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To: SteveG who wrote (2659)	2/8/1998 12:52:00 AM
From: SteveG	Respond to of 9236

[C&L referenced report] Cable Modems - Stealing the Broadband Market by Robin Hearn, consultant, Ovum Posted January 27, 1998 12:00 PM PST Why cable modems are so important? A cable modem is a device which sits between a PC and a cable TV network and allows the PC to send and receive data. It is doing exactly the same job as a normal PSTN modem, but does so many, many times faster. Not surprisingly the prospect of sending extremely fast data over their networks has excited the cable companies, who see a great deal of potential for new incremental revenues. This prospect has rather worried the telcos who have always seen themselves as the natural heirs to broadband technology. To see the upstart cable industry decide that they are in fact going to build the superhighway comes as something of a shock. The main driver is the Internet. Its explosive development has created an unprecedented awareness of and demand for data networking. Internet users provide a ready market for the cable companies to tap into; one that is global, growing extremely rapidly, is non-proprietary and open to all. The technology used in the Internet is going to form the foundations for the next generation of interactive services. The cable network's opportunity is significant because cable networks are fundamentally different from telephone networks. The wire into the home is coaxial cable rather than twisted pair and is capable of carrying information far more quickly than the existing residential local loops. It is the removal of this local loop bottleneck which makes cable modems such an important prospect. The telcos do have technologies available to them which would push the capability of their existing copper pair further than it has ever been before. However, they are still under development and are expensive. The cable companies have the opportunity to steal a march on the telcos and build a broadband user base very quickly, but the cable industry has its own problems and it must tackle some big issues to make cable modem services a success. ÿ The cable industry - the sleeping giant The cable industry worldwide has woken up after a long history of simply distributing broadcast entertainment. The cable industry and its equipment suppliers are all joining the race to take the high ground in the multimedia convergence battlefield. The cable industry is, however, not without its own problems. It will be faced with competitors in its core business from wireless cable or from satellite, and in their bid to move into the new field of interactive services the cable companies will face stiff competition from the telcos. The cable companies themselves are historically suppliers of cable television; they are not data communications companies and there are some significant cultural changes that they have to go through in order to become effective datacoms suppliers. The customers will need to be convinced that the cable companies can deliver on this data communications promise. And while all this change is going on the telcos are not going to sit still and see their natural heritage taken from them. They will respond rapidly and strongly to the threat to their future revenues. Cable Modem Technology There are several characteristics of cable modems which distinguish them from PSTN modems and most other data devices used on public wide area networks: they are capable of handling multimegabit speeds they are always on-line - there is no call set-up the bandwidth to which they have access is shared. Cable modems connect to the PC over a standard 10Base T Ethernet connection, operating at speeds of up to 10Mbit/s. On the network side the upstream and downstream channels generally use different modulation schemes to maximise throughput on the relatively clean downstream channel, and counter noise problems on the upstream channel. Because the cable modem system effectively turns the cable TV system into a very large LAN, users have to share the available bandwidth with any other active users on the same node, which will result in a reduction in data throughput as the number of users increases. This characteristic is the key difference between cable modem systems and the xDSL solutions which telcos will deploy, where the bandwidth to the user is dedicated. Network Alternatives Cable network data services will be trying to attract the same customers as telcos, and will face stiff competition from developing telco services. A number of alternative technologies exist or are under development: PSTN -standard phone line modems are being pushed to the limit to achieve 56kbit/s ISDN - basic rate access at 128kbit/s is increasingly being used by teleworkers and small businesses. Equipment is still relatively expensive, and most tariffing is usage based xDSL - digital subscriber lines are in development and ADSL products will be deployed by telcos over the next few years, giving speeds of up to 8Mbit/s over a twisted copper pair local loop. Further along, VDSL technologies may be able to push this to over 50Mbit/s over short loops. Wireless - wireless cable systems are being deployed by US telcos as a rapid means of providing video services. Such technologies also have the potential capability for a return path and early cable modem products using telephony return can work over wireless cable. Users and Applications Cable modem solutions are aimed at both residential and business use. The key application cable operators are aiming to support with early implementations is Internet access, but they also have their eyes on providing more sophisticated real time services, particularly to the business community. Current cable modem products have limitations in the way in which they handle bandwidth and may struggle to provide real time services: the network cannot guarantee bandwidth to individual users for the duration of the application's usage the network cannot guarantee the quality of upstream bandwidth the network is believed to be insecure. The market for high speed data services is growing rapidly and the nature of he applications and information users will want to use will also change. Telecommuting, for example, is a major growth area and the requirements of teleworkers are more demanding than those of the average residential user. Applications place different demands on the network. Factors such as: the degree of asymmetry of information flows sensitivity to delay security (encryption and filters will be standard) a requirement to connect with a wide variety of destinations the need for the user to control the application parameters will all affect the suitability of a cable modem solution to support a particular application, and hence the user's satisfaction. Current cable modems are more suited to the provision of applications which are asymmetrical and non-real time. Support for real time applications will take more work by the vendors and standards bodies. However, by 1999 cable modem services will be able to meet the majority of the applications network requirements. Unfortunately, by this time the emerging competitive access technologies of today will also have matured and cable modem services will face fierce competition. Residential users will provide a much easier target market to sell to than businesses. Business users need a strong business case for investing heavily in high speed data solutions. Business data communications tend to mission critical and require a much greater level of investment than a residential solution. Therefore, businesses are much slower and reluctant to seize leading edge technologies than the early residential adopters. Implications for Suppliers The developing market for residential multimedia services is one which the telcos have long regarded as their natural heritage. Technological and regulatory developments have introduced new levels of competition and the supply position is no longer clear cut. As new entrants into the data communications arena, the cable operators have a number of strengths and some significant weaknesses. They will need to: ensure that network migration proceeds smoothly - not a trivial or inexpensive task. Telephony return modems are a viable interim solution but the lack of cable upstream will limit application development package products - to add value to commodity internet access make alliances with content providers and interface suppliers optimise service performance with local content ensure that customer support services are up to the task - data services will require a high level of support press vendors to develop differential charging mechanisms and support for real time applications The telcos rightly perceive cable modems as a threat to their developing broadband business. Telcos, being large organisations, are often slow to respond to change and prone to indecision in developing broadband strategy for fear of cannibalising existing narrowband revenues. DSL technologies give telcos a fair competitive shot in the medium term , even if they are losing the hype battle for public attention in the short term. Telcos should: promote existing solutions, especially ISDN - particularly to businesses sell technology futures - DSL and wireless on the horizon will maintain the telco's credibility as a broadband supplier and may cause potential cable customers to hesitate sell on quality of service - cable as an industry has a poor reputation for quality of service form alliances with those content providers for whom national delivery is a key requirement or who require the reputation of the telco brand ensure that software vendors are fully aware of the functionality of developing telco services The cable modem vendors have a high expectation of market development. In the longer term, however, they will have to look beyond equipment revenues to maintain their profitability, to cope with a combination of declining unit price and falling shipments as competition from the telcos bites. Cable modem vendors should: develop support for real time services and added value applications, particularly to support business use look for partnerships with mainstream networking companies to position cable modems as a viable business access technology ÿ Market Forecasts The key to market success for cable modems is resolving the issues about standards, security and bandwidth guarantees in time to resist the competition for high bandwidth services from the telcos based on ADSL, wireless cable and FTTC. Cable operators have a limited window of opportunity and face considerable hurdles in their bid to develop a data communications business. The installed base of cable modems in the countries covered in this report will reach nearly 20 million by 2005 up from around 4.5 million in 2000. Installed base will continue to grow throughout the forecast period. However, the growth rate will begin to begin to decline after 2001. This decrease will be due to: competition in the high speed data communications market forcing providers to share the market increasing migration of existing cable modem subscribers to competitive services.