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The May 23, 2005 Issue Provided by System Dynamics Inc.
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Cable's Future: More Than the Triple Play

Each year we attend the National Cable Show sponsored by NCTA to tune in on the industry buzz and see what innovations vendors have on display. At this year's show we heard a lot about convergence, mobility and new consumer behaviors. Here's a sampling from speakers and the show floor.

Heard From the Speakers

The New Reality: The TV Goes First

Consumer expectations have altered radically from ten years ago. A decade ago, video entertainment was the cable industry driver which fit well with the perception of most TV watchers as couch potatoes. Computers were just starting to be present on the show floor of cable industry events; they were not yet a major factor in consumer's lives. MSOs were entirely focused on services delivered inside the home--mobility was not a topic of discussion.

Jerry Yang, speaking at NCTA --> Click for larger pictureIn a show session, Bing Gordon, CEO of Electronic Arts, summed up one refrain of the show: "Every fifteen year old knows that communications and entertainment go together". Jerry Yang, co-founder of Yahoo, continued: "The proliferation of devices and media is what kids grow up with - and their behavior is driven by these experiences". Mitch Singer of Sony agreed that the wants and needs of today's customers are changing: "Every year, millions of analog subscribers die and millions of digital subs are born."

MSOs understand that today's teenagers are tomorrow's customers. Jerry Yang pointed out these young folks say in surveys that if they had to give up one of their devices, the TV would be the first to go. Streamed video is already available on their computers; mobile phones today supply voice, messaging and Internet functions and are rapidly adding video services to the mix.

What About Outside the Home?

In observing this changing world, US cable operators are coming to grips with an important reality: today they can provide the triple play of voice, data and video services to the home, but outside the home their offering cupboard is bare. In contrast, their biggest DSL competitors, the telcos, have associated companies that lead in providing wireless services. MSO representatives acknowledged the need to address their wireless gap. Tom Rutledge, COO of Cablevision summed it up by saying "the wireless world is a great business opportunity".

Of course the MSOs are not the only ones with an incomplete bundle. Blair Levin, in a session called "Peering into the Future," observed that "Everybody has a weak point. For cable it's wireless, for telcos it's TV and for DBS it's interactivity."

The Wireless Landscape: Cable's Perspective

With the quadruple play, city Wi-Fi, fixed-mobile convergence and WiMAX increasingly in the news, we were excited to be moderators for a wireless session during NCTA 2005. The objective was to allow three of the largest US cable operators to share some of their perspectives on the emerging wireless landscape. Their goal was to provide their perspective on customer needs, a view of their assets and obstacles, and a window into their current, early thinking. They made it clear that no specific announcements were part of the program.

Peter Stern, Senior Vice President of Strategic Planning at Time Warner Cable, provided some results of their qualitative research, focused on cable customers' wireless needs and likely prospects for wireless offers. The research concluded that cable-provided seamless mobility could solve a number of customer problems.

Tom Nagel, Vice President Business Development of Comcast Cable Communications, continued by giving some alternative paths that MSOs could potentially take if they wanted to enter wireless. These included resale arrangements, becoming an MVNO, building their own or becoming an equity partner. He also focused on some assets MSO could bring to the party, such as customer relationships and multimedia and data content.

Mimi Thigpen, Vice President of Strategy for Cox Communications, brought a sense of the real-world challenges an MSO would face in adding wireless capabilities. These include differences from their current business in the billing relationship, suitable forms of content, their current footprint and channels.

Until some official announcements are made, what the MSOs will or will not do in wireless remains a matter of speculation. We'll keep watching and update you once there is something official to report.

What The Customer Wants

Paul Allen talking about the separation of services from the pipe they are carried on --> Click for larger picturePaul Allen articulated his vision, shared by many, of a future in which the consumer doesn't care about the pipeline over which services are delivered. What they do care about is having their content and applications wherever they are and on whatever device is available. These needs give substance to buzzwords like interoperability, integration and platform independence. They also point out the industry challenges as the types and numbers of devices and services keep multiplying.

See It, Touch It

CableNET2005 Booth --> Click for larger pictureWe most enjoy seeing and touching physical things and trying out new services. There's never enough time on the show floor but here are a few noteworthy items related to the themes we've already mentioned.

TV Guide on the Mobile Phone

What does your mobile phone have to do with your home TV? Gemstar-TV Guide International, which creates the interactive program guide used in many set-top boxes, plans to roll out a mobile-phone application allowing people to search for program listings. The company has already rolled out a similar service for NTT DoCoMo in Japan.

Once a user finds an interesting show, they can set up a reminder about when it will be on and alert friends to also watch it. If you won't be home at the right time, it can schedule recordings on DVRs that support the technology, such as Motorola's DCT6412 HD-DVR. The application has additional goodies, like access to TV-related ring tones and previews of some shows.

At the show we were shown a prototype demonstration of the application working on Nextel phones. Because this is neither an announced nor committed project, the Nextel folks wouldn't let us take any pictures of the phones or the demo--but the application looked pretty cool.

Converging Wi-Fi and Mobile

With all the discussion about Wi-Fi/Mobile convergence, we appreciated an opportunity to meet with David Schwartz of Longboard, a provider of open mobile convergence software. Their focus is SIP, Wi-Fi and expertise in handsets. Schwartz said their platform has over 300k active subscribers, mostly in Asia Pacific.

Longboard has partnered with Cedar Point Communications and ARRIS, two of the leading providers of cable telephony, to demonstrate fixed mobile convergence over cable's HFC networks. The joint product, using "dual-mode" handsets supporting both Wi-Fi and cellular, enables hand-offs between cable-provided VoIP phone service in the home and mobile services outdoors. Implementing such a service requires more than technology--such an offering would require business agreements between cable and mobile operators.

David explained that there are currently competing approaches to Fixed Mobile Convergence (FMC). One approach is "wireless centric": the wireless service provider keeps the call control. This can be either network-based--call control is kept in the wireless network (the so-called UMA approach developed by Kineto Wireless)--or site based--call control is at the site (as in the PBX-based approach announced several years ago by Avaya, Motorola and Proxim targeting business users).

There are also "wireline-centric" approaches, in which the wireline carrier keeps the call control. These are the ones that we expect MSOs would favor. Again they come in two flavors; the Longboard solution is currently network-based, while there are also site-based approaches.

The bottom line is that there are multiple approaches to FMC, with various benefits for different constituencies. All are in various stages of development and maturity.

Consumer Video Communications Applications: Here Today

Demonstration of Vibe Video Mail --> Click for larger pictureSometimes it is easy to get enamored of challenging new technologies, while ignoring simpler applications. When we first met with Vibe at an earlier cable show, we focused on their videophone and ignored their video mail. Video mail is much simpler than videophone; it bypasses all the complexity because it is store-and-forward rather than conversational--one person records the video and sends it by email to another.

What turned the light on for us (I must confess) was receiving a video greeting card from our daughter, a Comcast subscriber. The quality was acceptable, but the wow! factor coming from a personal recording made it a knock-out.

We talked again with Brad Herrick to understand how Vibe is doing and where they go next. They have deployed video mail with several of the biggest cable operators and believe that simplicity has been one of the keys to acceptance.

Comcast and Road Runner both provide video mail free to their high-speed Internet customers. The video mail application provides "training wheels" for PC-based video telephony. While relatively few user PCs have webcams to create video, all can receive it. Receiving video mail gets customers used to video and encourages them to install webcams on their PCs so they can reply. That makes the progression to video telephony less of a jump and more of a stepwise progression.

It will be interesting to see how long it takes to move to the next stage.

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