As the world prepares to leave the 20th century behind, the traditional "cable TV" industry is undergoing dramatic change. Networks are being digitized and fiberized to allow myriad new services to be transmitted to consumers. Digital video, high-speed data and telephony services are about to reach the mass market. The persons responsible for making these networks capable of delivering these services are the chief technology officers of the country's biggest MSOs. To gain some insight into new service rollouts and the issues surrounding them, CED Editor-in-Chief Roger Brown and Multichannel News Senior Broadband Editor Bill Menezes interviewed Tony Werner of AT&T Broadband and Internet Services; Jim Chiddix of Time Warner Cable; Alex Best of Cox Communications; and Dan Liberatore of Adelphia. An edited transcript of the interview follows.
CED: What are your top three projects?
Chiddix: It's the obvious stuff: It's modem rollouts and launching advanced services on digital set-top boxes and the OpenCable effort.
Werner: The network upgrade as a general category would be one. The DCT-5000 (set-top) and the whole OpenCable migration would be two. And the telephony launch would be three. Not necessarily in any order of importance.
Best: Putting on my cable operator hat, it's data-ready homes passed, telephone-ready homes passed, digital video-ready homes passed. Related to those three, we have lots of subprojects, like putting in place the backup generators for telephone service.
Liberatore: No difference here. We've been very active trying to get our rebuilds done. High-speed data services through the DOCSIS platform, getting those platforms out into the headends. And trying to get some of the advanced applications figured out and launched.
CED: What's the status of your upgrades?
Chiddix: We're 85 percent done with our upgrades. We will be done at the end of the year 2000, with the exception of recent acquisitions that may still be in process. The vast majority are 750 MHz upgrades, two-way. We've got some 860 MHz, primarily in New York City, because the cost delta is very low. There is huge density and there's more demand for bandwidth there, especially broadcast bandwidth.
Werner: By the end of this year, exactly 51 percent of our plant will be upgraded and capable of two-way communications. We'll have about 54 percent that will be either 550 MHz, 750 MHz or 860 MHz at the end of this year. As we move into next year, it should approach the mid-80s for both of those numbers. But we bought a bunch of plant that was 550 MHz and will stay as 550. But just about everything we're building is 860 or 750. The 860 MHz equipment that we are purchasing today has output characteristics that allows it to be spaced at the same distance as 750, so you don't have any additional electronics associated. You do pay a subtle difference for the electronics itself, which works out to between $2 and $5 per home passed.
Best: Prior to the recent acquisitions of TCA, Media General, Gannett and AT&T, we're budgeted to be at 74 percent 750 MHz at the end of this year, and 67 percent two-way at the end of next year. The acquisitions probably reduce those numbers. TCA was not as far along obviously on 750 MHz as we were. So I'm still trying to get my hands around what the new numbers look like.
We have some 860 MHz plant also. 860 can show up in some unusual places -like our "middle markets," (such as) Roanoke, Va. and Cleveland, which are about to start upgrades. It has to do with timing. We essentially told our systems, 'If you have an upgrade coming up, if you can go to 860 with a relatively small percentage increase, then go ahead and do it.' It depends upon the status of the system at the time they are going to do the upgrade. For instance, Roanoke was a 550 MHz system spaced at 750 MHz, so going to 860 MHz was relatively easy.
Liberatore: I feel like we're a bit behind here. We are about 50 percent upgraded. For year-end, that ought to be another five percent. Reverse two-way is in the 40 to 45 percent range currently. We expect to be done year-end 2001. I think we're doing 860 MHz in Los Angeles because there are a lot of must-carries.
CED: What are the trends with regard to fiber node sizes? What architecture are you currently using, and how closely are you watching new developments, like AT&T's Lightwire project?
Liberatore: We believe that reliability is the key here, so we build a node plus one amplifier, and occasionally as we need, potentially a third line extender. But we do vary from that when we get into some of the underground areas. We have seen some pretty small ones, from a couple dozen homes to 300 homes. We did that because we didn't want to go back [and pull fiber deeper] if we needed to do that. When we did the analysis four or five years ago, the cost delta was around 10 percent. It's gotten better because the optical prices have come way down. As we get out into some of the other markets, I think we may have to back off of that a little bit.
Chiddix: We continue to have nodes of about 500 homes passed-but that varies with density. It's really based on about a one-kilometer radius around the node. In the headend, we are generally combining four of those together, so as traffic goes up, it will be very easy to subdivide them back to 500 homes. It's also easy to further divide those 500-home nodes as needed.
Werner: There are a lot of different ways that people characterize node sizes. Some people use averages, some people use maximums. We limit them to a maximum of 600 homes passed per laser. And we are experimenting with a few pilots of the LightWire architecture, which takes fiber down into nodes of about 70 homes passed, on average.
We won't be doing it everywhere just because there's not enough equipment out there to support it. But we think it's a real solid architecture, and its advantages to us are reduced operating costs and fewer actives.
In Salt Lake City, we have a 520-mile area that is about 100 percent designed. Construction is about 50 percent complete; [with] several thousand customers connected to it. We are running 75 to 80 percent less active devices per mile in the new architecture. The thing we can't quantify yet is what that means in operational savings.
Best: On average, our node sizes are 750 homes. We still take fiber down to those nodes in a route diverse path. We light up the backup path when we launch telephony in that market. We have presently 1 million telephone-ready homes where the backup path has been illuminated, and we haven't had a need yet to have to subdivide a node. We certainly have an interest in what [AT&T is] doing in Salt Lake City, but even if they succeed beyond their wildest dreams, and went down to 100-home nodes, I am not about to go back and re-do [my architecture]. We want to see what the parameters and drivers are for that, but I am where I am. And I see no need to change that strategy at the present time.
Chiddix: I think it's going to be interesting to see how [LightWire] plays out. Historically, operating savings as a justification have proven elusive. I remember there were fiber-to-the-curb models that were supposed to pay for themselves based on operating savings. So I think it just pays to be careful about that one. But it is a matter of timing. Clearly, optics get cheaper with time. If you start later, you can take advantage of some later electronics, and maybe some better economics can drive fiber a little deeper.
If you have to dig up a lot of underground to get fiber to smaller nodes, then the costs begin to skyrocket.
We are achieving four 9s availability in Rochester, N.Y. while running a successful modem business, a successful telephony business, and getting digital boxes to work quite well. So I think we are quite satisfied with the architecture.
CED: What's your migration strategy as it relates to DOCSIS and OpenCable set-tops?
Chiddix: All of our new launches are DOCSIS and we are beginning to look at rolling out DOCSIS in parallel with our legacy products. I think we will have some legacy products in place for years to come. Some of the legacy stuff works quite well, although we clearly want to move to DOCSIS to take advantage of retail and some of DOCSIS' more advanced features.
We expect to have POD modules from our vendors available next July. We expect to have set-top boxes with IEEE 1394 connectors on them next October. And we are very much involved with the OpenCable middleware initiative, which will take a little more time. Realistically, we are a couple of years away from OpenCable devices becoming a big factor in our business. But we are laying the foundation for that. In the meantime, like everybody else, we are launching proprietary boxes and keeping doors open so that they can co-exist with the OpenCable devices to come.
Best: We've requested that all of our systems that had launched proprietary modems transition to DOCSIS. We won't be rolling out any proprietary modems. We will have no need to be buying proprietary modems before long, as we will have transitioned all of our systems to DOCSIS.
As far as retail sales, I would characterize it as the early phases of working with retailers on a strategy. As far as OpenCable is concerned, to be blunt, we've done what we legally have to do, and that is placed orders for PODs. Quite frankly, we'd be surprised if we see any host devices to put those PODs into in the retail stores this year. There is some question as to whether the consumer will really go to Circuit City and pay $400 for a set-top, and then have me plug in a $75 POD. There are a lot of technical and business issues that need to be resolved around OpenCable. We will have PODs on July 1, and then we'll wait and see what happens on the retail side with set-tops.
Liberatore: All of our new launches are DOCSIS. We are not buying any proprietary or legacy high-speed data equipment. The legacy systems that we have in place also have DOCSIS sitting beside them, so that conversion is getting made.
[As for] retail [set-tops], the thing that concerns me most is how we try to manage the quality of the product and the applications now that they can come from multiple sources. We make that part of all of our discussions with the current vendors we are dealing with.
Werner: We emphatically believe in the retail channel for set-tops, for a whole bunch of reasons. When consumers go in to buy a new TV set today, they always get pitched on the products that are there. If cable's not there, we lose that opportunity. It is absolutely critical that we have a product in there that is able to be sold. So you will see us getting more and more aggressive on that front.
I think even General Instrument and Scientific-Atlanta want a retail route. And lots of other people like Thomson, Philips, Sony and Matsushita also want to sell product. But we have to get in there and start getting integrated with other devices and have a product on the shelf.
CED: How do you guys feel about trying to integrate multiple pieces of software together in digital set-tops and the potential problems that represents?
Chiddix: Certainly it's technically challenging. It's not technically impossible. The issue is, what we are trying to accomplish. If we truly want to have appliances, and I agree with Alex that set-top boxes are not going to sell at retail, I don't think, but if we are going to have TV sets that work well on cable as they come home from the store, we have a challenge that our competitors don't have. A DBS company has a nationwide footprint; therefore, a DirecTV-ready TV set will work anywhere in the country. If cable is to have that kind of portability, then we are going to have to have some kind of common software interface. So, no one is claiming it is easy, but the computer folks who have dug into it really believe that it can be done if the industry really wants to make it happen.
Best: (Laughs) Let's see if I can be diplomatic about that. You realize that you're asking a guy who has suffered through a lot of issues related to integrating just two pieces of software on a box — an operating system and a guide. It concerns me if the number of software platforms grows to three or four or five, and each one [is] constantly adding revisions and upgrades, and I am sitting in a headend trying to make sure that five pieces of software with multiple revisions are compatible with each other once they get loaded in a box. We are going to have to put testing facilities in place to absolutely ensure that once we provide upgrades and revisions to any of those pieces of software, that they remain compatible with the other pieces.
Chiddix: I think that DOCSIS has been a real accomplishment in terms of being able to give customers assurance that if they buy something at retail with the CableLabs-certified sticker, that it's actually going to work. We are going to need to do that in spades in terms of truly cable-ready digital TV sets that are application-ready.
Liberatore: I think we will get it done, [but] it's certainly not going to be a smooth journey. We are not going to be able to rely on our vendors as much as we used to, to bring these things together for us. We are investing in some of the tools to bring some of this effort internal.
CED: Dan, does that mean you're hiring software engineers and developing a test facility?
Liberatore: Yes. We are working on some things internally. At least in the outline that we've talked about. We've put an IT group in place that is for advanced development of these kinds of things.
CED: What are some of the advanced services you hope to roll out and what is the status?
Liberatore: One of the things that our advanced product group is working on is the back office stuff, so that you have a lot more flexibility in how these services get presented and billed, and how you bundle them. All the obvious interactive set-top discussions are going on. All the obvious folks are there. We also have a group working on e-commerce and some of those things. It really takes a lot of effort to prioritize which [things] you want to deal with.
Best: We've launched digital video in 15 systems, Internet in 14, and telephony in seven. We are going as fast as we can hooking up new RGUs (revenue generating units) at a clip [that is] around 40,000 a month. We have two trials budgeted for second quarter next year —one is an Internet to the TV trial through a digital set-top over the Scientific-Atlanta platform, and [the other is] a video-on-demand test over the S-A platform.
Liberatore: Let me just add that we have a small video-on-demand trial going on, and we have a small e-mail to the set-top trial going on, and we have a small HFC telephony trial going on. I wish I was as far along as Alex was with telephony.
Werner: We are moving ahead with the telephony initiatives as planned. We have eight markets so far that we have equipment installed in and are testing, and at least three or four that we've stepped into commercial launch of the product. We have very, very high levels of performance. Right now, we are testing every line as we install it, and we test every one of the incumbent's lines right before we disconnect it. On just about every possible measurement, we offer a higher quality product. So we are enthused based upon that, and it's now just a matter of getting installations done, getting to scale, and starting to move ahead.
Chiddix: We have three video-on-demand sites up and running. They are not ready for paying customers yet, but they work. We are rolling out digital set-top boxes at a great rate. We should be well above 400,000 or 500,000 by the end of this year, and we may be heading for a couple million next year.
That is a big deal operationally. When that is under our belt, we hope we will have video-on-demand ready, which is, we think, the big revenue opportunity near-term in interactivity. And I think we have 250,000 or 270,000 [data] customers as of this week.
In terms of telephony, we have our telephony project up and going in Rochester, and it works fine. Still, it is not as interesting a place to put capital as modems and digital set-top boxes are at this point.
CED: One of the big issues surrounding rolling out new services quickly is auto-provisioning. What are each of you doing in this area?
Chiddix: We are beginning to do some testing of self-provisioning. There was a big debate a few years ago about whether people should use high-pass filters to clean up their cable systems' ingress, and at the time, we felt that was short-sighted, and I think that is being proven out. We are winding up with the majority of our homes taking two-way services; therefore, the filters just postpone the inevitable cleanup process, and they get in the way of self-provisioning. It's hard to self-provision when you have to take a filter out when someone takes their cable modem home.
Liberatore: Well, we've used filters as kind of a Band-Aid approach until we can get into the house to solve the problem. We have an auto-provisioning package that we are going to trial. The installation process for high-speed data has probably been the most cumbersome thing, so we are trying to get that auto-provisioning package out to the customers and trial that. Best : We will be trialing that in other systems. We filtered most of our systems, with the exception of Las Vegas, which we purchased, and Omaha, which chose not to do that. But we don't see that as a big problem. We remove the filter when we install the additional outlet for the service, but we also think that self-provisioning will be a tremendous boon in terms of rate at which we install the new services.
Werner: Everyone is working on auto-provisioning, but it's just one piece of the puzzle. Getting to the point where the initial install is done by the consumer is probably a little ways off, though. That is part of the home networking effort that CableLabs is doing, that we're doing to try and get there, but it's one that's not real easily solved.
The side-of-the-house [approach] with the Packet Port idea that's got four lines of phone and one line of data is great for that. If [a consumer wants to change service], all you have to do is call us up, plug it in and away you go. We don't roll a truck for that. But having a consumer do his own install on a primary line is probably not on our near horizon.
CED: What's the big obstacle in achieving the success you want to enjoy?
Chiddix: I think our big obstacle is just impatience. We've got growing competitive (pressures) of course, but I think we've laid the groundwork with the upgrades, and with the digital technologies that are available to be a very competitive player and get into a whole bunch of new businesses. I'm really optimistic about all of that.
Best: People. I think we have openings for 600 people right now. Obviously with low unemployment in many of our markets and the competition that exists for telecommunications services, it's very hard to find qualified people to do the businesses that we want to do.
Liberatore: Clearly, it's execution and personnel for us. Our products are more complex, and they are more varied. So getting the people in place to get these things out there and execute like clockwork over the next couple of years is really the key that we struggle with everyday.
CED: What do you think the world will look like 10 years from now?
Chiddix: Looking out 10 years, I think we will still have an analog tier. I think one of our strengths is full-house service to analog TVs, and there's a whole bunch of them out there, although I think our analog tier may be much smaller than it is today. In 10 years, video-on-demand will be a huge business. I think the consumer [equipment manufacturers] will overcome the barriers to making great big cheap displays, which is the missing piece for HDTV to take off. And I think we'll have a very robust tier of MPEG services, from VOD through broadcast, standard and high definition, and we'll have a very robust tier of IP services.
Best: What I'm excited about is video-on-demand. Though there are many intellectual property issues to be dealt with, I think that technology will enable you to sit in your home and potentially have access to libraries around the world. Strangely enough, 15 years ago, there was a company called World Video Library. I think they were about 15 years before their time, but I think that is what the customer will have access to, the world video library.
Liberatore: There's going to be a wide variety of products [available] from us, and I think they'll be bundled as the customer wants them. I believe the customers should be able to buy what they want, when they want it, and wherever they want it, and they ought to be able to get it from us.
Werner: I think two or three things are becoming really clear to me today. Everybody will have broadband to the home. The home will be always-on. There will be a variety of IP addresses in your house, a variety of smart devices, all of them taking in information off of this broadband network, and all of them giving information back to it as well.
Just about everything that can be turned into a byte will be turned into a byte. Look at MP3 [digital music players]. The quality difference of it vs. a totally uncompressed CD gets smaller every day. If you load them onto a PC, it's the most convenient way there is to store, archive, select and play music. The same thing will happen (with) digital cameras. Even professional photographers are starting to say that the multi-megapixel digital cameras are pretty darn good. And again, they are so convenient and the quality gap is getting smaller, and you can manipulate and store the pictures.
The same thing will happen with books and other media. Hard-back books will be collectors' items and will be a form of art and decoration. If you want information, you'll download it to a portable device that will have a big display. So I think everything will be digital, everything will be broadband, everything will be constantly on and constantly communicating.