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The June 6, 2007 Issue Provided by System Dynamics Inc.
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The Cable Show '07 -- Winning in Las Vegas

The show floor --> Click for larger pictureThe Cable Show '07 themes matched its Las Vegas location. Winning and losing, getting the right numbers, where to place your bets and how to beat the competition were all hot topics. And rightly so. Competition has never been greater for North American MSOs. Satellite keeps battling with the promise of more HD services, interactive services like games, news and sports, plus portable video players (like PocketDish). Telephone giants AT&T and Verizon are adding TV services to their voice, data and mobile services bundles. New sources of video content from the Internet are increasingly competing for viewer's time and attention.

Steve Burke of Comcast --> Click for larger pictureIn the face of all this competition, MSOs pointed to positive results. First quarter financial results for both Comcast and Time Warner Cable showed accelerated subscriber growth in all key services and hefty increases in revenues and "revenue generating units". In a panel at the show, Comcast's COO Steve Burke reported that cable is taking many more phone customers from the telcos than telcos are taking video customers from cable. He also noted that 55% of net-adds for cable modem service are former DSL subscribers.

MSOs pointed out that their HFC technology continues to be up to the task, even as bandwidth demands keep rising. Multiple sessions and vendors focused on the numerous ways MSOs can get more bandwidth out of their existing plant and/or incrementally extend its capacity -- see the following article "Using Cable's Magic Tricks".

FCC Chairman Kevin Martin --> Click for larger pictureEven FCC Chairman Martin, who has a rocky relationship with cable, had some positive feedback for the industry. He said "You have succeeded where others have failed, providing the most successful and sustainable competition in the voice market ... You continue to lead the industry in terms of faster speeds". These positives were tempered by some less-welcome messages supporting "a la carte" (subscriber's ability to choose and only pay for individually selected channels) and "multicast must-carry" (in which cable systems would be required to carry all of a TV broadcasters free, ad-supported digital television (DTV) channels, not just digitally replicate the former analog channel).

One of the big stories coming out of this year's cable show was the push for OCAP set-top boxes. The Open Cable Application Platform (OCAP) specification, licensed by CableLabs, provides a standard way for set-tops, TVs and other devices to access interactive cable services like video-on-demand. The OCAP effort, underway since 1998, is currently in the testing phase with most MSOs, who are pledging to have the OCAP platform widely deployed by the fourth quarter of 2008. We'll hold off our reporting on this until tangible successes from the field are in.

A couple of items that particularly interested us at the show were:

  • Cable's current status and future plans for mobile services (below)
  • Whether cable will have sufficient bandwidth capacity to continue to accommodate the growing list of bandwidth intensive services (see the next article)

Cable's Mobile Play: A Work in Process

US MSOs are in the first inning of the mobile services game. Time Warner, Comcast, Cox and Advance/Newhouse Communications (Bright House) announced their partnership with Sprint in November 2005, and have started rolling out their initial bundles with mobile services under the Pivot brand. Their motivations are clear: their main competitors--Verizon and AT&T--offer mobility as part of the bundle, so they must also. But beyond the baseline "me too" requirements, a host of questions remain to be answered. The role of mobile video is one of the biggest questions.

The MSOs don't pretend to know all of the answers; as Steve Burke said at the show, "Cable's approach to wireless is a work in process." That's not surprising, since mobile video is in its infancy and the whole mobile industry is testing the marketplace to understand its wants and willingness to pay. The content industry is also in its infancy regarding mobile entertainment. Peter Chernin, President & COO of News Corp., summed it up by saying: "It's the first pitch of the first inning and we are trying to figure it out."

Cable Show speakers gave some clues on their current directions for mobile services. Here are a few of the questions raised, and the answers we heard from the MSOs:

  • What will the service offerings be?
  • How will MSOs use the AWS spectrum they won at auction last August?
  • What network will be used to deliver entertainment content to mobile devices?
  • Where will that content come from?
  • Where do mobile services stand in the MSO priority queue?

Service Offerings

There seemed to be much less talk about individual mobile services than about their attributes within the bundle. Although MSOs think individual services are important, they believe integration across services is the key. Brian Roberts reinforced this when he said: "If it's just about cell phones, you can go the mall and buy one."

Thus, when the cable partners and Sprint launched Pivot in March, their press release emphasized integration across service types and provided some tangible examples. These included the ability to display the cable guide on the mobile phone and program your DVR from it (the latter is still in the works); to check home email and voicemail from a single interface; and to make unlimited calls between your home VoIP line and your mobile phone.

Video content seems to be another MSO key to mobile services. Since it is the "bread and butter" of cable's traditional business, they are thinking about how users can have the same content available on all three of their screens -- the TV, the PC and the mobile phone. In the near-term, Pivot customers receive Sprint's mobile video package, which includes both live TV video and on-demand video clips. In the longer term, we expect some of the MSO-specific content, like Comcast's dating-on-demand service, will be a natural for the mobile screen. "Cable will work with videocentric devices -- not just focus on plain voice," said one MSO.

Role of AWS Spectrum

The MSOs are using Sprint’s current infrastructure and spectrum to provide their initial “quadruple play” services, and are also doing their initial service integration in partnership with Sprint. Questions have been raised about how the MSOs intend to use the AWS spectrum purchased at auction nearly a year ago by SpectrumCo (owned mainly by the MSOs with Sprint holding a 5% interest).

In a session at the Cable Show, Brian Roberts was asked about the AWS spectrum. His response suggested that this spectrum was more an irresistible opportunity than a strategic move: "The government auctioned off spectrum and we didn't need it at that moment. But they auctioned off more spectrum than at any time in their history. There was demand for about 60 MHz and the supply was 90. The cable industry was able to go in and buy 99% of the country with 20 MHz and begin to play with what could be done with the next generation of an integrated service -- with a relaxed timetable, if and when that's what consumers want." Given the laws of supply and demand for spectrum, he said he views it as "a growing asset. We paid half per POP of what the last auction had gone for" and 60% of what the incumbent cellular carriers paid in the same auction "because the demand had been soaked up."

Roberts indicated the industry's current focus is on rolling out the Pivot services: "It's one person showing up at your house with one hookup for three products, one company to call for service, and they're all starting to integrate. In the world tomorrow, we have a couple of horses. We really want to work with Sprint and make some things happen."

Dick Parsons of Time Warner --> Click for larger pictureDick Parsons, Time Warner's CEO, made a related point in an earlier session: “Human habit patterns don’t change as rapidly as technology”.

Getting Entertainment Content To Mobile Devices

At its simplest level, there are three different ways content can get to a consumer's mobile device:

  • Carriers can use their existing cellular networks--this is the mechanism currently used by services like MobiTV in the US and by 3 in many other countries. Delivering content on a one-to-one (unicast) basis creates a problem if video services are successful, since the cost per delivered bit is relatively high and there is not enough bandwidth for high-volume video services.
  • Carriers can build (or lease) a separate network specifically built with focus on the economics and technical requirements of video. Within this category, there are multiple methods, some of which are more prevalent in certain geographies--examples include South Korea’s digital multimedia broadcasting (DMB), Qualcomm's MediaFLO, Aloha Partners' Hiwire, and Crown Castle's Modeo. In most of these, the transmission is to multiple users simultaneously (one-to-many) using IP multicast. WiMAX could also be a contender in this category, and video could be carried either unicast or multicast, depending upon its popularity.
  • Consumers could make their personal entertainment collection portable without subscribing to a carrier's mobile content network, using a media card (or a mobile data service) to transfer media content from their home-based devices (DVRs or PCs) to their phones. Using a media card is often called "sideloading", although Tom Nagel, SVP & GM Wireless Services at Comcast, also described it as "load and go." It is being made possible by advances in memory and processing power of today's mobile phones and could encourage owners to spend more on the phone and less on the carriers' content services.

Nagel made a pretty convincing argument that consumers are likely to want a combination of all three methods. Since mobile video users are expected to be heavy users of DVRs, and the programs a user chooses to record are likely what they will want to watch, Nagel estimated that 80% of the benefit of mobile content could come from sideloading. He was quick to point out, however, that consumers sometimes want to see live events, like a baseball game or an important news bulletin, in real time; for these, broadcast/multicast would be ideal. Finally, there are the infrequently used items like user-generated content from sites like YouTube, for which unicast should work just fine.

The big issues in pursuing such a combination path relate to creating a seamless user experience. It is likely to be a huge job. In the mean time, everyone is testing pieces of the puzzle. It will take a while to put the answers together.

"On-deck" and "Off-deck" Content

Sideloading and user-generated content raise another question for mobile services providers. Moderating a session on mobile services, Scott Wills, President & COO of Hiwire, taught us some more new vocabulary in his opening remarks. Content received by the user as part of the service provider's user interface and coming through an approved vendor-partner relationship is termed "on-deck," while content from outside sources delivered over a high-speed mobile data service is (not surprisingly) called "off-deck".

"Off-deck" content could come over the Internet from non-approved mobile content providers. It could also come from the user's home media collection, using the mobile connection as a data pipe--flat-rate mobile data pricing is likely to encourage this behavior. Companies like Sling Media and Orb Networks use mobile data services to stream entertainment from home to mobile devices; their business models are based on the premise that your content from home should be yours anywhere -- and they facilitate your accessing and streaming it.

Since MSOs are looking toward a "three-screen experience," it seems reasonable to expect that they will aim toward making the video content cable subscribers already have available to them in their homes--whether through their HBO subscription or saved on their PVR--available on the same subscribers' mobile devices: the consumer buys the content once and can use it on any device. This raises lots of contractual issues that will need to be addressed for the MSOs to make good on the "three screen, any content, anywhere" vision. The IMS capabilities being incorporated into PacketCable 2.0 are one ingredient for enabling this capability.

Mobile in the Priority Queue

When will MSOs move mobile to the front burner and roll it out nationally? Historically, MSOs have addressed only one new service area at a time. This has changed somewhat as competition has increased, but there is still a limit on capital, mindshare and personnel training.

Glenn Britt, Time Warner Cable --> Click for larger pictureIn a session on Cable's Next Business Opportunities, Glenn Britt, CEO of Time Warner Cable, was asked about new services priorities. Without hesitation he answered "commercial, advertising and wireless" in that order.

Brian Roberts, speaking after the show at the Sanford Bernstein Strategic Decisions Conference, seemed to echo Britt's priorities. In speaking about how important he views both targeted and interactive ads, he said: "The money is humongous--and real cash." In answering a later question, he indicated that aggressively rolling out business phone services came first, with advertising close on its heels.

Mobile services are not at the head of the list in these MSOs' priority queues. The game needs to move forward with learning from the early innings before mobility could move to the front of the queue.

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