Upstream, downstream and any stream related to revenue is the chant being heard in cable industry boardrooms. Now, you can add the DOCSIS 2.0 standard to the revenue chorus, albeit in lower tones.
DOCSIS (Data-Over-Cable Service Interface Specification) 2.0 will allow cable operators to dramatically increase the amount of throughput in their return paths, mitigate pesky noise problems in that band, is backward compatible to earlier DOCSIS standards–and is relatively inexpensive to deploy. And, according to most industry experts, it's a near-perfect match for the lucrative small- to mid-size business market (SMB), where revenues for local voice and Internet services are projected to top $46 billion by 2005, reports the Strategis Group.
With the SMB market representing 98 percent of the commercial buildings in the U.S., along with the average distance between a business and cable's fiber enclosures being a mere 500 to 700 feet, DOCSIS 2.0 seems poised for revenue and cost-saving greatness. Or is it?
As a natural extension of its older cousin (DOCSIS 1.1), 2.0 isn't likely to spike an MSO's profit line anytime soon, if at all, industry observers admit. Its value, they say, lies in its ability to enhance upstream capabilities while managing a network's capacity and fostering upgraded services such as video conferencing, file sharing and online gaming.
As a significant revenue producer, however, 2.0 is not expected to be a player, at least in the near future. Yet given time, and with burgeoning residential and commercial marketplaces, 2.0 could very well lead to some interesting revenue scenarios.
"Its biggest value is in managing network capacity and offering SMB services. But no one is sure which of the services will win. Operators need to push revenues, and capital expenditures will be limited this year. There haven't been that many services since 1.1 was deployed, so 2.0 is more about future-proofing networks and investments. The question is, what will people use 2.0 for," asks Lindsay Schroth, an analyst for The Yankee Group.
Most cable operators are asking that same question, yet admit 2.0 is in its infancy. Many MSOs are building a business model for 2.0 based on its potential cost-saving qualities and network capacity management attributes, with revenues a distant third.
"There are operational savings, home network services and PacketCable is deployable. Revenues can follow the building of a future-proof network with 2.0. That's the model today," says Rouzbeh Yassini, executive consultant to CableLabs' Broadband Access Group.
A functional 2.0 business model isn't exactly top-of-mind for cable operators. In fact, it doesn't exist. With DOCSIS 1.1 products and services still trickling into the marketplace, and questions about 2.0's specific role in an MSO's overall business strategy, most operators are in the tire-kicking stage regarding 2.0.
"We're looking forward to 2.0," says Michael Lee, vice president of product development for Rogers Cable Inc. "We're on an engineering road map, but not in trials yet. We're focusing on 2.0 to help us sell products it can uniquely enable and to compete against DSL as a differentiator. It will help us from an operational standpoint and in gaining market share, but from a revenue perspective, it depends on how services like home networks and gaming evolve. It won't have an overnight impact," he explains.
Just when, and in what form, the impact of 2.0 will be felt is uncertain, with some insisting it will be several years before either its cost-saving or revenue potential will be fully realized. Yet most agree 2.0 will help the cable industry in varying degrees.
But there is a caveat.
"We're working on the business models of new services and how to take advantage of 2.0. The commercial market is an important opportunity for us because of the symmetrical aspects of 2.0, and there are lots of products that can be made better with video and voice going back and forth with it, which will allow a whole set of new products we didn't think possible. But, there's high speculation on how the revenue will play out, and it's not a good idea to purchase at any cost," Lee cautions.
That mentality isn't lost on the vendor community, which is ramping up to supply the cable industry with 2.0-related products and services. At least, that's the plan. "I don't think MSOs will swap out in-field as long as 1.0 or 1.1 is providing data and Internet revenue, unless their home networking and wireless services can add about $40 a month to the bill. If an MSO doesn't demand 2.0, we won't do it. If they do, we'll jump," says Himanshu Parikh, vice president of data products for Scientific-Atlanta Inc.
Getting the jump on 2.0 isn't a current strategy for most cable operators, however. In fact, they're barely off the ground. With 1.1 deployment still in progress and customer demand for services enhanced by the 2.0 standard questionable, most are proceeding cautiously into the 2.0 waters.
"Our 2.0 thinking is somewhat linear, and we haven't identified any killer apps. But there are definite benefits to greater efficiencies and bandwidth, and we're looking at the tiered services it might bring. Today, there's more immediate benefit to the commercial side because of the symmetrical upstream," says Stu Cassell, director of product development for Internet services at Cox Communications.
Cox, Cassell explains, is lab testing 2.0 and evaluating it as a revenue-maker and cost-saver. Admittedly, it's early, and any future revenues derived from 2.0 at this point are pure conjecture, he notes. Nevertheless, Cox and others see 2.0 as a legitimate boon to their business. "It's not clear if there is a slam-dunk service or if 2.0 will bring revenues to us, and there are still-evolving business models on the residential side. However, we can't underestimate the competitive advantage and cost savings it may bring."
Those cost savings are expected to come from a reduction in the need for node-splitting. A common practice for cable operators is to pay between $3,000 and $3,500 for an additional node, plus approximately $2,000 for a laser and $300 in labor, for a total cost of between $5,000 and $6,000, industry experts say.
"Five percent of the users are using about 95 percent of the network capacity, so operators can only split nodes now, and that's really expensive. So operators are interested in adding users without the cost of splitting nodes," notes Schroth.
For Cox, those users are expected to be businesses first, followed by residential customers. The timeframe, however, is wide open. "We would like to take advantage of 2.0 soon, but we just haven't reached that point yet. It's not a next quarter issue, so we're looking at how to deploy 2.0 and when the business models are ready to go. We can't see any reason why we'd swap out 1.1 modems to 2.0, but we'll look at where we can deploy modems that can be upgraded to 2.0," concludes Cassell.
For some, understanding the need for 2.0 is no longer simply a vision, but a reality. And the sooner the cable industry understands that, the better, they say. "Although 2.0 isn't considered a standalone revenue generator, it's real, so we have to find out how operators can best use 2.0 and get back to marketing the products. Cable's focus in 2003 is to grow its subscriber base in data, but also to bundle sticky services, both at the same time. 2.0 is perceived as making that more efficient and cost-effective," says Elisa Camahort, senior director of product marketing for Terayon Communication Systems Inc., which qualified its 2.0-based CMTS and certified its cable modem.
For cable operators, wringing every last bit of efficiency from network devices is extremely high on their to-do list. "They want to squeeze every penny out of their investments and are big on one-year forecasts. When operators rolled out modems in 1997, they only bought them to cover service areas, so rolling out 2.0 will be driven by penetration rates, and the market reality is DOCSIS 1.1 will be out there a long time. It's a hard decision whether to upgrade to 2.0," says Benoit Legault, director of the technical advisory board for ADC Telecommunications Inc.
With more than 13 million 1.0 and 1.1 modems in service, the thought of upgrading them to 2.0 can be painful for operators, and a challenge to vendors. "In three years, the customer base may need upgrading. That makes business sense and is driving their business decisions. For deployed modems, we're feeling the pressure to release 2.0 blades, but will MSOs decide to wait for 2.0?," asks Legault.
Some will; some won't, experts say with less than full conviction. "We're upgrading modems from 1.0 to 1.1 and working on specs for 2.0. There are a wide variety of solutions that don't require 2.0, but there are other groups at Cox that may feel more of a sense of urgency to deploy 2.0. For us, it's an action item to lay out this year. But no doubt 2.0 will do the industry at-large a great service," insists Cassell.
Some of those services will include PacketCable voice services, video telephony and telecommuting, argues Mike Capuano, director of product marketing for Juniper Networks Inc. While mass deployment of 2.0 gear is expected to be three to five years away, in certain markets, 2.0 could have an impact much earlier.
"Operators will start rolling out new modems with 2.0 as a hedge against the future. We don't see them swapping out existing modems, but will deploy 2.0 modems to new subscribers. It gives them more resources to prepare for future capacity services that require more upstream capacity," says Capuano.
What's also required is silicon. For 2.0 and its business future, it's where the rubber meets the road. "Taking the product all the way through test execution packages, software in-line and ultimately the two litmus tests of CableLabs certification and ramping the product into high-volume production are very real challenges. They must see a real product. If not, no one cares," says Rich Nelson, senior director of marketing for the broadband communications unit at chipmaker Broadcom Corp.
What they do care about, Nelson says, is recapturing those RF assets left lingering below 20 MHz. "2.0 can be both a revenue generator and cost-reducer in some ways. It can recapture an asset sitting there with 5 to 45 MHz and is a cost-reducer when you have to split fiber nodes. The key for us is to put those modems out there to set up future services," he adds. Broadcom isn't expected to release its 2.0 chip until the second quarter of this year.
That is an issue with other related vendors. "Several vendors use their chips, but they're not available until second quarter, and the bulk of the work is in CMTS line cards, and they all have to change to upgrade to 2.0," says Kevin Keefe, senior director of marketing for the broadband communications sector at Motorola.
That's not the only change which confronts vendors such as Motorola. Adds Keefe: "2.0 takes another chunk of R&D resources, so near-term, it requires more focus on the development side for product lines like EuroDOCSIS. We also expected twice the CMTS business as there is today, so we have to push hard to get it into the field."
Pushing 2.0 into the field is likely to be more of a light shove, experts maintain, with little sense of urgency at this point. "We've been asked to move quickly on some products, but not 2.0. There's no need for 2.0 today because there's little opportunity for new upstream bandwidth revenues, and MSOs tend to wait for multiple solutions. But in three to five years, everyone will deploy 2.0 as a revenue kicker, retention tool or cost-saver, so we're planning to roll out a fully compliant 2.0 solution later on. The timing will depend on Broadcom and other silicon makers," concludes Enzo Signore, senior director of marketing for the cable business unit at Cisco Systems.
In the meantime, 2.0 business models are expected to undergo countless changes and upgrades. Concludes Schroth: "It's (2.0) all about upstream capacity. But who knows what that will allow in the future."
E-mail: craigkuhl@earthlink.net
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