Cable-TV vendors to augment video
Although analysts and network providers have different opinions on how the Telecommunications Act of 1996 will impact markets and market share, they all agree that it will tear down walls that have separated local cable-TV and telephone company monopolies. Until now, those monopolies have been able to skirt direct market competition, but they have also stirred the ire of many consumers.
For the short-term impact, Stephen Montgomery, vice president and chief operating officer of Electronicast Corp., a research consultancy in San Mateo, CA, speculates, "Applications that will drive new fiber-optic installations will be bidirectional in nature: video-on-demand and high-speed data [applications] at 155 megabits per second, at a minimum." He suggests that "fiber will be driven by video and data service provisioning, and the telephone companies will wind up taking over companies that supply those types of services."
According to Montgomery, "These companies are basically all in the same business now, but the end game will be a telecommunications market." He predicts that "the first step in network upgrades is going to be [migration to] hybrid fiber/coaxial-cable (HFC) architecture."
As developments take place, Montgomery believes that cable-TV companies will fall behind telephone companies in taking fiber all the way to the curb. The applications driving fiber will be absorbed into companies with much more switching and network operational experience and deeper cash flow.
Eileen M. Healy, a Dataquest analyst for public network equipment and services, agrees with Montgomery`s assessment. In her comments made at the company`s meeting--Dataquest Predicts: 1996 and Beyond--held in Santa Clara, CA, in February, she said, "Telephone companies will need other strategies to compete for cable-TV market share, and that includes buying cable-TV companies, deploying multichannel multipoint distribution systems and utilizing asymmetric digital subscriber line technology."
Dataquest forecasts that telephone company broadband loops are expected to reach approximately 8 million households by the end of the century, at which time the equipment market is predicted to be worth almost $5 billion.
Electronicast`s internal estimates of fiber growth did not change following the signing of the Telecommunications Act because the Act`s impact on fiber installation had been anticipated, according to Montgomery.
Based on these Electronicast estimates, high fiber growth rates are expected between 1994 and 1999 because of backbone network upgrades. From 1999 to 2004, lower growth rates are predicted as network capacity moves closer to residential markets (see table). For cable-TV operators, those backbone upgrades run from headends to the central offices.
According to Montgomery, these upgrades result from two factors, including less mileage to reach homes in local markets and reduced fiber counts in residential builds for cable TV. In fact, Electronicast forecasts are based on fiber counts. Montgomery says that "the longer the haul, the more fiber you need [and vice versa]."
Taking fiber to 500 home nodes does not require 144 fibers, which would be necessary for servicing 1 million homes. Wavelength-division multiplexing (WDM) and dense WDM can affect the number of fibers run into a residential area, but Electronicast estimates that 12 fibers per cable are sufficient in that environment.
Montgomery claims that telephone companies are going to take over the business at the central offices. "A lot of that has to do with the switches," he says, "because switches are much closer to the capabilities of telephone companies."
The upshot of the Telecommunications Act, according to Data quest`s Healy, is that "telecommunications and cable-TV segments are now viewed as a $180-billion market (see Fig. 1)." She adds: "As demand for data services begins to rise, a preference for `one-stop shopping` will make the upcoming battle fierce."
The stakes are high for cable-TV and telephony suppliers and providers because each segment`s core business is going to come under competitive attack. Healy says, "These changes have spurred significant technology research and strategic planning in an effort to understand the best use of precious capital."
Dataquest forecasts that regional Bell operating companies and cable multiple system operators are going to merge in an effort to offer services across two formerly discrete business areas, given that the costs to upgrade plant and build a residential broadband network remain at approximately $700 to $1000 per home.
Even though these costs are less for cable companies, which have a broadband infrastructure already in place (see Fig. 2), Healy contends that the "ultimate battle for the local loop is going to focus on providing full-featured entertainment and telephony service." She adds that "what it`s all about is owning the customer for all entertainment and telecommunications needs."
Charlotte Wolter, analyst and editor of New Media Strategist, agrees. She says, "Cable companies will buy fiber for HFC networks as fast as they can" and believes that the motivation for cable companies is to "tap into the lucrative telephony market."
Peter Krasilovsky, senior analyst at Arlen Communications, says upgrading networks is inevitable, but that "the incentive to do so is not necessarily provided by the Telecommunications Act. Telephone companies and cable companies look at a host of issues, including the types of amortization rates on a state-by-state basis."
He points out that network providers are going to look at a wide variety of technology options--from fiber-to-the-curb to asymmetric digital subscriber line--before committing to a specific build strategy. "All interactive services will not necessarily come from fiber-based systems.
"In the past two years, we`ve seen a definite backtracking for complex HFC networks by cable-TV multiple system operators," says Krasilovsky. He also comments that "a lot of services are going to be provided via digital compression." The pressure, he says, is to deliver competitively priced program offerings rather than to construct competitive HFC systems.
According to Krasilovsky, the Act ushers in the era of interactivity. "In the long term, as the demand for interactive services ramps up, we are going to see a lot more demand for fiber-based solutions," he says. "There really is no substitute on the horizon for full interactivity provided by HFC [networks]." Although Krasilovsky does not believe the Act will result in increased deployment of fiber, neither does it "get in the way of such deployment." q
Paul A. Palumbo writes from Seaside, CA.