Cable Operators Prepare for Switch to All-Digital Systems
Comcast, Charter, Adelphia & Other MSOs Gear Up for Digital Simulcast Trials
JANUARY 01, 2005
By Alan Breznick, editor, Cable Digital News
http://www.cabledatacomnews.com/jan05/jan05-2.html
As the new year opens, the cable industry finally seems poised to start making its much-ballyhooed shift to an all-digital format for its core video product.
Six months after Charter Communications launched the nation's first all-digital cable system with a big splash in Long Beach, CA, many large cable operators are quietly drawing up plans for similar digital simulcast field trials and deployments in their territories. MSO executives and tech vendors say they expect to see a flurry of such trials and initial deployments in 2005 and 2006 as cable operators seek to move more and more of their customers away from analog broadcasts and set-top boxes.
"Now they're practically all gearing up for trials," said Seth Kenvin, vice president of strategic marketing for BigBand Networks, a tech vendor working with many cable operators on the digital transition. "Some operators are laying out a time frame now and placing orders... I think this is going to be a major wave for two to three years."
Indeed, several large MSOs have already tipped their hats. In December, Comcast Corp. unveiled ambitious plans to launch digital simulcasts of its analog channel lineups in most of its systems by the end of 2005. Speaking at two separate financial analyst conferences in New York last month, senior Comcast executives outlined their strategy for carrying out the digital transition.
"Now, what we're doing is we are already beginning to put the simulcast signals on to our systems," said David Fellows, chief technology officer (CTO) of Comcast. "And over the course of 2005, we will bring that up across our entire footprint."
In somewhat less bold fashion, Adelphia indicated last month that it's also gearing up to introduce digital simulcasts in several of its systems as early as the first quarter. The MSO disclosed its plans in a Dec. 15 meeting with FCC officials in Washington.
"We're definitely looking at it," said Doug Ike, vice president of advanced video engineering for Adelphia. "We're looking at candidate markets."
Such other large cable operators as Cox Communications, Cablevision Systems, Insight Communications and Bright House Networks are not making their plans just yet, at least not publicly. But they're closely monitoring the landscape.
"We know it's being tested in various places around the country," said a spokeswoman for Bright House. "We're watching that. We're going to keep track of what's happening."
The push towards all-digital systems comes as Charter continues to report positive results with its Long Beach pilot. Charter, which started digital simulcasts in the 75,000-subscriber system in early July, has been delivering its 91-channel basic cable lineup in both digital and analog formats with few technical or operational hitches.
"It's been a surprisingly easy transition after all," said Wendy Rasmussen, vice president and general manager of Charter's Los Angeles metro markets division. "It was not onerous at all to our customer base."
With 70% of Charter's Long Beach subscribers now opting for digital, Rasmussen said the all-digital move has produced better picture and sound quality for the bulk of the MSO's subscribers, raising their satisfaction levels, cutting churn rates and bolstering the system's competitive position against satellite TV providers. She said the switch has also improved the company's relationship with the city and boosted employee morale.
"There have been some good, tangible benefits," she said. "We're very pleased with the results so far. Internally, I'd definitely deem this a success."
Satisfied with Long Beach's initial success, Charter executives are now looking at ways to offer more digital offerings. Among other things, they're weighing Hispanic and broader foreign-language tiers, particularly aimed at the local Asian-American community.
Charter officials declined to say where they'll try digital simulcasts next. But, without saying so explicitly, they made it clear that they will expand the pilot and extend the simulcasts to more markets.
"That's the future," said a Charter spokesman. "Digital simultrans and all-digital are in Charter's plans."
Taking their cue from Charter, other large cable operators are plunging into the digital simulcast business too. As noted before, Comcast, seeing simulcasts as the first step towards true all-digital systems, is leading the pack.
In a move to spur its digital transition, Comcast notched a 20-year, $100 million deal with Level 3 Communications for inner-city and metro dark fiber early last month. The fiber backbone deal, encompassing the lease of 19,000 route miles reaching 95% of Comcast's cable systems, will give the MSO much greater capacity for the delivery of all-digital services, including video-on-demand (VOD) and high-definition TV (HDTV).
"We are in the process of connecting or lighting up that fiber," Fellows told financial analysts in New York last month. "We have already lit up the Boston to Washington, D.C. corridor and are passing packets over that section of the network."
Like Charter, Comcast will keep its 80-channel or so analog lineup intact for its non-digital subscribers as it begins its transition to all-digital systems. So the MSO, while taking care not to lose any of its analog customers, will use up precious bandwidth transmitting the 80 channels in both analog and digital format.
Despite the loss of bandwidth from such duplication, Fellows argued, the digital simulcasts will produce "some significant near-term benefits" for Comcast. First of all, he said, the switch will provide the MSO's digital subscribers with "higher quality pictures" because they won't be getting any analog signals anymore. This is especially important for customers with large-screen digital TVs, a group that spends heavily on video services and is quick to notice analog imperfections on their big-screen sets. MSOs are particularly concerned that these high-value customers could be enticed to switch to competing all-digital satellite TV services.
Second, Fellows said, the switch will enable Comcast to offer VOD more widely, including its free, ad-supported on-demand product. In addition, he said, moving at least some customers to all-digital service will allow Comcast to cut the cost of its digital set-top boxes because the new set-tops won't require expensive analog circuitry. Finally, he contended that the shift will permit Comcast to create more specialized and low-end tiers to attract cable subscribers, just as Charter is aiming to do.
"We're not forcing our customers to go digital," Fellows said. "I'm going to give [Comcast COO] Dave Watson the opportunity to incent customers, to get them to realize they really do want digital and not just analog HBO, but all of the on-demand that comes with being even a basic digital subscriber."
Over the longer term, Fellows definitely sees the move opening up more bandwidth for Comcast. He estimates that the MSO could "triple the capacity of our hybrid fiber coax network" once it recaptures all the bandwidth used by the 80 analog channels.
"Once we have the digital signals up there, we can begin to take back the analog signals," he said. "I don't think we're going to take them all back in the near-term. But every time we take one analog signal back, we can offer 12 channels in its place in standard-definition, three channels in its place in high-definition."
Fellows figures that it will take about $150 million for Comcast to bring its infrastructure up to snuff for the digital simulcasts this year. Calling it "a modest investment," he said most of that money will be spent on digital ad insertion and encoding equipment.
As for the new, cheaper digital set-top boxes that Comcast and other cable operators envision, Fellows believes the costs could come down to $50 per set-top or lower in a few years. Currently, Comcast executives said, low-end digital-only set-tops cost around $70 to $75 apiece. This is about $50 less than the cost of today's low-end hybrid analog-digital boxes. In hybrid set-tops with digital video recorders (DVR), going all-digital could drop the box cost by as much as $100.
"Actually taking the analog circuitry out of one of our digital set-tops saves an awful lot of money," Fellows said. "It's another step towards getting that sub-$100, maybe even $50 set-top box."
At Adelphia, executives are studying their fully upgraded 750-MHz systems to see where they have enough capacity to carry the same channels in both analog and digital format. They're also testing digital encoders, splicers and multiplexers to see how to make the digital simulcasts work. "Certainly, we need to look for a cost-effective way to do digital programming insertions," Ike said.
Adelphia and other MSOs are keen on solving this challenge because local cable advertising is a $5 billion and growing annual business in the U.S. alone. Once a cable system moves to digital simulcasts, local TV commercials must be inserted and delivered in both analog and digital formats.
In addition, Adelphia officials are weighing the costs of low-end digital set-tops. Like their counterparts at Comcast, they're seeking boxes with price tags of $50 or lower.
"We're still looking for the mysterious $30 set-top box or at least $50 on the low-end," Ike said. "There's a lot of discussion with the set-top box folks about what we need that set-top box to do."
