Mapping out a modem strategy (MSO finds fast track to profitable data)
College Station, Texas (population: 63,000) is the site where TCA Cable TV Inc., the 16th-largest U.S. cable operator, with systems passing 1.2 million homes, has tested out its options in the cable modem business. TCA is now moving ahead with a refreshingly innovative approach.
Many data service deployments by major cable operators have depended on expensive and time-consuming plant clean up, or have been restricted to extraordinarily clean, newly-strung HFC systems. Although TCA has deployed cable modems on a fiber-reinforced system, it chose to deploy data services without installing expensive high-pass filters.
Rather than choosing modem technology utilizing TDMA (time division multiple access) technology, TCA took another approach, as the first major U.S. operator to deploy modems from Terayon Communication Systems. These systems are based on S-CDMA (synchronous code division multiple access) technology, which provides high reliability and quality of service (QoS) bandwidth control for tiered services and additional revenue.
While most operators' data service deployments target residential Internet access, TCA has chosen to enhance its customer base by targeting both residential and commercial users, providing a broader range of services to meet both groups' needs, and maximizing their revenue opportunity.
This article analyzes TCA's cable modem launch, so that other MSOs can draw on their experience. By providing a cost-effective path to profitability in the high-speed data business, the TCA experience provides a model that other mid-size operators can use as they roll out their own data services.Testing and analysis phase
TCA has used the rapidly merging cities of Bryan and College Station (combined population: 126,000) — high in PC penetration and served by five Internet service providers (ISPs) — as a testbed for high-speed data equipment. The Bryan/College Station system passes 55,000 homes and serves 35,000 subscribers on 550 MHz plant.
What TCA wanted was a model system that offered a rapid timetable to get into the data business, along with profit margins that would give shareholders of the publicly held company something to smile about.
TCA initially tested data modems based on time division multiple access (TDMA) modulation. However, TCA engineers found that the additional plant enhancements needed to support upstream QPSK signaling were very costly.
The TCA team also studied the issues of technical support, backbone connectivity and content development. Options included buying, building or allying with an ISP operation. It also considered aligning with a nationwide cable modem service provider, but could not justify the overhead costs for its markets.
After screening more vendors and their technologies, talking to ISPs and even cultivating a short-lived alliance with one of them, the TCA strategists started to devise a plan. Buying the local region's fastest growing and most technically astute, service-minded ISP would solve the ISP portion of the puzzle, and the cable-system delivery platform would come from Terayon Communication Systems.
Another positive aspect of the business model driven by these choices was timing. By acquiring a functioning ISP and choosing a technology that required little upgrading of existing plant, TCA could lay out a timeline that would rocket it rapidly into the data business (see Table 1). Management's go-ahead for a commercial launch came in mid-December. The first paying customers were signed up and went online in January.Becoming an ISP
Why not create an ISP operation from scratch? TCA's decision hinged on people. In addition to the cost of the required computer and networking equipment, it would be necessary to find, hire and manage a staff to run it. Initially lacking the expertise to do all this, the logical choice was to buy an ISP. Further, this choice would mean instant ownership of an existing business — in this case, Myriad Corp., a two-year-old company. Myriad had roughly 3,000 dial-up customers, most with 28.8 kbps to 56 kbps modems, plus a few with ISDN. This ISP was not only an instant revenue base, but also a prime prospect for distributing cable modems. In the course of several meetings, Myriad's staff went from a "show-me" attitude about cable modems to enthusiasm about its ability to bring high-speed data to the masses. In September 1997, TCA bought Myriad.
Myriad's staff of six full-time and 16 part-time employees was on deck seven days a week, 6 a.m. to midnight. Already doing everything from installs to custom Web site design, it also became TCA's braintrust for coping with the Internet industry's dizzying pace of change. Myriad became the technical support center for all systems over which TCA introduced Internet access, a service now branded as TCA Internet.
The same network operations center (NOC) that had driven Myriad's dial-up business was ready to do double duty supporting cable modem subscribers. Leased T-1 lines connected the NOC to Sprint's and MCI's high-speed Internet backbones. A network router interfaced the backbone connections to an internal bus, off of which hung about 20 commercial-grade UNIX-based PCs. The PCs, driven almost entirely by public domain software, were playing the usual roles found at an ISP NOC, such as:
- A mail server, sending and receiving mail
- A DHCP server, dynamically assigning IP addresses to subscribers using the dynamic host configuration protocol
- A DNS, or domain name server, translating domain names (e.g., www.myriad.net) into numbered physical addresses
- Servers storing content ranging from Usenet newsgroup chatter to the business and personal Web pages of Myriad customers
- Servers for network administration, account authentication and other tasks.
Also acquired from Myriad were banks of dial-up modems, to which Myriad had been adding regularly to keep its growing subscriber base from experiencing busy signals. TCA expects a significant reduction of dial-up modem capacity demands as many customers move over to the shared cable modem network.
One useful piece TCA added to the Myriad NOC was a network access point (NAP). Using a Cisco LightStream 1010 ATM switch, the NAP provides direct connectivity between the NOC and local high-volume users, including nearby Texas A&M University and major employers. The NAP enables direct contact between these institutions, avoiding the costs and inevitable delays of going out onto a public Internet backbone. The participating local entities bear only the cost of connecting (by leased telco line, TCA-owned fiber, or point-to-point microwave) to the NAP and a small router port charge.Containing startup costs
Steps on the way to introducing cable modem data service included scaling up the newly acquired NOC, installing the headend products and activating the return plant. Things generally proceeded according to budget and planned schedule.
System hardware and software costs. Needed upgrades to the NOC, all fairly inexpensive and routine, included a larger newsgroup server and more memory and processing power for several other servers. Also added was a Terayon TeraLink 1000 Master Controller, the workhorse machine managing data traffic between the NOC and the cable plant. TCA actually exceeded Terayon's recommended product configuration by feeding 26 fiber nodes into only two of the TeraLink 1000s (about three times the vendor's recommendation). This step dramatically reduced TCA's startup costs.
As data subscribership grows, TCA expects to acquire additional TeraLink 1000s to support the system's seven fiber trunks, each of which serves about seven fiber nodes. The 49 fiber nodes (plus four all-coax segments) serve an average of 1,200 homes passed — thus reaching the system's 55,000 homes passed. Each TeraLink 1000 presently uses its own TeraLink Gateway, an "edge concentrator" device that manages connectivity between the NOC and a router via a standard 100 Mb interface — TCA is using a Cisco 4700 — which in turn connects to the Internet backbone. Terayon's TeraView Element Management and Provisioning Software, resident on a Windows 95 or Windows NT computer, configures and controls the overall network, including the TeraLink 1000s and the subscribers' TeraPro cable modems.
Although prices at the headend are subject to many variables, a ballpark figure for outfitting a headend serving the entire 55,000 homes, including buying or building a NOC, is approximately $400,000, or just over $7 per cable home passed.
Two-way plant turn-up and tightening costs. Over a five-month period beginning in mid-December 1997, TCA assembled a three-man team to set and activate the system's C-COR coax amplifiers and fiber/coax transceiver pairs for a return path at 21–27 MHz. Two TCA employees oversee and quality-check the project. It was not just data service, but plans for impulse pay-per-view and perhaps other two-way services, that prompted the two-way plant turn-up. Total cost to activate the system's upstream path: $250,000 to $300,000, or less than $6 per home passed.
After several months of evaluating and testing a variety of cable modems utilizing time division multiple access (TDMA) technology, TCA tested Terayon's synchronous code division multiple access (S-CDMA) equipment in College Station. The company concluded that the Terayon gear was significantly more robust in noisy plant environments. This robustness, they believed, would translate to lower plant cleanup costs at startup, lower maintenance costs, and faster time-to-market.
Those expectations have been fulfilled. Earlier concerns that deployment would require plant-wide installation of high-pass filters proved unfounded, and no filters are being used. This is particularly fortunate because the filters would have had to be individually modified with a band-pass window to serve any home that subsequently ordered impulse pay-per-view (PPV). Further, filters are not only expensive to install but are one more piece of equipment that requires regular maintenance.
Most gratifyingly, little plant clean-up was required. Field engineers reported that the equipment required little change in TCA's regular monthly cumulative leakage index (CLI) sweeps. The two technicians who do nothing but travel the plant spotting leaks and tightening and replacing connectors have found that, with minimal additional effort, they've been able to shift to a higher threshold by which 20-microvolt leaks now get corrective action, vs. a previous 50-microvolt threshold. The extra effort has been minor, with insignificant financial impact.
Modem-service installations have gone more smoothly than was anticipated, an experience that TCA engineers anticipate will continue as modem subscribership grows. Only a small percentage of modem-service installations required new cable drops, and in most instances, these were caused by noise leakage from aging copper braid coax.
Control over bandwidth. Another profit-related attraction of the data gear for TCA was its QoS controls, which provide the capability to control bandwidth so users can choose and pay for only the throughput they need. Thanks to the cell-based, ATM-like flow of packets used in the spread-spectrum modulation method, pieces of the 14 Mbps capacity of a 6 MHz channel can be allocated to users in 64-kbps increments. Although the tiering capability itself is built into the system, TCA's engineers have written their own Java-language software to monitor and control the process (software they may market to other Terayon customers). This gives TCA the ability to prevent "bandwidth hogs" from sucking up capacity for applications such as home-based Web servers or large downstream file transfers. In addition, this capability has enabled TCA to offer a smorgasbord of tiered offerings with varying capacity, thus increasing the revenue opportunity (see Table 2, page 94).
The combination of a software upgrade plus the Gateway box permits control of downstream bandwidth in 64 kbps increments. Thus, TCA is considering offering tiered downstream data rates as well. At the high end, serious computer users can buy screaming data rates. At the low end, TCA is considering inviting many of its current dial-up users to convert to a cable modem service that has low bandwidth but easily outperforms dial-up at a comparable price — a win-win for both operator and subscribers. From the operator's standpoint, this provides more revenue per subscriber, eliminates local exchange carrier costs for both TCA and the customer, and puts the cable operator in a better position to compete for commercial accounts vs. ISDN or xDSL providers.
Billing services. So far, TCA's billing system vendor does not support direct interfacing to the Terayon system's authentication system or TCA's e-mail servers. On its own, TCA wrote gateway software so that CSRs could access the authentication server to set up and configure data service accounts. In a separate process, the billing information is entered into TCA's billing vendor software. Bills are processed along with that of its cable subscribers; however, data services are billed in a separate statement. A single-statement billing package will soon become available.
Caching and local content. The local caching of content that originates from Web sites and databases scattered far and wide on the Internet is a surprisingly affordable and easy procedure. In Bryan/College Station, all the content requested off the Web by 5,000 dial-up users and the growing cable modem user base is being cached on a $4,000 UNIX PC with 128 MB of RAM and 4 GB of hard disk space. Standard Internet protocols make this process rather routine. When a subscriber requests content, a local computer ascertains whether the requested content is already cached locally. If it's there, a local computer queries the remote content server, asking whether the content has been modified since it was last cached locally (this process is much faster than downloading the content again). If it has changed, an update is downloaded. TCA engineers estimate that doubling the local PC's RAM and boosting disk space to about 9 GB could accommodate even a tripling of the Bryan/College Station user base.
While building local content is not a core business for TCA, its small staff maintains the TCA home page and serves as a content-creating utility for local companies. TCA views offering this service as necessary for a couple of reasons. First, if subscribers or would-be subscribers were to hire someone else to create and manage their content, that someone might, for whatever reason, steer their client to another ISP. Further, by hosting content for local companies and large institutions, TCA finds it attracts subscribers who are employed by those institutions. However, TCA looks to establish close working relationships with Web developers in markets outside Bryan/College Station, and expects the high speed of cable modems to be an attraction in building such relationships.
The advantage of the deployment is that it's made possible the commercial rollout of data services without major up-front noise-purging expenses. The "noise police" no longer need to sit on every corner, as TCA expected would have been necessary for a TDMA system.
Beyond the startup phase looms the period when costs will subside into a less onerous combination of routine maintenance and growth-driven capacity upgrades. Looking beyond the current flurry of post-launch activity, TCA has planned a range of near-term enhancements. For instance, TCA intends to have software in place within months that allows subscribers to go to a Web page and dynamically order extra bandwidth for short periods of time — for example, for a videoconference. Payment can be made via an established credit-card or bank-debit arrangement or by encrypted transmittal of a credit card number.
Internet pipe size considerations. One predictable area of future growth includes expanding the headend's connections to the Internet backbone. TCA plans to keep its existing redundant T-1s to MCI and Sprint, while adding capacity as needed via tiered service on a DS-3 line from a third provider, UUNet/WorldCom. If the headend router encounters congestion on the first backbone pipe it tries, it automatically tries the others. Both caching and the NAP represent essential means of holding down backbone traffic and its cost.
Ongoing maintenance. Maintenance costs have been significantly lower than what TCA officials estimated they would have had to pay. Without filters and with only marginally more aggressive CLI sweeps, the equipment has consistently delivered 14 Mbps raw throughput both upstream and downstream—even with system noise levels at SNRs better than 13 dB. In particular, the gear has performed well in periods of extremely dry weather, when old copper-braid coax is most vulnerable to noise leakage.
Scaling up. As subscribership grows, the number of fiber trunks feeding each TeraLink 1000 controller will be scaled back by adding more controllers. Further, TCA is also considering adding DOCSIS-compliant headend equipment.
Path to profitability. TCA projects the Bryan/College Station data service to recoup its initial capital outlay within 24 months. A graphic depiction of how revenues creep up gradually to overcome depreciated startup costs plus operating costs to yield profit is shown in Figure 1 (page 93).
A second data-service startup is being deployed in Amarillo, Texas, this month, followed by rollouts of Terayon modems across two other TCA systems before year-end. Rather than clone complete NOCs in each city it serves, TCA plans to gain major cost savings by linking those sites, via the Internet backbone, back to the College Station headend, which will become a "super-NOC" supporting multiple remote systems. Tasks like customer technical support, authentication, billing, and e-mail serving will be supported from College Station. But Amarillo and the other planned sites will have their own backbone connections, controllers and network routers. As subscribership grows, content caching and possibly other functions will gradually be off-loaded to the offspring systems. But the cost savings from running a "super-NOC" should be substantial.
The big clean-up ahead. TCA officials recognize the need to build out their systems with HFC over time, as they grow their digital services. This will enhance their ability, in the long run, to support a broad range of digital offerings, including digital video, IP telephony, and others on the not-too-distant horizon.
The data rates provided by cable modems put operators such as TCA in a strong competitive position, with the ability to offer the broadest range of commercial and residential data services.
|About the authors|
|Dan Spoelman is VP of operations with TCA Communications; and Gary Law is VP, marketing and business development, with Terayon Communication Systems.|
|The authors acknowledge the significant contributions to this article by Tom Way of TCA Cable TV, Jonny Hinojosa of TCA Internet, and John Hamburger of Terayon Communication Systems.|