The morphing of the cable industry from its traditional hardware-centric mentality to a more complex and puzzling software-centric bent is affecting even the most pro-active cable operators, and with them, a whole generation of vendors who are scrambling to find the ideal network management and application software solutions.

Finding software applications that are compatible with existing hardware, and blending them into an efficient and profitable network, is becoming the latest and greatest challenge for cable operators. Mix in the need for skilled network managers with impressive computer talents, and the task gets even more daunting.

Each event in the timeline expanded the need for software development and applications.

Firmware is the term now used to describe that middle ground between hardware and software, but cable operators are finding the ground to be somewhat unsettled as they grapple with the reality of shifting to new dimensions in technology: Application software and network management.

The move to a software-dominated industry, however, tugs at the very roots of the traditionally hardware-centric cable business, which for years focused on one axiom: Build plant, and they will buy. "If you look at the evolution of the hardware side, it was always owned by operators. Now, when cable began offering more intelligence in the boxes, the transition began (toward) more embedded intelligence in hardware," says Robert J. Merlo, vice president of marketing for Experion Data Base Marketing Solutions, a provider of data, software and services for database marketing.

Convertors are a good case-in-point. Says Tom Elliot, vice president of technical projects for CableLabs: "In the past, they were mechanical devices with switches that changed channels. That's a hardware environment. There were no logical circuits. You pushed something, and it clicked. Now, operators get into issues like OSS, reliable networks and disparate systems. This is complicated, and a big change."

The transition to software-centricity, Elliot says, essentially began with the dawning of digital compression. "Clearly, when our industry could deploy compressed digital video, we could then take firmware and apply it to all kinds of new services like the Internet," he says. "It was embedding firmware into read-only memory. But when the technology catches up to a point when it can be applied, that's the magic moment. We're just now turning the corner to a software-dominated industry."

Making that journey, however, has its share of blind curves. With an entire industry literally built on a hardware foundation, cable engineers, technicians and executives at cable systems nationwide are cautious about the speed with which software is mixing with hardware.

"The mentality used to be that a cable operator would buy the hardware, and vendors would throw in the firmware/software. Now it's the reverse," says Wayne Davis, vice president of technical operations for Jones Intercable. "We're not used to paying for software, so it's a matter of educating our entire organization, including financial people and executives, on how significant the transition to software is."

Jones, says Davis, uses both outside and internal sources for its network management and software needs. Like many other MSOs today, Jones has an entire department of IT (information technology) people. "We really do need (the) guidance (these people bring), because our people are making management decisions, (and) we need people who know the business."

And the business of cable, he adds, is more software-centric than ever. "The business keeps morphing. It used to be you installed a system and did business. Now, you need to change the system to accommodate these changes (software). I have to convince the other company disciplines that this is the new way of doing business. And when I say software is going to cost $200,000, the reaction is 'what'?"

With software now taking center stage in the cable industry, operators' spending assumptions now count on the efficient use of hardware. Notes Davis: "It's now very important to buy one piece of hardware and not have to replace it. It must be just one cost, and not passed along to customers, because no one knows what the software costs will end up being. We have to be cautious."

An example of software's growing role in business, including cable, is reflected in CSG Systems International Inc.'s software licensing and maintenance fees the past three years. In 1995, its sales were $57,000; in '96, sales grew to $1.5 million; and in 1997, sales reached $27 million, with 1998 revenues expected to be significantly higher than that, says CSG. The company provides customer care and billing solutions to the cable industry and to the on-line and telecommunications industries.

"We've had to make changes with our software to handle the complexities and offer more flexibility," says Char Noland, director of sales consulting for CSG. "We've both (CSG and cable operators) had to adjust to make it as easy and convenient to customers as possible. The industry is moving very fast, and we have to move quickly, too. So, how we move with new software and software developers is critical to us."

Moving to a more software-centric mindset not only requires savvy operational decisions, but also entirely new employee skill sets which are foreign to cable operators. As a result, managing the dizzying complexities inherent in the hardware to software transition is a crucial step on the road to becoming software-smart.

Says Noland: "A lot of cable operators are going out and getting people to manage the software. There are new software people entering the cable business and bringing with them a software mentality."

The migration of skilled software developers and network managers to the cable industry reflects a world-wide trend in recruiting quality computer and system development people, says Elliot. "There are big changes in skill sets. Operators are struggling to find the right skill sets. But the world is looking for them, too. The teams that develop the tools are pretty exotic, so we must put the technology in place and have the right tool sets for people to learn from."

Having skilled people in place before the equipment/software arrives is critical, says Scott Wilcox, VP of technology for Prasara Technologies, a network management provider. "Any mix of skill sets needed should be determined before the equipment arrives. There's a lot of high-speed data equipment being deployed, and I'm not sure the daily maintenance and management of that equipment is being done," he notes.

A system administrator, Wilcox suggests, is one solution: "Someone who understands Internet protocol, system and network engineering is needed." Yet several MSOs are taking a different tack, Wilcox notes.

"Lots of MSOs are bringing in consultants to get their network established by trained people, then picking key people internally and training them with the consultants. Then, they take over management of the network. Operators need an unbiased approach during the introduction process. It's easier to say to a vendor, 'you manage the people at both ends,' but it may not give the operator an objective view of the system network," Wilcox says.

Single-sourcing, he insists, is simply out of the question. Why? Because "there is no single source for all this stuff," he says. Subsequently, the emphasis is then placed on the need for a good system administrator, he notes. "You have transport gear to buy, power supplies, real estate and more. It's a huge program management issue with multiple projects under it."

Mike Hayashi, vice president of advanced engineering at Time Warner Cable, agrees. And he should know. Hayashi leads the team that manages the Time Warner "Pegasus" digital set-top development program. "It (software-centric transition) has an organizational effect. We want to look at adding new software applications, but not entirely shifting to software. We want to be sure the software applications are created in a stable environment where they can be refreshed. But what is the right mix of software and firmware, and how much intelligence should you put in hardware?"

For smaller operators such as Daniels Cablevision in Carlsbad, Calif., the decision to move to a more software-centric business can be scary. "It's frightening because it's all so new. You either approach it head-on, or you're paralyzed. We chose to get with it," says Joni Odum, president and general manager of Daniels Cablevision.

Cablevision uses a network management consultant, Frontier Global Center in Sunnyvale, Calif., as its ISP, and the company recently reported a 10 percent sales spike in high-speed data coming from non-cable customers. Adds Odum: "When you bring new products like high-speed data to market, it's only new once. So, you bring in people who know a lot about network management and data."

Returns from software

At the end of the day, the transition to a more software-centric business model must include a bright revenue projection side. Says Kevin Hill, director of software and systems products for Scientific-Atlanta: "We're looking for ways to put new applications on networks. When you do that, you need the software to control it. But when software is transitioning the business, we have to show some returns on the software side as well as on the hardware side."

The return thus far, Hill concludes, is a significant shift in the ratio of software to hardware use during the past five years. And at S-A, Hill says the company has increased its expenditures for software by 60 percent during that period, and has moved outside the traditional lines of the cable business, a trend analysts see as inevitable.

"High-speed data is the first business deployed by the cable industry that has required expertise outside the video side of the business," says Jim Wahl, an analyst for The Yankee Group. "It requires a much different set of expertise. Now, you have players like Cisco Systems, who three years ago, operators never talked to."

As the morphing to a software-weighted industry accelerates, cable operators will likely find themselves talking to other potential partners who in the past were as alien as the software they developed.