Cabling

Comcast financials improve - in some ways

Comcast turned in a better-than-expected quarter (at least better in some ways), showing good growth in its triple-play and Internet offerings, but a decline in growth for digital cable. ARPU increased slightly, also a good sign. The success appears linked to the fact that AT&T and Verizon have not been able to roll out their services as fast as analysts had feared, giving Comcast more time.

We have noted that our own experience with FiOS shows the service to be excellent, but the time required to get it deployed in homes, measuring from when the fiber run begins, is as much as six months. Shortages of critical STBs have also hampered sales.

One interesting note from the Comcast report was that capex declined, which helped the bottom line. This decline, we believe, is a spending timing factor to improve this quarter’s numbers. We believe that Comcast will have to increase capex in 2009. The question now is whether Comcast and the cable companies can outspend the telcos given the pressure on telco voice revenue and the likely “digital pop” cable companies will secure in 2009.

Cox cable considers FTTH model

Cox Cable has issued an RFI that includes requests for PON/RF distribution with high-speed broadband, very similar to the FiOS model of Verizon. The RFI leaked last week at NXTcomm but had been rumored even before that show.  It is apparently a true RFI, meaning that there is no immediate expectation of an equipment order. We hear that Cox is simply preparing an internal position paper on alternatives for plant modernization, given the current war between cable and telcos that provide video.

The question cable operators must answer is not only whether they can deploy FTTH, but how widespread telco FTTH could become. A cable industry study previously showed that the cable plant, even DOCSIS 3.0, could not compete with full FTTH should it be deployed. Our own modeling shows that Verizon could expect to reach about 70% of its customers with FTTH, that AT&T could reach perhaps 26%, and that Qwest could reach only 11% without significant shortfalls in ROI or significant improvements in cost or revenue.

Comcast to test faster cable speed in Qwest territory

Comcast will be rolling out a DOCSIS 3.0 trial in Minnesota, with the top download speed 50 Mbps (5 Mbps upload). The service will be the first deployment of the faster cable modem standard, and the interest level will be high since DOCSIS 3.0 is the only architecture that can rival FTTH in performance. However, it’s interesting that Comcast is deploying in Qwest’s territory; the operator has only DSL in contrast to its eastern rival Verizon, whose FiOS can also offer 50 Mbps in some areas. We note that DOCSIS 3.0 is still a shared-media technology with less capacity available per user than FTTH can support, and the upload speed for cable is much lower than for FiOS (which now offers 20/20 symmetrical and 30/20 asymmetrical in some areas).

RF over Glass: Cable’s answer to telco FTTH

The cable companies are taking the threat of FiOS seriously and promoting technologies that are more suitable for deep fiber and FTTH in their own plants. The activity is concentrated in what is called “RFoG” or RF over Glass, meaning mechanisms to perform the opto-electrical transformation from optical delivery of multicast RF to the CATV plant that already wires the homes. We are hearing that the idea is not to go with fiber to the home despite reports to the contrary, but rather to take more of a fiber-to-the-curb approach, wiring perhaps a dozen homes at the maximum into a CATV span off an RFoG fiber plant. Verizon has been looking at a similar notion of using a remote and MoCA to run cable into the home to reduce fiber provisioning costs in areas where the ARPU won’t justify true FTTH. We believe that there will be more and more outside plant “wiring” using a combination of fiber and coax, even among the carriers.

Cablevision reduces capex, ups FiOS competition

Cablevision reported better numbers, best of the major cable TV providers, and a sharp reduction in capex. Capex as a percent of revenues has dropped from over 16% (about what the US RBOCs spend) through 13% to slightly more than 11%. All of this suggests that the firm is taking a price-war model stance in competition with FiOS versus a feature stance, which is what competitor Comcast is taking. Cablevision had little to say about advances like DOCSIS 3.0, which would let cable spans increase their broadband speed to FiOS levels. Note that cable broadband is more “shared” than DSL or FiOS and thus raw speed numbers are not necessarily indicative of relative observed performance. We think the capex ratio shift here is the important element; a “successful” cable competitor is one that lowers capex-to-sales below RBOC levels, which means that the RBOCs can outspend the cable companies in capital improvements. Thus, ironically, innovation in access networking must come from the “conservative” carriers.

Verizon’s FiOS plans cause more cable angst

Verizon’s FiOS plans in 2008 include obtaining some franchises in major metro centers and increasing its HD channel count to 150, both of which are likely to cause further angst for the cable companies. In the former area, Verizon faces the issue of efficient delivery to multiple dwelling units (MDUs), a technical step that it’s been working to resolve through the use of in-building fiber or MoCA cable. The latter step is simply a matter of getting the business relationships in place, since FiOS has ample capacity to deliver virtually any number of HD channels. The current Comcast-satellite war over who has the most HD will be moot when Verizon gets its full complement of channels. All of this will be fueled in part by the digital transition that is scheduled for mid-2009. The coupons for customer conversion for over-the-air sets limited to analog tuning will launch shortly, and the campaign to prepare the market is expected to create a major surge in HDTV sales in 2008 and 1H09, making the question of who has the most HD channels an important marketing point.

2008 cable capital expense trends

Lower prices on cable modem termination system ports are likely in 2008, and this often means that the cable companies are putting pressure on the vendors with advance notice of procurements. The changes in pricing will come with some capability to re-architect the downstream bandwidth to the home, allowing either standard DOCSIS 2.0 rates up to about 15 Mbps or DOCSIS 3.0 rates as high as 100 Mbps. The former is more likely to deploy here in the US. A big push by cable players in 2008 would benefit Cisco significantly and would likely drive cable capex higher, to win the MSOs more Wall Street ire.

MoCA help for FiOS FTTH?

Verizon has asked the Multimedia over Coax Alliance (MoCA) to work on raising the maximum broadband capacity of MoCA to 400 Mbps, a move that may signal Verizon’s interest in using MoCA to distribute video and broadband to multiple homes from a single remote. All operators, (even Verizon whose territory is dense and valuable) will find a significant portion of households non-economical for FTTH, and changes to MoCA to provide headroom would allow Verizon to use cable to increase the cost efficiency of its FiOS delivery where subscriber density and/or ARPU are lower.

Telcos vs. Cable at FCC: Telcos Win the Day

The FCC voted today on a number of matters that impact the competition between cable companies and telcos, and it appears that the telcos won the day. In one action, the FCC adopted a Second Report and Order that further clarifies the right of new market entrants to obtain fair process in franchising negotiations. The cable companies have been using their lobbying to stall franchise agreements for the telcos in many areas, and while this second step does not make it impossible to stall further, it does make it likely that tactics to delay franchising will invite FCC action and perhaps even further steps. Second, the FCC has ruled that agreements by owners of multi-tenant housing (apartments, etc.) cannot enter into exclusive deals with a single video provider. The MDU order was unanimous but the Second Report and Order on franchising split along party lines. The number of such splits has encouraged some commentators to suggest that if the administration changes with the next presidential election in the US (which seems likely at the moment) these issues could be reversed. We note that the FCC is essentially a court, with less latitude to reverse itself than a purely administrative body, and that in many cases the split vote reflects less an issue of fact than one of contribution balance. Congress, for example, changed hands and yet the stance of Congress on telecom has not changed since. The FCC also voted to require VoIP providers to support local number portability.

Verizon FiOS Symmetrical Service To Cause Others Pain?

Verizon will be making a symmetrical version of broadband available to consumers at a very reasonable price in a move that seems certain to be a slap at the architectural limits of cable broadband. The FiOS symmetrical offer will provide 20 Mbps in both directions for $65 per month, according to AP reports, for customers with an annual phone contract. The reason this is likely to cause angst in the cable world is that cable broadband cannot offer that kind of uplink speed at all without moving to a completely new plant architecture at considerable cost. It’s also true that AT&T’s U-verse architecture can’t match this service. Verizon, by eliminating restrictions on the uplink data path, could well create a market for consumer videoconferencing and P2P that would be nearly impossible for competitors to match.