Chapter 3. Cable TV Networks

This chapter covers the following topics:

• History of Cable

• Business Rationale

• Architecture

• Hybrid Fiber Coaxial (HFC) Systems

• Upstream Transmission

• Digital Video Services

• Data Services

• Integration of Video and Data

• Business Obstacles

• Summary

AT&T, formerly Ma Bell, is the largest provider of cable TV service in the United States. This one simple observation encapsulates the breathtaking changes that have occurred in the cable industry just since 1997. In late 1997, it would have been totally unforeseen (except, perhaps, in the mind of Michael Armstrong, CEO of AT&T) that AT&T would be the kingpin of cable in 1999. But with the acquisitions of TCI and MediaOne for more than $100 billion, AT&T directly serves 25 million U.S. homes for TV and has agreements for access to another 30 million homes for telephone service through agreements with Time Warner Cable and Comcast. This is a complete sea change in the structure of the American communications industry.

Other companies have invested in cable as well. Microsoft has acquired a stake in Comcast, and European cable operators and Paul Allen's Vulcan Ventures have invested in Charter and Marcus cable. The recapitalization of the cable industry has alleviated a major concern of the cable industry, namely that cable would not have the financing to go toe to toe against the phone companies. That is not a problem any longer. In addition to recapitalization, cable has undertaken technical changes that have improved its speed and operations. Cable has embarked on industry standardization as it prepares to digitize its services. Before discussing these changes, we first take a look at the recent past and present of this very dynamic service industry.

Present cable TV networks are shared, wired networks used primarily for one-way television transmission. In this case, the term shared refers to the fact that multiple households connect to a common piece of copper wire. This topology minimizes the number of route miles of wiring and is a natural topology for broadcast. However, cable networks require demultiplexing of traffic from different households to enforce security, provide bandwidth guarantees, and problem isolation. These problems are being addressed with new software techniques; cable networks are being upgraded for two-way transit and higher-speed communications. In this revamped mode, plans exist to use cable networks for digital TV, telephony, and high-speed Internet access.

As a result, cable TV networks have the early lead over telephone companies and other service providers in offering broadband services in the home, particularly for Internet access. AtHome (Nasdaq: ATHM) reported 460,000 cable data subscribers in the company's first-quarter 1999 filing to the SEC. At that time, there were an estimated 800,000 cable data subscribers worldwide. One of the most impressive statistics is that Shaw Cable of Canada reported 100,000 cable data subscribers, nearly 7 percent of its entire subscriber base. Cable TV networks have speed, ubiquity, and experience in offering residential services, especially television. These advantages make it possible to offer digital television and high-speed Internet access to millions of consumers quickly over the existing network. Furthermore, cable TV is managed by executives with a history of entrepreneurial spirit who have overcome great odds to create the businesses they have, despite the recent infusion of fresh capital.

Such speed and multichannel potential raise the possibility that enhanced cable systems can be considered as platforms for innovative applications, such as video on demand (VoD), interactive television, and networked games. Time Warner Cable considers its new cable full-service networks as development platforms for such applications. The company is particularly interested in the use of software objects to enhance the viewer's experience. Treating the cable network as an application platform fosters a new sense of creative development.

However, despite their apparent advantages, cable operators are faced with commercial and technical challenges as they try to keep their lead in the race of supplying broadband to the home. This chapter covers the technical and business obstacles that face facilitators of cable television's transition to residential broadband. Primarily, it focuses on digital TV and data applications.