The WSJ today has an exclusive look (free version of article here) at a report to be released by CableLabs that outlines the potential need for cablecos to undertake a massive infrastructure upgrade in order to stay competitive. Unfortunately, the report is not yet available to non CableLabs members,
though we would sure like to get our hands on one (HINT HINT HINT) and CableLabs has informed me it never will be.
The report, which has been reviewed by The Wall Street Journal, warns that at present growth rates cable operators’ existing technology may not be able to compete efficiently with Verizon on Internet services. “At some point, optimization of the (cable) network becomes more expensive than simply deploying” fiber directly to homes, the report warns.
CableLabs is an organization funded by equipment providers and cable companies to ensure interoperability of equipment and set standards. CableLabs maintains the DOCSIS standard for cable modems, and just recently released the 3.0 version.
Cable companies have lampooned the deployment of FTTH by the telcos as an expensive endeavor, and highlighted the fact that their own infrastructure can meet any challenge.
But the report, dated July 31, raises the specter that cable operators may have to sharply boost spending on wiring in the future. Companies for several years have been trying to assure investors that big outlays for big network upgrades are over, leaving cash flow for share repurchases and other purposes.
The report is inflaming some cable executives who insist existing networks can meet future broadband demands. “I wholly disagree with the conclusions,” says Mike LaJoie, chief technology officer of Time Warner Inc.’s (TWX) cable division. Its assumptions “are not reflective of what our reality is.” Says Dave Fellows, chief technology officer at Comcast Corp. (CMCSA) : “This report does not reflect our view.”
Whoa. Talk about biting the hand that feeds you.
The cablecos have managed to squeeze admirable performance from their existing coax plant by transitioning to a Hybrid Fiber-Coax architecture (HFC). They have made excellent engineering tradeoffs and deliver an adequate data service.
These are the tradeoffs:
Applications are breaking the assumptions inherent in these tradeoffs. People are using their connections for longer durations due to file sharing, video and music downloading, and online file storage. This trend is accelerating, and new applications that could stress the shared nature of cable are bound to appear.
To borrow an ancient telephony term, Erlangs are going through the roof. Data from Japanese subscribers that migrate from DSL to FTTH clearly show (see ‘Tragedy of the Commons‘) that higher speeds lead to much higher utilization, creating a geometric explosion in raw bits transported.
This, in turn, creates problems with the latency on cable modem connections. Latency is a big, big problem since it impacts the quality of applications like VoIP and gaming. High utilization leads to traffic jams, which leads to high latency, which leads to a poor user experience.
This is what we suspect is at the heart of the CableLabs report.
We recognize the FTTH technology now employed by Verizon (VZ), NTT and others is truly superior to any alternatives. I have the FiOS service at my home and couldn’t be more pleased. (see ‘My FiOS FTTH Install‘) We also feel that the FTTN architecture being deployed by AT&T (T ) is a half measure (see ‘The Jedi Mind Trick‘). But great technology is meaningless without a killer app, and none exists that radically differentiates FTTH service from cable service to the end user at this time.
We expect such an application to arrive for FTTH (see “The Industrial Accident“) though we know not the time and nature of the form it will take. If you do, please let us know!
The problem is that new internet applications (Napster, YouTube, iTunes, Skype) are unpredictable overnight sensations. Cable got the jump on DSL when Napster hit and suddenly everyone wanted broadband. DSL deployments from the telcos are finally starting to cath up, but deploying the infrastrucutre took years.
Infrastructure is overkill until the day it isn’t. And no one really knows when that day is. The millions of FTTH subscribers in Japan are incubating the next killer app right now.