today are still looking for the rebound promised in 2002, and the prospects of getting an influx of cash to roll out new services–like iTV–aren't good again this year. That means a limited number of dollars to spend on new initiatives, and only the highest priority projects are likely to see any of the limited cash that's out there.

Yet, despite this seeming lack of enthusiasm for interactive platforms from operators, there is activity bubbling under the surface. Most of the rumblings are connected to a slew of recent acquisition deals by John Malone's Liberty Media Group. Over the past year, perhaps to capitalize on the general devaluation of many of the industry's first interactive companies, Liberty has swallowed up a bunch of iTV properties for pennies on the dollar. Companies that have been trailblazers in the nascent iTV world– like ACTV, Wink Communications and OpenTV–are now underneath Malone's Liberty umbrella. The rest of us from the outside are anxious to find out exactly what's in the forecast for Liberty, and Malone might be the only one with real insight into the future patterns taking shape with interactive. –DH

BACK OFFICE AND OSS

Forecast: Sunny and hot

It won't be sexy, but it will be interesting. That's probably the best way to sum up what will happen with back office broadband software in 2003.

Otherwise known as the "OSS," this suite of software applications are literally the glue that allows cable operators to offer new services and bill customers for those services. As cable operators rush to deploy new services–from video-on-demand to telephony and everything in between–they'll increasingly need sophisticated software. This will allow them to automate service order input, provisioning, billing, network monitoring and perhaps even customer relations.

Already, dozens of companies are flooding into the industry, promising to relieve MSO headaches by offering a one-stop shop for all their various needs. But most are actually creating more confusion as those operators struggle to understand where each end in the end-to-end network resides.

Look for 2003 to be the year of consolidation, because while the software side of the industry is poised to grow, the market still won't be big enough to support the myriad companies that have already gotten traction, much less those who hope to port their products for other applications (telecommunications, most notably) into the cable TV realm. Look for the acquirers to be the deep-pocketed billing vendors who want to expand their product lines, or one of the more successful OSS vendors who can afford to buy market share. And don't look past the likes of Arris and C-COR.net, both of which are making aggressive strides in this area.

With luck, 2003 will also be the year of deployment, as MSOs look to please investors by reducing costs and boosting employee efficiency. –RB

CABLE SET-TOPS

Forecast: Cloudy and windy

The digital cable set-top sector will be a competitive (and potentially confusing) place in 2003.

Although there will be lots of talk about embedded DVR and HDTV support in the cable set-top, the chatter behind "Passage" and "conditional access" will gradually increase in volume throughout the year.

Passage, a conditional access scheme designed to run next to legacy systems from companies such as Motorola Broadband and Scientific-Atlanta, will give operators a possible alternative for CA and give them the ability to deploy set-tops from multiple vendors–as long as they adhere to Passage, which Sony Corp. introduced at the 2002 Western Cable Show.

Although Passage won't completely alter the cable set-top landscape or destroy the Motorola/S-A duopoly in 2003, it will stir the pot and lay the groundwork for a wide open market well before OpenCable comes into play.

Several MSOs, though it will be kept hush-hush for some time, will begin Passage field trials by the first half of 2003. If all goes well, Passage deployments might be en vogue before the year is done.

In the meantime, cable operators will continue to push their retail presence for digital cable set-tops and associated products. In addition to boxes that support HD and home theater systems, which already are being sold in some Charter and Cox markets, cable will make a retail play by wielding set-tops with on-board DVRs, giving the industry a way to riposte the jousts of EchoStar and DirecTV. I believe the first box to make that a reality is the most obvious one: S-A's Explorer 8000. The trickier part is predicting which MSO–Cox or Time Warner Cable–will be the first to try it. But, given Cox's early track record for establishing retail channels for digital set-tops, I'll go with the Atlanta-based MSO, which already has an undisclosed "commitment" for the Explorer 8000. Looking further ahead, at least five of the top-10 U.S. MSOs will have a digital set-top retail plan under way by the end of 2003. –JB

COMMERCIAL CABLE SERVICES

Forecast: Another partly cloudy year

There's no doubt that having the ability to serve the thousands of business customers with high-speed Internet connections would brighten the day of any cable network operator, but the reality is that today, their networks are not equipped to meet that unserved demand–and that's not likely to change next year.

While many of these potential enterprise customers are surprisingly close to operator HFC networks, and may even already be wired for basic cable, taking the next step in being able to offer them quality Internet connections is more like a giant leap.

There's no lack of vendors offering gear to operators to make that transition– Advent Networks, Narad Networks, Jedai Broadband Networks, to name a handful. Some offer solutions that use coax already installed; others require a greater investment in deep fiber architectures. Whatever the strategy, though, it'll cost operators a pretty penny to make their networks business-friendly… and that doesn't bode well for commercial services in the coming year.

Even with the lure of potentially large returns on their investments in commercial services gear, it's probably not attractive enough for operators to go out on a limb and deploy new commercial gear across their networks.

But what you'll see instead this year are just a few rays of sunshine occasionally poking through the clouds, in the form of new technical trials and perhaps even limited rollouts by truly ambitious operators. But as for the biggest operators chasing down the dream of enterprise and commercial services, the market outlook is likely to generally remain under the weather. –DH

HIGH-SPEED DATA

Forecast: Sunny and warm

Cable and DSL will continue to gain some serious ground on their slower narrowband elders in 2003, but cable will maintain its broadband lead in the residential sector. At the same time, DSL will be "back," put some big pressure on cable, and remind everyone that it really never left.

Of course, that won't be the big, paradigm shifting news of 2003. What will set the trend this year is the extremely gradual disappearance of high-speed data's traditional all-you-can-eat model. In addition to seeing more emphasis on tiered services, don't be surprised if operators trial and deploy consumption-based billing HSD services, or services tied to a specific "byte-cap." The challenge for operators will be how to account for spam and pop-up ads and determine whether or not they are figured into the monthly consumption figures.

Although these efforts will be aimed at a very thin market of so-called "bandwidth hogs" who pay less per month than it costs the operator to maintain them, consumption-based billing will be met with a firestorm of criticism from power users and consumer watchdogs alike. The question is whether cable operators will back down. They won't…If they want to create a viable HSD business that quickly moves beyond e-mail and Web surfing to bandwidth intensive streaming and peer-to-peer applications.

On the specifications front, 2002 finished off strong with the first five cable modems (which happen to use three different silicon providers between them) and the first CMTS ever to be awarded approval for DOCSIS 2.0.

That's just a sniff of what will happen in 2003, as dozens of vendors line up to join the crowd to try to obtain the coveted DOCSIS 2.0 stamp. By the end of the year, I believe that more than 24 cable modem models and at least 6 CMTSs will get the 2.0 greenlight from CableLabs. –JB

SATELLITE BROADBAND

Forecast: Foggy

A race is clearly on between cable operators and satellite service providers, though today that race is all about pay television service, and not about high-speed broadband connections. But who's to say that won't change in the future?

But as to the year ahead, it's likely that we'll only see the groundwork being laid by satellite operators with regard to broadband–not a sea change in the competitive market for high-speed Internet connection services.

Today, satellite operators are trying to steal away cable business by competing on relatively even footing. They offer more channels, in many cases. They're aggressively marketing multiple receiver packages. Digital video recording is a feature where they're beating cable to the punch. Eventually, though, the race will likely come down to broadband access. But will it get to that point in the coming year? Not likely.

But that said, there is movement afoot to get the satellite broadband ball rolling, but the messages are decidedly mixed. As EchoStar pursued its high-profile merger with DirecTV in 2002, two-way satellite initiatives like the EchoStar-supported StarBand and the budding WildBlue Communications took a back seat, and subsequently died on the vine. But just recently, there were rumors that John Malone's Liberty Media will pump new life into WildBlue to the tune of $200 million. That could put WildBlue back on track to deploy its two-way Ka-band technology by 2004.

As for the DirecTV group, its plan for two-way service is equally muddy, but parent company Hughes Electronics has said it will "clarify" its plans for two-way soon, and the rumors are flying that that clarification will mean a scaling back of the company's $1.8 billion Spaceway initiative. The Spaceway plan had centered on expanding a satellite network originally designed for business customers to include residential service as well, but rumblings are that Hughes could be backing away from that strategy altogether. –DH

COMPETITIVE BROADBAND SERVICE PROVIDERS

Forecast: Frosty and frigid

The planned evolution to a truly competitive environment for services like voice, video and data hasn't really followed its predetermined course. Measures taken to de-fang monopolies, especially in the telecommunications sphere, have proven ineffectual, and today–like before–just a handful of providers control the telecommunications market.

And in cable, competition isn't exactly thriving as it was once envisioned. In fact, because of continued consolidation by the nation's leading cable operators, competitive cable companies are staring another cold year right in the face.

When capital once flowed freely to companies with visions of laying down high-performance networks in markets where MSOs already operated, today, that flow of venture capital isn't even a trickle. The overbuilders left standing today–ambitious companies like Altrio, RCN Corp. and Knology–are clinging to what's left of their funding, tightening their operational belts, halting plans of expansion, and digging in to fight their incumbent competition on a couple of fronts. With little support from Wall Street or anyone else, it's really all they can do right now.

Now, the overbuilders aren't going to go quietly, mind you, and over the next year most of the noise they'll make will be in the courts contesting MSO pricing in certain markets. But in the end, the side with the deeper pockets usually ends up frosting the competition. –DH

STREAMING MEDIA

Forecast: Stormy

Following a fairly balmy 2002, darker clouds will roll into the streaming media sector this year to spread their wrath on codecs and content.

For starters, the codec battle between RealNetworks and Microsoft Corp. will rage on this year. Both will survive, of course, but what doesn't kill Real will only make it a stronger competitor by year's end. Apple's QuickTime will remain in the mix, too, but will remain relatively stalled on the ladder to the top (deals to render movie trailers for The "Lord of the Rings" just don't happen often enough, you know).

The majority of these battles will be waged on the PC, but, for the first time, expect to see disparate streaming platforms make a land grab on the set-top realm, as well. I expect either Real or Microsoft to win a cable set-top deal in 2003, but my odds-on favorite is Real, which got a shot in the arm late last year when it secured a broadband SVOD deal with Starz Encore Group.

Remaining with content, Intertainer will fight the good fight with the movie studios, but I'm afraid that it's on borrowed time. Pioneers–both in the real and digital worlds–occasionally meet an unfortunate end out on the frontier. It'll take a miracle for Intertainer, even in its current skeletal form, to survive beyond mid-2003. –JB

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