The Wall Street Journal’s Peter Grant got a hold of a leaked CableLabs report and the result is a page one article that no doubt has cable chieftains sputtering with rage this morning. The industry’s R&D arm prepared a paper that claims cable will have to spend a ton of money in order to upgrade systems so that they are capable of competing with Verizon’s fiber-to-the-premise networks.
The report, probably prepared for CableLabs annual big summer conference, says that at some point, the ongoing tweaking of cable’s hybrid fiber coax networks to maximize capacity will end up costing more than if cable simply followed Verizon’s example and built fiber to the home capabilites in the first place.
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.
The issue is one of ever-increasing traffic on the Internet and the extent to which cable can continue to increase its broadband speeds to keep pace with the rise of video and other high-bandwidth applications.
This may be a concern, the report states, because fiber networks “can deliver orders of magnitude more broadband data capacity than today’s typical (cable) networks.”
Although Grant doesn’t go into details about what it is that cable operators currently do to “optimize” their networks, industry plans call for managing increased traffic loads by doing something called node-splitting. Right now, a typical cable system feeds fiber into a node that reaches a group of homes, around 500 or so. Then from the node, coax cable carries the voice, video and data directly to the home.
At current penetration levels and with current technology standards, this architecture is capable of giving each home around 16 Mbps (downstream) high-speed Internet service. If demand or traffic congestion increases, cable operators can simply double capacity by lighting up another fiber into the node, so that the each fiber serves 250 homes, effectively doubling capacity. And so on.
Operators maintain that the cost of node-splitting is trivial. Moreover, another plan for increasing capacity is to start delivering switched digital services. Switching effectively slashes to almost nothing the amount of capacity that video takes up on the network, thereby freeing all kinds of bandwidth for other services.
Those are the plans, anyway, and operators have been promising investors for the past few years that the era of major capital investments are over. Despite its success in delivering ever-increasing revenue and cash flow, the cable industry has been (until recently) a Wall Street dog because of the amount of money it took to rebuild networks.
This capital investment was a drag on free cash flow, the amount of money left over after all this spending. But, with spending over and subscriptions to high-margin services such as high-speed Internet access and voice services on the rise, Wall Street has just started to think of cable fondly.
The leaked CableLabs report, however, promises to dim investors’ fondness for cable once again, even if only temporarily. CableLabs is discounting the report, calling it “speculative,” and top operators are dissing the report’s conclusions.
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 cable division. Its assumptions “are not reflective of what our reality is.” Says Dave Fellows, chief technology officer at Comcast Corp.: “This report does not reflect our view.”
Cynthia Brumfield at 8:11 AM|Comments(2)
Mike Corcoran has it wrong, cable cannot deliver multiple 10Gb/s streams as fiber can. Sorry.
Posted by: eric dynamic at August 18, 2006 5:35 PM
Somebody at CableLabs is trying to justify their existence. The Cableco's do not need fiber to the home. The simple ability to convert its systems to digital from the current analog model allow for much more overhead capacity than will ever be needed. The Wall Street Journal should be ashamed for printing such nonsense.
Posted by: Mike Corcoran at August 17, 2006 12:08 PM
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