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The CMTS market shuffle

Thu, 07/31/2003 - 8:00pm
Craig Kuhl, Contributing Editor

The cable industry's growing, albeit dietetic, appetite for DOCSIS 2.0 enabled-services–most notably voice–and its thirst for next-generation CMTSs (cable modem termination systems) and related equipment may be quenched with a simple line card addition...at least in the short-term.

Cisco Systems' proposed upgrade to more than 17,000 deployed CMTSs, which the company calls its Broadband Processing Engine, would integrate a line card into its VXR CMTS series. The result, Cisco says, will "distribute and accelerate DOCSIS processing while rapidly, reliably and cost-effectively improving our capacity and RF performance."

And improve its bottom-line performance, which most experts contend is driving Cisco's proposal of installing line cards with the purpose of injecting a shot of adrenaline into its aging CMTS fleet. This is happening even as it pushes its chassis-based, 10000-series platform, a move considered by many to be a catch-up strategy to lift its sagging market share.

And why not? The giant networking company has seen its CMTS market share fall from 60 percent to 52 percent the past three years. With solid competition from the likes of ADC, Arris, Juniper Networks, Motorola Broadband, Terayon Communication Systems and others, the battle lines have been drawn in the scuffling CMTS sector.

"The real issue is, Cisco is beefing up its 7246 platform (the company's VXR CMTS equipment), which is 80 percent of their shipments, but they aren't getting people to buy it. And there's not a lot of traction for [Cisco's] 10000-series platform, so Arris, Juniper and others are moving ahead and gaining market share. The market is shifting," says Patti Reali, principal analyst for Gartner Dataquest.

It's also a fairly finite market, hovering between $400 million and $500 million, with worldwide shipments of cable broadband access platforms that incorporate CMTS functionality slipping by nearly 4 percent during the past year, and CMTS revenue projected to be $473 million in 2003, Gartner reports.

"Cisco will keep market share, but how long can they fend off the competition and how big is this market? At most, it's about $650 million, so do you need 10 vendors? Probably not," projects Reali.

Cisco's proposed line card addition isn't likely to re-shape the CMTS industry, experts maintain. In fact, most agree it can't offer the redundancy needed to scale to large numbers of customers for voice services.

Dave Spear
Spear
"All Cisco did was extend the life of its existing platforms, and when voice is added, go to the 10000 platform, but we haven't seen a lot of progress with the 10000 series, which in our view isn't considered a next-generation platform," says Dave Spear, executive VP of strategy and marketing development for Cedar Point Communications, a provider of packet-based voice switching gear.

Maybe not, but Cisco is still the big dog in the CMTS space, though it admits to a rising tide of competitors.

"Admittedly, there are more challenges for us in this market, but that's what DOCSIS is all about, a more competitive environment," says Ben Stanger, manager of product marketing for Cisco's cable business unit. "Our challenge is to scale the product to tens of thousands, and the line cards are part of the process of our new Broadband Processing Engines, intelligence and increasing RF capacity to migrate to [DOCSIS] 2.0, which can give cable operators a good feel for 2.0 without investing in new platforms."

Or ripping out old ones, a chilling proposition for most MSOs.

"We won't rip out DOCSIS 1.0 or 1.1 equipment to deploy 2.0," says Jay Rolls, vice president of telephone and data engineering for Cox Communications. "If we had 1.0-only [equipment that's] not upgradeable to 1.1 we might, but capex is a real issue. Now, we're only buying 2.0 modems."

Cisco has no illusions about the mounting challenge of meeting MSO needs, Stanger admits. "We're talking IP here, and the challenge is to marry DOCSIS and CMTS platforms and help MSOs migrate their networks to IP efficiently without trashing lots of legacy equipment," he says. "If they can upgrade existing chassis with a single upgrade for about $4 million versus an entire new chassis for $12 million, that's a big cost savings."

Adds Rolls: "We're interested in squeezing every last drop of blood out of VXRs, and line cards are the heart of the system. The Cisco line card announcement isn't earth-shattering, but if an upgrade is a good deal from a business perspective, we're interested."

Interest in new CMTS equipment isn't likely to gain momentum for another year or two, when revenues are expected to rise 32 percent in 2003 and 2004 combined, Gartner reports. Much of that gain is likely to come from peer-to-peer Internet traffic such as gaming.

"Nine percent of all Internet traffic is peer-to-peer. That's huge. The spending habits of those people will buy home theater systems, interactive gaming and other products and services such as streaming video and business class services. The demand is out there," insists Chris Bridge, segment marketing manager for cable at Juniper Networks.

So are the speed bumps. "Operators," Bridge adds, "haven't been able to see an elegant transition to those services, so how do we help to reduce the expense and increase their revenue streams? Do they buy Cisco's line card or CMTS equipment to get them where they want to go? They're focusing on new sets of business that will grow IP traffic and that's great for us and the CMTS business. And VoIP is the next major inflexion point."

That's a point well taken by cable operators, since most of the big guys are pressing ahead with 2.0 business models still in the infancy stages.

"MSOs are asking for features and opening their books regarding future services. They want DOCSIS 2.0 capability for voice, PacketCable, VoIP and multimedia, so the CMTS of the future may be an aggregate bandwidth manager, not a modem," explains Tom Cloonan, CTO for Arris' broadband division. "Today, however, they need a true next-generation CMTS platform–there's a sense of urgency to support those new services."

Competition from DSL and satellite service providers is right up there as well.

"More operators are asking how our product will help them compete versus DSL, while each quarter they're adding at least 10 percent to their installed base," notes Kishore Manghnani, VP of marketing for Terayon. "That's huge, and it places a tremendous demand on operations, installations and deployment. Operators won't deploy CMTS equipment today if it can't compete against DSL, and the cost of moving from 1.1 to 2.0 is [significant]. It's slowing down their effort to add new subscribers."

Terayon's better-than-expected second quarter financial report was attributed to its increased shipments of DOCSIS 2.0-qualified CMTSs, a sign that the sector may be getting healthier, while at the same time consolidating, with most experts predicting a shakeout resulting in three or four CMTS providers.

Acquisitions continue to re-shape the industry as well. Juniper acquired Pacific Broadband, Motorola is integrating RiverDelta Network's product line and technology and Arris acquired Cadant's C4 CMTS and recently struck a CMTS OEM agreement with Com21 Inc. At the end of the day, however, much of the CMTS industry's growth is likely to be determined by cable operators and their long- and short-term business models as they prepare for 2.0 enabled services.

"Some will take advantage of short-term investments versus the capital expenditures for infrastructure. But the CMTS platform must be replaced. There's certainly a cost, but it will pay tremendous dividends," says Jeff Walker, senior director of marketing for network infrastructure solutions at Motorola Broadband.

In the meantime, Cisco is "doing the business modeling" for its Broadband Processing Engine and, Stanger says, "giving cable operators the legs to do the scaling and density and spectrum management on each card, while lowering capital and operations expenditures."

Just how well Cisco's new line card plays in the cable industry will probably be driven by customer demand for new services and capex issues, experts maintain.

Competition will also have a role. Notes Reali: "The market is changing, and cable knows it has to keep DSL in mind and get all modems to 1.1 then 2.0 to offer peer-to-peer, small business, gaming and other services. The business models are all seeing those in the plan, and the cable CMTS will be part of the platform."

Consequently, the CMTS market is most likely headed for a challenging future. Capital investment and operational expenditure issues, thousands of legacy CMTSs in the marketplace and a slow, methodical deployment of DOCSIS equipment by cable operators are bound to keep the CMTS market on edge.

Concludes Bridge of Juniper: "The CMTS market is at an inflexion point. There's not wide deployment of VoIP, and CMTS equipment has been pushed off until 2004. We're not disabling or changing the business model, but implementing one that already exists and applying it to an IP-based world of customers. They (cable operators) need the CMTS to get there, and the cable market is tremendously significant."

Worldwide CMTS revenue forecast (Millions of dollars)
2000 646
2001 412
2002 396
2003 473
2004 533
2005 579
2006 639
2007 692
Top CMTS revenue company ranking worldwide by revenue 2002
Revenue ($M)
Cisco 213
ADC 73
Motorola Broadband Communications 43
Terayon 24
Arris 17
Juniper Networks 8
Com21 7
Others 10
Total 396
Source: Gartner Dataquest

E-mail: craigkuhl@comcast.net

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