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Weekly Edition for June 8, 1998:
Convergence Redux: This Time for Real?
By LESLIE ELLIS
The only requirements for this year's convergence redux are speed and focus, and not the myriad other musts that strangled the "c" word the first time around, three years ago.
While not everyone agrees on whether the industry is going through a convergence resurgence or merely a continuation, most cable executives who have given the matter thought said multiple-service and equipment realities are blending to create a whole new chapter for the industry.
That's because the Internet is a common communications tool in millions of homes, and because open standards are the mantra for cable modems and set-tops. As a result, broadband-network operators are confident that the ingredients are now in place for the perfect communications elixir.
On the services side, convergence means that the Internet and other interactive information become part of TV programs, while TV programs are also shown on the personal computer. It means that phone calls ride cable to the PC, the TV or the whole house.
"Convergence means a lot of things to a lot of people," noted Alex Best, senior vice president of engineering for Cox Communications Inc. "To me, it means one of two things: either watching TV while surfing the Web on TV, or watching TV on the PC."
Other business factors are also pushing the re-emergence of convergence. Huge companies like Intel Corp. and Microsoft Corp. have repeatedly and loudly noted that they need bandwidth -- fast. Intel needs it to justify the market need for more powerful chips that can handle rushes of incoming data, and Microsoft needs it to sell multimedia and operating-system software.
"For the computer industry to thrive, it needs bandwidth -- [that industry] is frustrated with the telco network, and they're Moore's Law people," said Richard Green, CEO of Cable Television Laboratories Inc., referring to the axiom dictating a doubling in capabilities every 18 months.
Broadband capabilities have also attracted the attention of other well-heeled suppliers from the data-networking marketplace, like 3Com Corp., Bay Networks Inc. and Cisco Systems Inc. Their entrance as data-equipment suppliers validates the concept, drives prices competitively down and gives network operators more vendor choices, experts said.
"There's a big difference between having GI [General Instrument Corp.] and S-A [Scientific-Atlanta Inc.] as your two primary suppliers, and having Sony- [Electronics Inc.], 3Com- and Cisco-type companies in the mix," said Michael Harris, an analyst with Phoenix-based Kinetic Strategies Inc. "When you're basing your future on two vendors, you're limited in what you can do."
If CableLabs is the microcosm of the industry's key service and equipment environment, then a quick glance at its project load shows blending across the board.
For example, the OpenCable group is considering how to best meld DOCSIS (Data Over Cable Service/Interoperability Specification) modems into digital set-tops, while the DOCSIS team is noodling how it should add fragmentation and quality-of-service techniques to allow IP (Internet-protocol) phone calls.
At the same time, the PacketCable group recently created an IP service "wish list that OpenCable needed as part of a service requirement to outline what kinds of applications run on digital set-tops," said Mark Coblitz, vice president of strategic planning for Comcast Corp.
"Two years ago, you would have sworn that convergence was dead," Green said. "Now, everything that we're doing resembles convergence: OpenCable is all about it, as are DOCSIS and PacketCable, [the latter of ]which is more or less computer- and telephony-based."
Harris and other analysts said that if operators really start leveraging their broadband networks to carry all different sorts of data, "they could actually make the Wall Street guys happy."
The last time around, in the 1993 through 1995 time frame, convergence was interchangeably called "interactive television" and "multimedia," and it occurred during a backdrop of telcos tiptoeing into video as cable operators considered entry into telephony.
In retrospect, there were several crucial and missing parts to the first bandied convergence: The World Wide Web was nowhere near as widely used as it is today; there was no mass-consumer hunger for interacting with the TV; and there were no open standards or interoperability efforts, to name a few.
"It was a classic example of people getting ahead of economics and demand," Harris said.
The shining example of the first convergence was Time Warner Cable's Full Service Network in Orlando, Fla. At the time, Time Warner described the ambitious project as a market experiment based on an ATM (asynchronous-transfer-mode) architecture that, by its nature, offered the ability to provide voice, video and data services to subscribers.
Time Warner spent an undisclosed fortune on FSN, which offered interactive shopping and movies-on-demand as two of its many services.
FSN shut its doors in 1996, but not without gathering electronic reams of consumer-interest patterns and learning valuable lessons about how to integrate multiple services and how to cost digital-video servers and bit streams.
"In terms of technology available to society, we got to the point where we could do astounding things," said James Chiddix, chief technical officer of Time Warner Cable. "It was maybe not financially feasible or a sound business at the time, but it was technically doable."
FSN was a bit before its time. Open standards have helped to lure big vendors, which help to keep equipment prices moving south. Now, Time Warner's voluminous market data about demand and buying patterns -- still undisclosed -- may soon lead to a point where the potential revenues enjoy a measurable gap over equipment costs.
The closing of Time Warner's FSN also stands as a historical reference point to the end of the interactive-TV bonanza that so headily topped news headlines in the mid-1990s.
Chiddix's view is that the most critical point in the convergence rebirth was the "harmony agreement" etched out by MSOs, GI and S-A in 1996. That agreement was the first plank in what is now a widespread set-top-interoperability platform.
"That was the seminal event that ultimately grew into convergence factors this time around," Chiddix said.
Notably, he insisted that the Internet and the WWW are not really convergence-drivers.
"The Internet isn't causing anything," Chiddix said. "It's more a reflection of technologies working within standards that have evolved in ways that may seem almost accidental."
MSOs and analysts cited varying pitfalls that they will try to avoid this time around, ranging from hype-aversion to simply being methodical about two-way plant upgrades.
"With all due respect, what we need to do this time is to avoid talking to the press -- to manage hype," Chiddix said, describing hype as "a cycle that feeds on itself."
"Companies want to tell Wall Street about exciting new products, and Wall Street wants to hear exciting new things, and there's no damping force in there," Chiddix mused. "There's no reward for standing up in the midst of all of it to say, 'Of course, these new things are all possible, but it will take 10 to 20 years.'"
Harris and other analysts believe that the only remaining sticking point that could puncture convergence this time is a slowdown of network-infrastructure upgrades.
"Now, it's just a matter of blocking and tackling," Harris said. "The mistake made the last time was the industry's minimization of the time that it took to do things correctly and simply overpromising."
Best said he remains concerned about market demand for interactive-TV and TV-over-PC services.
"Whether or not the TV and PC come together, I still struggle with the notion of convergence" he said. "I think that different audiences want to do different things at different times -- I may want to fool with the PC while the family watches TV, for example."
Still, many believe that the stars are all in alignment for a TV/PC/set-top convergence that doesn't become technological roadkill this time.
"It's a different scene now," Harris said. "IP is emerging as a viable, multiservice transport architecture and, if you look at all of the vectors here, there really is an opportunity."
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