Set-top Styles

Telcos Keep It Simple, Cablecos Go Upscale

Set-top boxes seem to be following a different trajectory for the telco TV crowd than for the cable company industry. While low-cost, IP-based set-top boxes are now making it possible for more telephone companies to justify adding video services to their portfolios, more cable companies are looking at higher-end set-tops that include such features as personal video recorders (PVRs) and support for high-definition TV (HDTV).

Amino Communications Ltd. is among the new breed of vendors in the telco set-top box space. The company provides its wallet-sized, IP-based set-top boxes to such service providers as Cyprus Telecom, SureWest Broadband and, for trials, to Coastal Bend Telecom in Bend, Ore., and others.

Silicon consolidation, which allows Amino to deliver a single-chip set-top box solution, means the company can offer its product at about half the price of a traditional cableco set-top box, says Karthik Ranjan, Amino’s director sales for North America. The boxes, which deliver a single stream of video, are priced in the hundreds, he adds; but Amino believes it can get its set-tops to go below $100 in volume by the end of 2004.

“There are set-tops that can be had in volume now at just over $200 U.S., and it used to be in the $340 to $380 range,” says Derek Kuhn, director of marketing and business development at Alcatel, which doesn’t sell set-top boxes but is a leader in broadband access and transport equipment with the telcos. Companies like Equator Technologies Inc. and Zoran Corp. are creating silicon at dramatically lower costs, he says, allowing one chip — as opposed to a dozen — to offer complete set-top capability. DSP functionality is still separate, he adds, but may be integrated onto the single chips starting next year.

The drop in set-top box costs during the past 24 months is making the business case for DSLbased telco TV more robust, says Kuhn, becoming a driving factor behind the recent resurgence in video by the telcos — especially among the independent telco set.

“In the beginning, a lot of set-top box players were trying to offer a very premium set-top,” he says, but now companies such as Thomson are trying to offer lower-cost products. (Alcatel is an investor in Thomson and the companies have a number of joint ventures together.)

Indeed. Herman Haas, vice president of American sales for telco products at Thomson, says the company is phasing out production of its higher-end telco set-top box, which sold in the upper $200 to lower $300 price range, in favor of a lower-cost box called the IP900, which the company introduced to the U.S. market last month at the TelcoTV show. “The first box, the DSL 1500/Copperhead, was meant to be all things to all people,” says Haas. “It was speced out at a time when the market was young and people wanted to try all different things.”

The DSL 1500/Copperhead includes a hard drive controller, an interface for a DSL modem, built-in home networking capabilities, HD decode (which offers partial support for HDTV), USB ports on the front and back, and dual audio/video jacks, among other features. Thomson will not disclose the number of these boxes it shipped, but Haas tells xchange it has delivered the boxes to about 20 different customers — half for commercial deployments and half for lab or trial installations — in both North America and Europe. “We made a limited production run, which we went into a year ago,” he says. “In November, we’re phasing it out.”

This month, Thomson’s IP900, which will sell in the mid-to-upper $100 range, becomes generally available. Less than one-fourth the size of the DSL 1500/ Copperhead, the new IPbased device is based on the same basic technology as the earlier product, but has more integrated silicon and has been stripped of a lot of the interfaces that would have allowed the addition of a hard drive module or an ADSL modem, Haas says.

When set-top boxes for telcos first came out, many of them had integrated modems, says Alcatel’s Kuhn, “and we’ve seen almost every vendor move away from that.” There’s also been a lot of discussion about adding TiVo-like PVR functionality to set-top boxes, but Kuhn notes that can add significant cost to the devices. “These are premium offerings, but for the most part — especially where IP video is hot outside North America — the PVR IP boxes are not shipping in volume at this time.”

Of course, some vendors hawking set-top boxes for telcos are advocating higher-end devices. For example, Motorola Next Level is positioning its telco set-top box as a sort of home networking hub. One of the company’s set-tops, demonstrated at the USTA’s TELECOM ’03 show this fall, can receive three video streams, includes an integrated DSL modem and has a Wi-Fi output that can connect to a wireless broadband router to deliver in-home wireless connectivity.

The idea of the set-top box as a home networking hub is interesting, says Kuhn of Alcatel, a Motorola Next Level competitor, and it’s been tried by several vendors in the past. But many people already have home networks, he continues, and the cost required to support such additional functionality could prevent service providers from rolling out video services.

Meanwhile, there’s a lot of interest from cablecos in set-top boxes with higher-end features such as PVR and HDTV functionality. That’s even though the market for cable set-top boxes is projected to be flat again during 2003, as cable TV operators around the world continue to reduce their capital expenditures, In-Stat/MDR says. Worldwide digital cable set-top box unit shipments are projected to reach 9.97 million this year, a slight decrease from the 10.03 million unit shipments in 2002.

“Many of these products, particularly cable set-top boxes that support HDTV service or come with integrated personal video recording capabilities, have become quite popular with both cable operators and cable TV subscribers,” says Mike Paxton, a senior analyst with In-Stat/MDR. “In fact, those cable set-top box manufacturers who have moved the fastest to develop and deploy these new products have been rewarded with increased market share.” In 2002, there were only 80,000 worldwide unit shipments of PVR-enabled boxes. In 2003, this total is projected to jump to almost 800,000.

According to In-Stat/MDR, Scientific-Atlanta has increased its digital cable set-top box worldwide market share from 31 percent in 2002 to 40 percent during the first half of 2003. Much of Scientific-Atlanta’s increased market share, according to the consulting firm, can be attributed to the vendor’s rapid rollout of high-definition and PVR-enabled digital cable set-top boxes.

Bobby Amirshahi, director of media relations at Cox Communications Inc., agrees that Scientific-Atlanta “appears to have made the most progress with DVR-functional boxes.” Cox is among the companies driving demand for such products, and the cable company is upbeat about the results of its deployments to date. “We’re seeing great success in deployment of HD, which is drawing new customers to Cox (20 percent of all new service sign-ups) and 22 percent are upgrading from Basic to Digital to take our HD service.”

But analyst Gary Arlen, president of Arlen Communications, says much of the cable industry is “struggling with what they want to do with PVC and high-definition TV. Everyone has a model for how they want to do that, but MSOs are not sure how or if they want to do it.”

Arlen adds that another idea floating around the cable industry, fueled by companies such as Samsung, is to integrate data and voice capabilities into cable set-top boxes. “There’s a lot of talk about it, but it’s an insignificant deployment,” he says.

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