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July 1, 2007: Preparing for a moment of truth

Mon, 04/30/2007 - 8:40pm
Brian Santo, Editor

Seven-oh-seven. For cable operators, it’s an imprecation, a curse and, it can not be forgotten, a deadline–a deadline as hard as Kevin Martin’s marble heart.

Cable operators are generally resigned to the fact that in less than two months, they will have to pack up whatever set-tops integrated with conditional access systems (CAS) they have left, and start supplying their customers instead with a set-top and a detachable CableCARD that hosts the CAS for the set-top.

Cable CardsHaving separate set-tops and cards promises to be more expensive for everyone, including consumers. Having separate TVs and cards has already been a headache for everyone involved, with no end of acrimony as MSOs and consumer electronics (CE) manufacturers blame each other for customer complaints about CableCARD failures.

Consumers so far have not been adopting CableCARDs in droves. The FCC reports that as of mid-March, there were 259,000 consumers who requested CableCARDs, or about 0.4 percent of 65,000,000 cable customers.

Granted, MSOs hate the things and don’t advertise them, but still, if CableCARDs were that great, you’d think that word of mouth alone would lead to more than 259,000 requests for CableCARDs in three years. If they were that great, you’d think the CE manufacturers would find some way to promote them–after all, they’re among the supposed beneficiaries.

Cable’s counterproposal to separable security was downloadable CAS (or DCAS), an idea first floated in 2002. The response to DCAS has been mixed, but cable is forging ahead with it. Good idea or not, the cable industry’s timing was miserable. It’s been asking for and getting waivers on separable security, in part based on promises to tee up DCAS, but DCAS still isn’t fully developed. All of that has played right into CE industry charges that cable is stalling on the matter.

In recent years, the Consumer Electronics Association has been actively agitating for separable security. The CEA has framed the issue as cable companies versus consumers, and if that’s the choice, what politician is going to side with an industry that still has one of the worst reputations in America?

So now a deadline of July 1 looms. The biggest operators are generally resigned about it, while the smaller ones are nervous about supply, despite assurances from set-top manufacturers that they’ll have enough product ready.

Some pay-TV providers, among them Comcast, Cablevision, Charter Commun-ications, Suddenlink Communications, Bend Broadband, Sunflower, OneSource Communications, and Verizon, have filed for waivers, typically focusing on low-end set-tops, on the grounds that the separable security solution is more expensive than basic set-tops, and therefore the separable security solution could represent a financial burden on those consumers who can afford only basic cable. The FCC denied Comcast, granted waivers to Cablevision and Bend Broadband, and has been sitting on the others.

Mediacom did not even bother to file a waiver, said Thomas J. Larsen, Mediacom’s vice president of legal affairs. The company put in its order for set-tops and two-way CableCARDs with Motorola. “We’ll get them when we need them,” says Larsen.

Cox was conducting a field test of the new boxes in early April, and had scheduled a wider test in June, in preparation for the switchover in July, according to Chris Kocks, program manager, OpenCable, at the MSO.

He explains that Cox’s various systems will have various amounts of inventory to burn through, so at the end of April the company was beginning to build its forecasts for which systems would need what mix of products.

Accurate forecasting is absolutely critical for cable operators because come July, there is nothing they can do except scrap excess inventory of the old boxes, Kocks explains.

“We’re trying to plan to deplete unused inventory, and we’re trying to match that to demand. We’re trying to measure that down to zero,” says Kocks. “If there are any left lying around, we’re going to have to crush them. We don’t want even a few hundred lying around.”
Cox Communications already has its orders in with Motorola and Scientific Atlanta, who guaranteed the operator will get enough product.

The switchover is inevitable, but many companies are banking on a waiver. One Source Communications, an operator in Keller, Texas, filed one with the FCC, and was hoping to get a response about the time this issue was printed.

“Otherwise, knowing Motorola, there’s going to be a lack of inventory of DVRs, especially if I don’t have an order in on time and give them the 90 days they require,” says Kent Blackwell, OneSource VP of operations.

Small operators feel that large operators tend to get first dibs on limited product under ordinary circumstances, but this circumstance is far from ordinary, and there’s a potentially exacerbating factor.

There are a large number of cable companies holding fire until they find out about their waiver applications. If the FCC denies their waivers, there will be a lot of companies placing orders for set-tops close to the 90-day lead time manufacturers want. Blackwell expects set-top manufacturers will get overwhelmed.

“Motorola is just not equipped to satisfy all the orders nationwide come July first,” says Blackwell. “I don’t see Motorola’s factory being able to crank ’em all out. It’s crazy to have a light-switch day.”

Bend Broadband, which actually got a waiver on the low-end boxes, wasn’t taking any chances on being caught flat-footed. The company has already updated its server and has accomplished some of the other infrastructure preparations necessary to support CableCARD-equipped boxes, including preparing its billing systems and warehousing operations.

The company already has test boxes to work with, and near the beginning of the year, placed its orders for inventory with its set-top suppliers.

“Until we have the boxes in hand, there’s always a concern,” says Bend Broadband CEO Amy Tykeson. “We have assurances from both Motorola and Pace they will meet the demand we’re projecting.”

CableCARDs are not the way BendBroadband would have chosen to go, but since the company is being handed lemons, it’s determined to make lemonade. “With OCAP and MoCA in the boxes, we expect that will be attractive,” Tykeson says. “OCAP might be the silver lining in this whole thing.”

Scientific Atlanta and Motorola have each been preparing for this for over a year, they say, and they insist they will be ready. But it’s going to be tight–operators are sitting on orders because they don’t want to be carrying inventory, and manufacturers aren’t cranking units out yet because they don’t want inventory either.

Toward the end of April, SA was in the process of ramping up production on host boxes, and dialing back on integrated–security boxes–it will continue to build the latter for customers in Canada. The company should be up to full production of the new units sometime early in May, says Dave Clark, director, product strategy & management, for SA’s home entertainment products.

“We’ve had pressure to fulfill demand even without the transition–business has been good,” he says. “We’ll try our best to fulfill all the orders we can.”

Motorola says it’s been urging all of its customers to get ready for the transition, encouraging them to get a jump on all the headend and backend preparations, and planning inventory.

Motorola had its own factory ramp up to volume production at the end of Q1, and it has a contract manufacturer on tap in case it gets hit with a deluge of orders.

The entire industry is concentrating on CableCARD solutions, and that might be expected to be a distraction that draws focus away from developing DCAS, but the opposite is true. Everyone interviewed for this story said the same thing: the forced switchover to CableCARDs has simply created even greater urgency to get a less-expensive DCAS solution commercialized.

In the short term though, there’s going to be a switchover scramble for some time.

“We probably won’t rest easy until sometime in August,” says SA’s Clark.

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