Cable's Business Rationale for Residential Broadband

Later sections in this chapter consider some of the business challenges and disincentives to cable's transition to RBB. The obstacles will be easier to understand after discussions regarding technical aspects of the upgraded system. Understanding the incentives, however, is pretty straightforward.

First, there is a defensive aspect to cable's motivation for transitioning to RBB. RBB service is a necessary defensive measure against the threat of direct broadcast satellite and new telco services. In particular, DBS has signed more than 9 million subscribers, threatening cable's customer base for premium pay channel service.

Defensive measures aside, extending the capabilities of cable TV networks from the current broadcast video business to high-speed Internet access seems natural. Cable has a large capital base to use as leverage for incremental applications. In addition to being the incumbent, cable has specific technical and business advantages with which it can succeed in providing a wide range of high-speed home services:

• Ubiquity

• Speed

• Reduced signaling

• Tariffing

• Port conservation

• Vertical integration

The next sections examine these advantages in greater detail.

Ubiquity

Cable service is available to nearly all residences in the United States and serves nearly 65 million homes. Worldwide, there are 157 million subscribers. Such widespread coverage helps attract advertising.

Speed

Chapter 2, "Technical Foundations of Residential Broadband," indicated that coaxial cable has more bandwidth than the twisted-pair copper wires used in current telephone access networks, and it has significantly more bandwidth than wireless networks. The speeds achieved by cable are so high that content providers delivering over cable are considering changing their content specifically to exploit the speed of cable, for example, by adding more audio and visual content to Web pages.

Reduced Signaling

Cable is always on, which means that a call setup process, such as ringing a telephone, is not needed. The subscriber does not have to request that the cable operator transmit specific content; it simply arrives in push mode. Reduced signaling is a prerequisite for widespread residential applications.

Tariffing

Because cable is always on, there is no time-dependent pricing. Pricing is subscription-based (monthly access fee) or transactional (pay-per-view). This is predictable and user-friendly pricing.

Port Conservation

Because cable is a shared medium, the cable operator needs only a single physical port at the carrier premises to support hundreds or thousands of users. This is in contrast to telephone companies that must allocate a port for each subscriber. [Gillett] reported in 1995 that nearly a 30:1 cost advantage exists for cable compared with ISDN when measuring cost per bit of peak bandwidth per subscriber. Port conservation is an important cost advantage for cable in relation to telephone service.

Vertical Integration

Finally, the top cable operators in the United States are important content providers. AT&T is closely aligned with Liberty Media (due to the prior relationship of TCI and Liberty Media) and has 25 percent of Time Warner Entertainment (through its acquisition of MediaOne). Time Warner owns the majority of Time Warner Entertainment, which includes Warner Brothers, Turner Broadcasting, and a host of magazines (Time, Life, People, Sports Illustrated, and Fortune). Microsoft has designs on becoming a content provider and owns a stake in Comcast. When content providers own cable properties, they have guarantees of a high-speed outlet for their visual content and plentiful content to occupy the many channels cable affords.