Editorial : Watching Cable for Billing, OSS and ISS Opportunities

No other telecommunications industry segment presents more BSS, OSS and ISS opportunities than cable. No other service provider segment can match cable’s local IP backbone network, range of new products (VoD, HDTV, iTV and VoIP) or its track record for annual increased average revenue per user (ARPU).

So why is now the time for these new opportunities when the cable CEOs have been bashed for years as they sat on their hands regarding xSS (business, operations, and intelligence support systems) spending? Here are five reasons.

1) 50 Percent Non-Video Revenues. Three years ago, revenue from the cable plant was nearly 100 percent video entertainment. Today it’s 83 percent; the other 17 percent comes from Internet access and residential telephony. When identifying market demand for non-video services, cable could see 50 percent non-video revenues in three to five years if cable execs put their dollars into xSSs.

2) Turning the IP Management Corner. Excite@Home was created because most in the cable industry thought that they couldn’t manage and operate an IP network. The success of Time Warner’s Road Runner and the homegrown replacements of Excite@Home has proven that cable companies can own and operate managed IP networks. In short, the cable industry now operates the largest Metro Gigabit Ethernet networks and controls the largest number of fixed, residential IP addresses.

3) DSL Competition. When Verizon dropped its rates to as low as $30 dollars a month, while at the same time admitting DSL is not profitable for them, cable CEOs took notice. You either drop your cable modem rates and kill a cash cow or upgrade your service package.

The other side of this competition coin is broadband penetration (DSL plus cable modems). The penetration rate for broadband is expected to be about 30 percent three years from now. Entertainment industry wisdom says at 30 percent, you will see content developers focus on broadband product development. In short, there now will be competition from DSL in the cable video entertainment market.

4) DBS Competition. For the first time in cable industry history, the number of cable subscribers decreased, although it was only by a fraction of a percent. Where did they go? Direct broadcast satellite. Why? Sports programming, all channels are digital versus premium-only for cable, and when you have a monopoly like cable, 30 percent of your customers just plain don’t like you.

5) Free Cash Flow. After spending $60 billion to upgrade their cable plant to HFC and managed IP, the big cable companies (Comcast and Cox) expect to see the financial light at the end of the tunnel (positive cash flow) by 2004. This means that capital should become available for xSSs.

So where do you look for new xSS cable industry opportunities? Here are three areas.

1) Video on Demand. The one entertainment area that DBS can’t compete with cable today on a one-to-one basis is true VoD (any movie or TV program, anytime you want it—on demand). Free on Demand (FoD), like seeing the CBS Evening News with Dan Rather after 7 p.m. anytime for the next 23 hours may reduce churn, but you can’t charge for it. Cable has to have pay movies on-demand to get a return on investment.

What makes revenue-producing VoD challenging from a billing perspective is you will need a rating engine and mediation device between the video server and the existing billing system. Also, you will need a real-time bandwidth inventory system. Note: The movie is being streamed from a remote VoD server over a managed IP Gigabit Ethernet network to the subscriber’s HFC hub. Delivering only one half of a movie isn’t good quality, and consumers won’t accept it.

2) Voice Over IP (VoIP) The one thing that’s been consistent over the past three years is that every year cable VoIP is supposed to happen by year-end. So will year-end 2003 be any different from 2002, 2001 or 2000? Probably yes, and here’s why.

First, you don’t need PacketCable, DOCSIS 1.1 modems, etc. to support VoIP over cable. All you need is a broadband connection (cable or DSL) and a Session Initiated Protocol (SIP) phone and/or an adaptor to an analog phone. Plus, you need a third-party company like Vonage to act as the gateway between your IP phone and the PSTN to get cheap local, long distance and international service. Bottom line: The broadband customer is going to see dozens of start-ups by year-end going after their second line phone market.

So what about the availability of VoIP products for cable (the providers of PacketCable network elements)? The good news is that IP equipment vendors are integrating the pieces from upgraded cable modems (DOCSIS 1.1), to the cable modem terminating systems (CMTS), to the many packet switching components (call management server, SS7 signaling gateways as a record keeping server to collect usage data and more).

The only pieces missing are xSSs: BSS for billing and managing fraud; OSS for real-time inventory and service provisioning for hundred of thousands of IP devices needing IP addresses; and ISSs to ensure that a user, on what’s essentially a super large Ethernet LAN, doesn’t flood the network with call initiation messages (planned or otherwise), to provide CALEA functions and more.

3) SMEs Cable MSO fibers pass in close proximity (50-100 yards) to 80 percent of the office space in the United States but generate virtually no revenues from small to medium size enterprises (SMEs). Other than being a stone’s throw from untapped customers, the cable companies have massive metropolitan Ethernet networks already in place serving the residential Internet access customers. The only piece missing is the cable drop and a high performance modem for the symmetric two-way service. That last piece, or modem, (DOCSIS 2.0) is now available.

The low hanging SME fruit is T1 access, switched voice and frame relay service, which alone is a $10 billion a year market. If the cable companies had an industrial strength OSS in place to enable SLAs, an ISS in place to identify denial of service attacks in real time and shut them down, and of course IP billing systems, then the SME market would represent billions for cable operators and see

ARPU double.

In short, the cable industry has changed more in the past three years because of IP technology than it has in the past 30 or years since the launch of domestic satellites. With the investment in xSSs, the cable industry will again undergo another transformation.

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