HD, Cable's Achilles Heel?

22 Comments

Updated: So now everyone is talking about Cable’s Hi Def problem!

“The increasing bandwidth demands on cable operators will soon reach crisis stage, yet this is a ‘dirty little industry secret’ that no one talks about,” Stan Schatt, VP and research director for ABI Research told Ars Technica.

[qi:032] Actually, it is not such a dirty secret and is common knowledge. When Brian Roberts, CEO of Comcast espoused a future where 160 megabits per second would be common place, we had asked the question: how will cable find four spare channels to pump data and find a way to cram HD signals?

In fact, HD is one of the big advantage satellite broadcasters have right now and are doing their best to lure away competitors from cable systems.

The best thing cable companies can do for now is hope that more and more folks switch to their digital systems, and opt for digital set top boxes. That should give them breathing room. And when those “digital subscriber” numbers start to flag, then it is a crisis situation.

Update: The cable guys’ are betting on switched digital which can add anywhere between 10-to-20 MHz channels. The analog cutover can add about 70 channels, Dave Burstein tells us. All this is going to cost money, but as Dave points out, they can hold their own against AT&T. About Verizon, who knows. David Isenberg explains in the comments section about the big switched digital move.

22 Comments

Zach

I’m not sure satellite is so far ahead… I recently signed up for Dish on the promise of more HD. They do have more channels available, but can’t deliver my networks (ABC, NBC, CBS, Fox, CW) in HD where my cable provider had been. In general I watch more time wise on the networks so actually saw a reduction in my HD viewing with this switch.

Andrew

Regarding STB for Analog… the industry has a solution for putting boxes at the front door that converts the digital back to an analog compliant signal that can be fed into a standard Cable-ready TV, but its too expensive to deploy (i.e., no STB needed for grandma).

Cable is dragging their feet to maximize their current investment. They have a great business and its pumping cash and margins like crazy. At some point ATT and Vz will hit critical mass and really start to threaten… But I’m sure the CableCo’s know when that inflection point is and will react accordingly. Probably in 2009-2010.

RandomThoughts

Don’t underestimate the demand for FiOS. Where its offered, it takes marketshare. I live in New Jersey but it isn’t available in my town. When its offered, I will probably switch from Cablevision to FiOS. Cablevision will not only lose a video customer, but a data and voice customer also.

I would imagine that Verizon itself is limiting the number of areas it rolls out FiOS because it knows it wouldn’t be able to keep up with demand for installations. Key to this process is reducing the time from order to installation. Verizon needs to ensure that the customer is up and running quickly to limit the amount of time the cable company has to reclaim their customer. Long waits encourage customers to cancel their order.

Bruce

I believe many of the cable bandwidth concerns are overstated, although that doesn’t mean they don’t have any issues.

Bandwidth pressure comes from two sources: (1) new TV channels, particularly high-def, and (2) growing demand for Internet bandwidth.

There are only two reasons for the cablecos to have concerns over the next few years. First, Verizon’s FiOS really does change the game. It delivers both a large bandwidth TV service and (relatively) very-high bandwidth Internet service. (Voice is a low-bandwidth service and has effectively no impact on this.)

Second, the combination of satellite DTH and higher-bandwidth DSL can challenge the cablecos using the combination of the two infrastructures. (AT&T’s U-verse isn’t a threat, even with the advantages of switched video, because the FTTN infrastructure can’t out-perform cable.)

In response, the cable companies have a variety of options:

  1. MPEG-4 — this is particularly important for HDTV because it cuts the bandwidth requirements in half (or even more). The challenge here is replacing HD set-top boxes to support MPEG-4 (although, DirecTV has exactly the same problem becuase its plan for 100+ HD channels is built off replacing the existing STBs).

  2. Analog conversion — There is a customer issue with migrating customers, but every analog channel moved to digital allows 10-12 SD channels and 2-3 MPEG-4 HD channels. With more than half of the available HFC spectrum tied to analog at the moment, there is a lot of additional capacity available.

  3. Switched digital — This requires more complex network upgrades as well as new STBs, but breaks the link between content and bandwidth. Switched digital is constrained by the number of simultaneous signals carried, but not by the number of channels available. (It is the principal advantage of an IPTV service.)

  4. DOCSIS 3.0 — This doesn’t address the HD issue, but increases Internet bandwidth (and creates the biggest threat to a FTTN deployment).

  5. Infrastructure upgrades — From node splitting to expansion of the bandwidth, there are a number of ways to increase the available capacity of the HFC infrastructure through changes in electronics. It has a cost, but nothing like that of a FTTH roll-out.

So, what does this mean?

First, those facing Verizon’s FiOS have to be concerned. With its investment, Verizon has built an infrastructure that can potentially go beyond that of the cablecos. (Although, it will likely be some time before there is sufficient demand for it to matter.)

Second, those facing AT&T’s U-Verse are in much better shape. They have a better infrastructure with many options to expand capacity beyond what ADSL2 or VDSL2 can offer.

Third, pressure from satellite (and maybe Verizon) will create an analog problem for cable. Using multiple satellites (they are deploying dishes with 4 LNBs), DirecTV can offer up to 128 6MHz transponders with a purely digital broadcast signal. This is capacity competitive with the existing cableco networks (at 750MHz to 860MHz) and fully dedicated to television. (Although, some is lost to multiple local signlas.)

To fully match this capability, the cablecos may have to fully migrate from analog to digital, at which point they will be able to match whatever DirecTV offers as well as deliver Internet and telephony in a bundle. When this takes place depends on customer demand at both ends — those at the leading edge looking for more HD content and those at the trailing edge happy with a standard analog service.

DG Lewis

If they want happy customers, they give the box away – “You have to use this converter box, but we’re not going to charge you for it.” For a company like TWC, that would cost about $250M in capex, which would be about a 6% increase in capex over what Citi has estimated for 2009.

If they want to minimize capital, they charge $50 for it and too bad for the customers – after all, what are the customers’ alternatives? FiOS or U-verse? Requires an STB. (FiOS currently offers an analog tier, but to get an integrated STB waiver Verizon committed to go 100% digital by 2009.) DBS? Requires an STB. OTA? Requires an STB.

“The majority of customers” have already decided that they prefer the “more advanced services”. Digital video penetration rates (as a percentage of basic video):

Comcast: 58.5%
TWC: 57.7%
Cox: 54.6%
CSC: 81.2%
Charter: 52.9%

These penetration rates are growing and will all be in the 70%-90% range by 2009.

Alex Stevens

“But in 2009, when OTA analog goes away, the barrier to the cablecos requiring customers to have an STB to convert digital signals to analog gets a whole lot smaller. “Look,” they’ll say, “you need a converter box to use your old TV without cable; if you want to use your old TV with cable, you need a converter box there too.”

That argument just isn’t true in the real world. The person in question has had an old, cable-ready TV for years and is fine with the channels they get.

Now, the cable company approaches them with your logic. They say “I never needed one before to get cable, I don’t use over the air. I am perfectly happy with what I have and how it works. Why are you making me change AND making me pay for it?”

Because of course, the STB rental costs money – somewhere in the $50-$100/year.

The change to all-digital/all-switched/all-STB/whatever fundamentally helps the MSO’s and a minority of their customers (that include most of us blog-comment-poster types) that want more advanced services.

The majority of customers are happy with what they have, and simply want it to work well, be simpler, and cost less over time, not more.

DG Lewis

“The point is, there is a certain demographics, (small, yes, but significant), who don’t have digital and want no STB.”

But in 2009, when OTA analog goes away, the barrier to the cablecos requiring customers to have an STB to convert digital signals to analog gets a whole lot smaller. “Look,” they’ll say, “you need a converter box to use your old TV without cable; if you want to use your old TV with cable, you need a converter box there too.”

From a PR and market share point of view, the smart thing would be to give them away. So Hypothetical Grandma can keep watching broadcast basic without laying out $100 and having to get a coupon for a $50 rebate that she’ll lose or forget to mail in, and the cableco can get reclaim analog channel capacity (and retain the broadcast basic customers).

K Kumar

Wes,

That’s correct. Analog signals go in the lower end of the spectrum (just above the FM bands) and digital usually goes above that.

Switched Broadcast (or Switched Digital) is always digital, hence it occupies a different part of the spectrum.

Actually, Switched Broadcast is functionally the same as the method used by IPTV operators to squeeze one channel at a time down a DSL pipe – only send it down when needed (that is, when requested by the remote). The reason there, of course, is that DSL can’t carry much more than 1 SD channel at a time in any case!

Grandma doesn’t need to buy a box, and Cable can still do switched broadcast. :D

Wes Felter

I am assuming that switched digital allows the analog signals to pass through, thus not forcing grandma to get a STB. Is this right?

K Kumar

Wes,

The point is, there is a certain demographics, (small, yes, but significant), who don’t have digital and want no STB. Over time, they may become the lower paying insignificants, but they aren’t so today.

Switched Broadcast (as Jesse said) is digital, and needs an STB today.

KK

Jesse Kopelman

Wes, switching pretty much requires STB or 2-Way CableCard. The Switch needs to get requests from the terminal to know what to send. So, it’s not switching or STB — it’s switching and STB.

Wes Felter

Is switched digital really cheaper than giving STBs to all the analog customers and going digital-only? (If the customers don’t want STBs, screw ’em. Every other service requires STBs.)

K Kumar

Cable will have to give you your own guaranteed pipe into your home – supporting multiple HD channels. There simply isn’t enough capacity today for that, but over time, Cable will get there.

Fact is, nothing can do that today – not even FiOS, since FiOS delivers video the same way the cable guys do – it’s a 1550nm downstream channel overlaid on the 1310nm GPON. They have pretty much the same downstream bandwidth for video as Cable does!

A few facts.

  • A 1GHz Cable (HFC) plant supports about 5Gbps worth of bandwidth (that’s what Cable is upgrading to, now).
  • Certain cablecos are testing 3Ghz plants – which will support 15Gbps into the house.
  • With the Digital transition, Cable could be the only medium to carry analog – my Aunt who doesn’t want an STB in her house (and a bunch of her friends) – so don’t bet on reclaiming that bandwidth for a while.
  • Switched digital ONLY works if enough people in the same neighborhood watch common programs.

Verzon’s only gotten 1M streams and will only be 7M in several years. It’s not enough to hurt Cable badly anytime soon.

Andrew

The Cable Operators are walking a fine line of providing acceptable levels of service to meet HD demand and they know it. Switched digital is a solution to the analog problem, but it’s taking too long and there are performance issues on the ‘switched’ technology (i.e., delays in loading up channels). The real dirty little secret is that the CableCo’s have to capitalize their massive HFC upgrade costs they just recently deployed and can’t really afford to take on another costly upgrade until they get some ROI / RONA. Promises of DOCSIS 3.0, non-existent CableCard 2.0, OCAP are largely diversion tactics to delay the reality that most cable operators are constantly operating at the extreme bandwidth limitations of their networks pulling out every trick in the book to add another channel.

CableCo’s serve up just enough HD Content to satisfy subscribers and then force their customers to pay for incremental network enhancements; all while they hold their highest margin product (broadband) steadfast. They laugh at the fact that most consumers don’t have their HDTVs connected to a HD signal and don’t know any better.

The DBS guys are always going to have issues with their one-way platform and is not real competition for the most part; despite taking sizable chunks out of CableCo operators profits.

Thank goodness FiOS decided to enter the market and sink billions into real competition. Congress should be subsidizing their buildout with restrictions on pricing of low-tier service packages to fast track the effort. But of course that would never happen.

Everyone should pray for Google to win some serious spectrum in the upcoming auction process as they can provide a major disruption to the broadband incumbents (Cable/ Telcos) and provide a real threat to the video distribution model — including HD.

For my money, if VZ would build it in my area, I’d subscribe to FiOS. If I’m going to fund someone’s network deployment, it may as well be the most advanced fiber to home strategy being deployed today. I live in SF so I don’t think I’ll be getting FiOS anytime soon.

Andrew

Jon Smirl

Switched video is a reason you don’t want CableCard1, it doesn’t support it. The mythical CableCard2 does, but it is only available in fantasyland.

FOIS is set up beautifully for switched video. 2.4Gbs into the house, just pick off the right bits and modulate them onto a QAM channel. Stop encrypting and give me a RF remote that can talk to the box in the basement. I set the QAM TV on a fixed channel and tune via RF to the router in the basement. No set top boxes, I’m in heaven. This is a very cheap solution to build with parts available today.

I really, really, really hate the “protected video path”. I don’t want set top boxes on every television. I don’t want to buy all new televisions. I want to use my PC to record news based on keywords in the closed caption.

Comcast was at my house for three days trying to get my main HDTV working after they turned HDCP on inside their cable boxes. My TV was a little too old to have HDCP. They finally found an old Motorola box for me with DVI out that didn’t have an HDCP chip. All of this wasted time and inconvenience for the holy “protected video path”.

I have FIOS now. I also have five QAM capable TVs in places where they are infrequently used. I have to carry a STB around with me when I want to use one since they can only receive the broadcast channels. I want to watch the Red Sox and they are encrypted. And I pay over $100/mth for this pleasure.

Why can’t they cable/sat industry band together and tell Hollywood to go jump off a cliff on their own and not drag everyone else with them?

RandomThoughts

The switching issue does take care of the big problem of sending all signals through the pipe, but it also adds cost. Cable’s big problem is that it told Wall Street a few years ago that it wouldn’t have to do the big capital expenditure projects in the future. Well, now they will have to.

Also, Cable faces issues on the switching, the time it takes for channels to switch, ect. I know as Cablevision upgrades it network, I see problems with individual stations and my Internet seems to go up and down often.

Personally, I don’t see the lure of HD. Maybe if I get new eyeglasses with a better perscription I would appreciate it more, but HD just doens’t impress me all that much.

Om Malik

Guys, i think i am making the same arguments as you all including David Isenberg, except they are in my previous posts. Anyway I have updated the post to reflect that.

Peter Lee

Victor, there is bandwidth available but the problem for cable is everything and everybody is drinking from the same well. Want more HD, how will it affect internet IP traffic? How will it affect VOIP? And turning off analog? Good luck! Cable networks covet their analog carriage and most of their contracts prohibit digital tiering AND transmission. This legal issue has to be worked out with each and every separate network.

John Thacker

Agree with Victor Blake. The bandwidth hog is analog. Analog channels take up more bandwidth than digital channels, even than HD digital channels. So the cable companies want to move to digital QAM modulated cable. However, older TVs don’t have a QAM tuner, and in any case the cable companies want to encrypt most of the digital streams. So there’s cable boxes as a solution, with CableCards for newer TVs with tuners.

Turning off analog cable is going to take longer than turning off analog broadcast. The Netherlands still has analog cable, despite turning off analog broadcast.

Czaries

I just recently signed up for satellite TV because it was the only thing available in my area. They are still charging $20/month extra for true HD programming, which to me is just ridiculous. Do you think the rates will go up by default when the switch to digital is made? I sure don’t want to be paying that extra $20 per month…

Victor Blake

I don’t get it. Assuming a full 6MHz wide channel for HD, and with 750 (less 42MHz), 870, or even 1GHz plants — there’s lots of room for HD. Things currently wasting space: simulcasts supporting analog TV (goes away with the DTV transition), and what I call triple casts (analog + Standard Def Digtial + HD) — carrying three copies of the same channel.

DTV transition and Switched Digital Broadcast will help with these issues. But clearly the networks can support more than there is HD content available.

I’d be more worried about consumers lack of HDCP enabled HD sets and the rather annoying lack of automatic switching between analog/SD 4:3 and 16:9 aspect ratios than any CATV infrastructure problems with HD.

That said, there should be concern about enough cable return spectrum for higher speed Internet service past some not-to-distant-point in the future.

David Isenberg

Om – I expect a more informed article from you. Did you bother to check with anyone in the know about what cable cos are actually doing to address this?

The biggest change is a move to switched rather than broadcast architectures. Rather than pumping all channels of down the pipe whether or not anyone is watching them, switching means you send signals down only if someone wants them. This has huge benefits for bandwidth utilization and ability to carry vast amounts niche content (like it or not, most HD channels are still niche content today). This is not pie in the sky technology but is proven and working in millions of homes today and will be heavily deployed in 2008.

Other tactics cable companies are using include migrating some channels from analog to digital carriage and even taking some systems to ‘all digital’ – meaning they no longer deliver analog signals or do so just for the off-airs.

DirecTV has done a masterful job of marketing their capacity plans and future capabilities. However, the truth is that DirecTV will not have a capacity advantage for a significant period of time. As a result, the issue isnt so much relative capacity but the basis of customer decisions and competition: do people care about the quantity of HD channels available or quality of those channels? The fact of the matter is that there arent 100 or 70 or even 50 high quality HD channels available for carriage today. Would HD buyers prefer a core set of 30-40 quality HD channels and a 2 or 3 product bundle or simply go for quantity of HD available and multiple providers? These, more than capacity, are the factors that will determine who wins in the market.

oh – and cable companies are serious about docsis 3.0 deployment plans – they will find the bandwidth to make it happen.

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