Two Tales of DSL

DSL modemI had to chuckle the other day when I saw two articles about DSL that were going in opposite directions. In the first announcement AT&T announced that they are phasing the TV product out of their U-verse product. The same day I saw an announcement from Frontier that they are entering the video-over-DSL business in a big way.

The technology that is being used in both cases is paired DSL. This means putting DSL onto two copper phone lines and then using them together to create one data path. Under ideal conditions, meaning perfect copper, the technology can deliver about 40 Mbps through about 7,000 feet of copper. But of course, there is very little perfect copper in the real world and so actual speeds are typically somewhat slower than that.

In AT&T’s case this change makes sense. They purchased DirecTV and they are going to use the satellite platform to deliver the cable TV signal. This will free up the DSL pipe to be used strictly for data and VoIP, and this will extend the competitive ability of the DSL technology. In most cases the company can deliver 20 Mbps – 40 Mbps to homes that are close enough to a DSLAM. I’m sure that AT&T has been finding it increasingly difficult to deliver data and cable together on one DSL pipe.

The downside for AT&T is that not everybody can get DirecTV. Some people live where they can’t see the satellite and many people in apartments aren’t allowed to stick up a dish. So this isn’t a perfect solution for AT&T, but the increased data speeds probably mean a bigger potential customer base for the U-verse product.

Frontier is coming at this from a different direction. The company has seen declines in revenue as voice customers continue to drop off the network and as they continue to lose DSL customers to cable companies. The company saw a 1% decline in revenue just in the fourth quarter of 2015.

To try to generate new sales the company just announced this week that they are entering the business that AT&T is abandoning. The company launched IPTV in the 4th quarter of last year and announced that they are going to extend this to 40 other markets and pass 3 million customers with the product. They are going to use the same paired DSL as AT&T U-verse and will offer video on the DSL.

Frontier is hoping that this move, which will give them the triple play bundle will bring in more broadband customers and bolster both revenues and the bottom line. The company also expects to get a nice bump from finally closing on their purchase of Verizon properties in Texas, Florida and California. It is going to be a busy year for the company as they also hope to add 100,000 new broadband customers this year for the first of six years of an expansion funded by the CAF II funds from the FCC.

I have a lot of sympathy for a company like Frontier. They have purchased a lot of rural markets that have been neglected for years by Verizon and which don’t have very good copper. Where many smaller telcos are converting all of their rural areas to fiber, Frontier does not have access to the capital needed to do that, nor would they want to suffer through the earnings hit that comes from spending huge amounts on capital.

But the problem for all DSL providers is that within a few years the demand for broadband speed is going to exceed their capabilities. The statistic that I always like to quote is that household demand for broadband speeds doubles about every three years. This has happened since the earliest days of dial-up. One doesn’t have to chart out too many years in the future when the speeds that can be delivered on DSL are not going to satisfy anybody. The CAF II money is only requiring DSL that will be at least 10 Mbps download, which is already inadequate today for most families. But even the 20 – 40 Mbps paired-DSL is going to feel very slow when cable companies have upgraded to minimum speeds of 100 Mbps or faster. And if that DSL is also carrying video along with the data it’s going to feel really slow. I would not want to be one of the companies still trying to make copper work for broadband a decade from now.

Finally, Cable TV in the Cloud

Cloud_computing_icon_svgThere is finally a cable TV solution for small cable providers that does not require them to own and operate their own headend. In fact, this new solution doesn’t even require them to be a regulated cable company.

The solution is provided by Skitter TV. Skitter TV was started by Skitter Inc. based in Atlanta, Georgia and headed by Robert Saunders, one of the pioneers of IPTV. The company has developed proprietary cable hardware and software that is far less costly than other cable headends.

Skitter TV has been operating for a few years as a sort of a cooperative, and is owned by Skitter Inc. and a number of independent telephone companies. The company’s cable model for the last few years was to come to a small carrier that offers cable TV and to supplant the incumbent product with Skitter TV. Most small cable operators are losing money on their cable product. Skitter TV becomes the cable provider of record and then shares profits with the local provider, which guarantees a small profit on cable.

But Skitter TV just upped their game and has partnered with Iowa Network Services (INS) to bring Skitter TV to more carriers for a lower cost. INS is a consortium of independent telephone companies in Iowa and the company owns a substantial middle-mile fiber network as well as provides a number of services to members.

The latest move takes advantage of the INS fiber network and includes plans to interconnect to other telco-owned fiber networks throughout the country. This will allow companies with access to these other fiber networks to get their cable signal from the INS headend. The same economic model still holds and Skitter will offer a revenue share with local providers, who get to disconnect their existing losing cable business.

There are a few key issues to consider for a small provider looking at this opportunity. The primary one is the cost of transport needed to connect to Skitter and INS. It’s likely that companies that can get a connection to one of the other statewide networks can get this transport for a reasonable cost. But providers outside of those networks need to consider the transport costs in looking at the opportunity.

I’ve looked closely at Skitter TV and it’s a very interesting product offering. They don’t have as many standard network channels as the large urban cable systems, and this helps to hold down the costs of providing the service. But Skitter has made up for a smaller line-up by bringing a large number of non-traditional channels to their line-up. They also have created channels for many of the popular online services. Overall the Skitter lineup is probably an improvement in rural markets and might even be an interesting alternative in urban markets.

One interesting option that Skitter brings is the possibility of offering a cord cutter package that includes local network channels plus a wide array of non-traditional programming. The Skitter cord cutter programming looks to be one of the more robust non-traditional packages on the market.

Customers can connect to Skitter TV using a Roku box, which is cheaper than traditional settop boxes. But Skitter also can support most traditional IPTV settop boxes that providers already have deployed.

Any small cable provider who is losing money on cable TV ought to take a look at this alternative. Even if transport costs look to be a barrier, Skitter TV is often willing to bring their own headend into a market if the numbers look attractive to them.

I think that Skitter TV will do well in the telco and IPTV cable markets because it’s become nearly impossible for a small provider to be profitable on the cable product. It’s a lot more sensible for a provider to partner with Skitter and get a guaranteed small positive margin from cable customers than to continue to bleed cash on the business line. Other than having to provide settop boxes, the Skitter partnership gets companies out of the headend, hardware, and middleware business, taking a lot of pressure off capital budgets.

New CableLabs Standard will Improve Cable Networks

coaxial cableCableLabs just announced a new set of specifications that is going to improve cable HFC networks and their ability to deliver data services. They announced a new distributed architecture that they are calling the Converged Cable Access Platform (CCAP).

This new platform separates functions that have always been performed at the headend, which is going to allow for a more robust data network. Today, the cable headend is the place where all video is inserted, all cable management is done, where the QAM modulation and RF Modulation is performed, and most importantly where the CMTS (cable modem termination system) function is done.

The distributed CCAP allows these functions to be separated and geographically distributed as needed throughout the cable network. The main benefit of this is that a cable operator will be able to push pure IP to the fiber nodes. Today, the data path between the headend and the neighborhood nodes needs to carry two separate paths – both a video feed and a DOCSIS data feed. By moving the CMTS and the QAM modulators to the fiber node the data path to the node becomes a single all-IP path that contains both IPTV and IP data. The new CCAP node can then convert everything to RF frequencies as needed at the node.

We’ve been expecting this change since for the last few years Chinese cable networks have implemented the distributed network functions. Probably one of the biggest long-term potentials for this change is that it sets the stage for a cable company to offer IPTV over DOCSIS frequencies, although there is more development work to be done in this area.

There are several immediate benefits to a cable system. First, this improves video strength since the TV signals are now originating at the neighborhood nodes rather than back at the headend. This will be most noted by customers who are currently at the outer fringes of a cable node. The change also will boost the overall amount of data delivered to a neighborhood node between 20–40%. It’s not likely this mean faster speeds, but instead will provide more bandwidth for busy times and make it less likely that customers lose speed during peak hours. Finally, it means that a cable company can get more life out of existing cable nodes and will be able to wait longer before having to ‘split’ nodes to provide faster data to customers.

Cable companies are not likely to rush to implement this everywhere. It would mean an upgrade at each node and most cable companies have a node for every 200–400 customers—that’s a lot of nodes. But one would think this will quickly become the standard for new nodes and that cable companies will implement it over time into the existing network.

This is the first step of what is being called the IP transition for cable companies. Most of my readers are probably aware that the telcos are working feverishly towards making a transition to all-IP. But cable companies are going to want to do that for a different reason. There is a huge amount of bandwidth capability on coaxial cable and if the entire cable network becomes IP from end-to-end then the huge data capacity in the cable network would be realized. Today cable companies use a broadcast system where they send all cable channels to every home and they then provide data services on whatever bandwidth is left. But in an all-IP system they would only send a customer the channels they are watching, meaning that most of the bandwidth on the system would be available for high-speed Internet services.

So think of this as the first step in a transition to an all-IP cable network. There are a number of additional steps needed to get there, but this pushes IP out to the neighborhood nodes and starts the transition.

The Battle of the Boxes

Image representing Roku as depicted in CrunchBase

Image via CrunchBase

For years we’ve been told that the day was coming when we would be able to get rid of the settop boxes supplied by the cable company and instead use our own smart devices to receive cable TV. A number of years ago the FCC tried to promote this with its cable card order that said that customers must be allowed to bring their own devices and that the cable companies then had to give them a discount for doing so. But cable cards were a massive failure and only a very small percentage of customers went through the hassle of trying to use their own settop boxes.

And then we heard a lot of talk about how TVs were going to get smarter and that we would be able to plug our cable into the back of the TV and eliminate the settop box. And that actually worked for a few years. But then cable companies started converting their systems to all-digital to make more room for faster cable modems, and analog transmissions are quickly becoming a thing of the past.

So we are no closer today to being able to bring our own smart box to the game and almost every home still has a settop box or a DTA (Digital Television Adapter) for which the cable company charges them a fee of around $5 or more per month.

Meanwhile there are a host of new boxes in the world that are designed to help customers bring the Internet and its many programming options to the TV. Among these are Roku, Apple TV and Sony Playstation. There are a number of households that are using these boxes to replace the cable company altogether and are settling for the programming that can be found on the web. These boxes let people subscribe to things like NetFlix, Hulu or Amazon Prime, which are much cheaper than the typical cable subscription.

Time Warner is taking an interesting approach to the battle of the boxes. In March they announced a deal to allow people to use a Roku box in place of a Time Warner settop box. In June they announced a deal that allows customers to use high-end Samsung TVs without a settop box. And it was reported last week that they are making a deal for people to use Apple TV in place of their settop box.

Image representing Netflix as depicted in Crun...

Image via CrunchBase

Time Warner is doing this by developing a specific App that works on each device. A customer can download an app that will let the Roku box mimic the Time Warner settop box and save the monthly fee. It’s reported that the app is not as good as the real thing and the line-up and some reception is not as good as using a TV. But Time Warner sees some advantages to this arrangement. While they lose the typical $5 per month charge for the settop boxes, they also get out of all of the obligations that go with providing settop boxes. No cable provider likes being in the settop box business. They require truck rolls to install and sometimes to retrieve. They break and must be replaced. And a surprising number of people move, pack and take their boxes with them. Cable companies are probably a net winner by getting out of the settop box business.

But I see a few problems with Time Warner’s approach. First, Time Warner is headed down a path that is going to make their software life complicated over time. Soon they will have deals that require them to supply apps for three different boxes. But over time that number is going to mushroom. There will eventually be many generations of Roku and Apple TV and every other current box as they get updated and outdated. And over time there will be dozens, if not hundreds of devices that will be able to get TV signal onto a TV. Looking into the future five or ten years I see Time Warner’s strategy getting very complicated.

But the biggest danger I see is that Time Warner’s strategy is inviting the fox into the henhouse. Do they really want to promote customers to use boxes that bring Netflix and Hulu into the house and make it easier for customers to cancel or downgrade their Time Warner cable TV service? Obvious some people are going to be buying these boxes anyway, but should the cable company be promoting people to buy a box that makes it easier to bypass them? It seems like a risky bet to me.

Even if Time Warner is onto something, this solution is not for everybody. Certainly the handful of other large cable companies could follow suit, but it’s hard to see this working for smaller cable companies. And this solution won’t work at all for companies that deliver IPTV over DSL or fiber like Verizon, AT&T, municipalities and hundreds of independent telephone companies and small CLECs. The IPTV stream requires a proprietary device to descramble the signal (and  scrambling for IPTV is required in the contracts with the content owners), and so these providers cannot move customers to alternate boxes.

Time Warner’s approach is unique and we will have to see if any other cable companies follow them. This is a home run for the box makers, but I’m not so sure that Time Warner wins too.

Who is a Cable Company?

wikipedia:RG-6 Wikipedia:Coaxial cable

wikipedia:RG-6 Wikipedia:Coaxial cable (Photo credit: Wikipedia)

There are regulatory battles that tackle issues of great importance, but there are also battles, which if brought to the public’s attention would leave them shaking their heads. Currently there is one such battle going on at the FCC.

The battle is a simple one that defines who is a cable company. This kind of regulatory battle comes up all of the time because of the nature of the way that regulation is written. Traditional cable TV has been around since the 1950’s when it brought network channels to remote rural markets which had no over-the-air reception. But the industry as we all now know it exploded in the 70’s when the industry was deregulated and new programming was created in the form of the many networks we now all watch.

As often happens, the FCC regulations concerning cable TV were written to be very technology specific. For many decades there was only one way to be a cable television provider, and that was to string coaxial cable to deliver cable signal to homes. The original cable technology got a major upgrade when fiber was brought into the network and most cable companies upgraded to hybrid fiber/coax (HFC) systems. But the new HFC technology still delivered the cable signal to the home using the same coaxial cables.

But then, as invariably happens with technology, something new came along. First were the satellite providers. They don’t use any wires and instead put satellites into low orbits and send the signal down to everybody that is under the satellites. And more recently came IPTV (IP-based delivery of cable signal using either DSL over copper wire or fiber). IPTV differs from traditional cable TV in that it typically only sends the signal to the customer for the channel they are watching while traditional cable transmits all of the channels all of the time. And there have been other technologies used during the years, such as several cable systems that were developed that beamed the signal to customers using a spectrum referred to as MMDS.

One would think that as new technologies are developed that do the same things as older technologies that regulations would just be changed as needed. After all, the general public doesn’t much care about the technology used to deliver their cable programming. I think most people would agree that a cable TV company is one that brings MTV and ESPN to their television.

And the technology is about to get a lot more complicated. First, many cable companies are upgrading their networks to become more digital and there are already trials of cable companies that are upgrading to IPTV across their coaxial cables. They are doing this to save more bandwidth to use to provide faster cable modem service. Would this mean they are no longer cable companies? And then there is the whole issue of people getting programming over the Internet. If I watch The Daily Show on my cellphone, is that cable TV? My guess is that no matter what the FCC does to change the definition of cable TV that it will be out of date in just a few years.

Technology differences are at the heart of a lot of FCC issues. For example, there are different rules now that apply to traditional long distance telephone companies versus those who use IP and the Internet to deliver telephone calls. A lot of the reason for these issues is that the FCC doesn’t get to make up its own rules in a vacuum. Many of the underlying rules that the FCC enforces are derived from bills passed by Congress. The FCC has a certain amount of leeway to interpret such rules, but they are also restrained to a great degree by stepping too far outside of Congress’s original language and intentions in the various laws.

As is often the case, this current dispute boils down to money. The FCC charges a fee per cable customer to pay for the cost of operating its Media Bureau, which oversees cable TV providers. Currently this fee is only assessed to traditional cable TV operators that deliver their signal to customers using coaxial cable. But the fee is not charged to the satellite and the IPTV providers. And both of those groups are huge. For instance if AT&T U-verse, which uses IPTV was classified as a cable company they would be the seventh largest cable provider. And the satellite companies are huge with over 34 million subscribers in 2012.

As usual, the various companies argue that there are differences that should keep them from being regulated as cable companies. For example the satellite providers don’t get involved in issues concerning hanging cables on poles. But honestly those kinds of distinctions are silly. There are differences everywhere among companies in every regulated industry. For example, there are many FCC rules that apply to the very large telephone companies that don’t apply to tiny telephone companies, and vice versa. And yet they are all considered to be telephone companies.

The similarities among cable providers are obvious. They all deliver a nearly identical product to consumers and they all pay a lot of money to programmers to get the content they transmit. And they are all regulated by the Media Bureau. Common sense tells me that any company that delivers cable programming to homes is a cable company and ought to kick in for the cost of regulation. I am not sure that I have ever seen any regulatory issue that makes me think, “If it quacks like a duck it must be a duck”.

Should You Build a Cable TV Headend?

I still meet new businesses all of the time who are just entering the cable TV business for the first time or who are opening up remote markets from their service core. In the past it was a no brainer to build a new headend for a new market as long as that market had enough potential customers to justify the capital outlay. But I find myself hesitating today when I am asked the question of whether one should build a new headend. I don’t think the answer is an automatic yes any longer and there are a number of reasons for this.

Transport. One huge consideration is bandwidth transport. It always makes more sense to use the signal from an existing headend somewhere as long as you can get the signal there for less ongoing cost than building a new headend. The amount of bandwidth needed to transmit a full channel line-up is huge and can easily require at least 100 Mbps. The bandwidth varies a lot depending upon the specific method that is being used to send the TV signal to customers. For example, the bandwidth needed to send a lineup that has both analog and digital tiers will be larger than a lineup that is all IPTV. And the amount of bandwidth is even greater if you want to transmit video on demand.

The price of transport varies widely by location due to the availability of fiber, but overall there has been a big reduction in transport prices. The long-haul transport business has gotten very competitive and there are a host of companies that sell not only bandwidth, but also dark fiber or fiber lamdas. Also, a number of new middle-mile networks were built with federal stimulus grants and those networks, by definition, have to offer reasonably priced bandwidth. In many cases I am seeing transport as a good alternative to building a new headend, whereas a few years ago building a headend almost always looked like a lower-cost alternative.

Aggregators. You also should consider using a network aggregator. One that many of my clients use is Avail Media. Avail has aggregated a channel line-up that comes from the satellite directly in MPEG4 format, meaning that it can be taken directly from the satellite and used in an IPTV distribution network. The advantage of doing this is in the cost savings for the headend. A lot of the capital cost in a traditional headend is spent for equipment that translates TV signals from one format to another. The cost, size and power requirements for a headend drop significantly if the TV signals don’t have to be translated.

Of course, Avail and others aggregators charge a premium for getting the signal to you in the right format and you need to do the math to make sure that there is a net savings in equipment compared to their ongoing transport charges. But many of my clients have found aggregator arrangements that have saved them money.

Headend Sharing. Before I would build a new headend today I would always look around to see if there is an existing headend in the area that I could share. Generally, almost anybody except for the major cable companies would be interested in sharing a headend. Sharing a headend can help a headend owner offset the cost of running their headend while requiring very little ongoing effort after the initial connection.

There are a number of issues to consider when thinking about sharing a headend, but I have dozens of clients who have figured out ways to share. The biggest issue is the signal format. For example, it would make no sense to share an analog headend with somebody who is operating an IPTV system. The cost of translating channels from analog to digital would be almost as costly as building a new headend. There are also contractual issues with some of the programmers who make you jump through extra legal hoops before they will agree to let you transport signal from an existing headend to a different operator in a different market. But headend sharing makes a lot of sense and today, and sharing would almost always be my preference over building a new headend.

Other Issues.  There are always other considerations to consider. For example, if you share a headend or buy content from an aggregator you are still going to have to somehow insert the local must-carry networks onto your system. So you will need to a ‘mini-headend’ of some sort that lets you add your own content to the content that comes from somebody else.

Even if you share somebody else’s headend you might want to consider operating and inserting your own video-on-demand. This will cut down on the transport needed between the locations. If the market is large enough you also might want to consider inserting your own local advertising rather than inflict ads from some distant market upon your customers.