|
HOW THE PCO CAN
IMPROVE THE BOTTOM LINE PROVIDING BUNDLED SERVICES TO MDUs To achieve a market advantage in the multiple dwelling unit (MDU) arena, many providers now seek to bundle video, high-speed data and voice signals over a single-wire solution. Success will largely depend on selecting the right delivery infrastructure. To make that choice, one only needs to look at the bottom line…which platform has the bandwidth capacity to deliver both today's service needs and tomorrow's convergence opportunities?
All things to some people. That’s the mission of many leading service providers today. Whether a franchise Cable Television (CATV) operator or a Private Cable Operator (PCO), today’s provider wants to be the single operator to deliver analog video, digital video, high-speed Internet and telephony services to its subscriber base. The troublesome question is this: how can the provider most cost effectively and efficiently deliver quality signal from the headend to the subscriber, especially the customer who lives in a potentially sprawling MDU development? Key to Success: The Right Delivery Platform Efficiently delivering services to MDUs is not easy, but the financial benefit to the service provider is enormous. Currently, integrated providers of communications serve only five percent of the 20 million MDUs in the United States. More MDUs are built in this country every year; parallel growth is occurring in the rest of the world. In higher-end MDU developments, especially, tenants want digital and high-speed services. This article presents a business case depicting four service delivery options for operators (Figures 1-4, page 3). The first option is to deliver analog Satellite Master Antenna Television (SMATV) services over coax. The second option is to overlay L-Band services onto the existing SMATV platform, enhancing the service offering, but still delivering all signals over the coax plant (L-Band is the portion of the electromagnetic spectrum with frequencies between 950 MHz and 2150 MHz.). The third and fourth options of the business case deploy a single-wire, hybrid fiber coax (HFC) infrastructure. In the third option, the service provider provides SMATV only. In the fourth scenario, the same HFC infrastructure platform is used to deliver both L-Band and SMATV signals. PCOs vs. MSOs: The Pressure Cooker Of the 20 million MDUs in the United States, three-fourths receive cable service from local cable franchises, not from PCOs. A PCO does not use public rights of way to deliver service. Local authorities regulate the rates and other operations of the local cable franchise (also known as a Multiple Systems Operator or MSO). The MSO and PCO face different, but equally intense, market pressures. On one hand, the PCO benefits by being largely unregulated; on the other hand, the average MSO has been able to offer better video selections to consumers. The PCO offering basic SMATV service usually delivers about 30 - 45 channels. SMATV is a stand-alone, non-networked, one-way television delivery system. The frequencies for SMATV generally range from 50 MHz to either 550 MHz or 750 MHz. The typical franchise cable operator offers between 75 and 100 channels to consumers. Today, franchise cable operators also offer high-speed Internet access via cable modems. MSOs are not far away from offering residents local and long-distance phone services as well. The average PCO is not presently well situated to provide telephone service or high-speed Internet access. However, there are advantages that the PCO can offer the property owner. Often the PCO shares subscriber revenues or access fees with the MDU owner, offers a digital video alternative, and provides more personal service. Another advantage is the PCO’s ability to uniquely tailor the programming offering to the specific demographics of each property. The business case we cite here estimates a seven percent revenue split for a 150-unit MDU, the average size development in the United States. Property owners enjoy this revenue split but are not beyond looking at other providers if they receive complaints about the PCO’s service. Spurred by the explosion of the MSO’s video capacity, MDU property owners are beginning to pressure PCOs to upgrade their service offerings.
Which Way to Go? One way the PCO can upgrade service is to offer MDU residents DBS services as well as SMATV. DBS threatens the MSO, just as the franchise cable operator’s ability to deliver 75-100 channels threatens the PCO only offering SMATV. DBS allows all MDU subscribers to receive up to 200 channels from a single satellite dish. The nation’s leading DBS companies do not market to residents directly; they license PCOs to combine DBS programming with existing analog signals over infrastructures already in place or under construction. The PCO receives several benefits from this DBS transport relationship, including:
The promise of the DBS transport arrangement was noted in a 1999 report on "The MDU Market: A Challenge for the Cable Industry" by the Yankee Group, a Boston-based market analysis and consulting firm. The report said, "The packaged service is delivered to the customer as a seamless bundle, the technological details of which are invisible to the end customer."
PCOs need much more bandwidth if they are to offer DBS. A minimum of 1.5 GHz is required to deliver DBS and SMATV service to each MDU household. The industry usually cites 2.0 GHz as the minimum bandwidth required to support DBS.
Offering DBS service is one way that the PCO can head off the MSO threat. The PCO also can upgrade the MDU’s headend to deliver more video channels. With an upgraded headend, the PCO can deliver over 200 digital channels, which is more competitive with the MSO’s offering.
Coax: Good Enough?
The distribution method the operator selects does not directly impact the services the customer receives. However, choosing the right method is critical if the PCO is to deliver multiple services to MDUs efficiently and cost effectively. The ideal distribution system offers:
PCOs have long preferred coax cable as their distribution method. Most, in fact, expect they will continue to use coax-based systems to deliver services. One advantage of coax is its knowledge base; technicians know how to install, splice and repair the technology.
Coax supports yesterday’s and perhaps today’s multimedia services, such as transmitting basic cable service with bandwidth up to 500 MHz. As indicated by the tremendous growth in cable modem usage, coax also is suitable for transmitting data at present speeds. However, coax’s bandwidth limitations make it difficult to support newer services such as digital satellite TV and higher-speed Internet access.
In addition to its bandwidth shortcomings, coax experiences serious attenuation. Loss occurs due to the long distances cable must run in a garden-style MDU, and at the higher frequencies necessary to deliver newer services. A 400-MHz signal sustains a 39-decibel (dB) loss when transmitted over 1,000 feet of standard RG11 coax cable. The same 1,000-foot coax cable transmitting a 2-GHz signal suffers a 60-dB loss. The errors that occur when data is sent over coax are manageable, but are not tolerable with bandwidth-hungry applications such as DBS. Video is less forgiving of transmission errors than data.
To mitigate coax’s high attenuation, amplifiers and other in-line active devices must be used to boost the signal. The more active devices in the field, the more potential failure points and the higher potential maintenance costs of the network. A coax-based network cannot be repaired remotely; a technician must be dispatched if a device fails.
Because of coax’s finite capacity, the provider who wants to deliver DBS to a garden-style complex must install a DBS dish on every building. Each distribution system needs its own amplifier as well. In a 20-building MDU, this adds 40 active devices to the network. The provider must pay additional equipment and associated labor costs.
The MDU now has two separate distribution systems. One supports DBS, and a second complex-wide coax network delivers SMATV and cable modem services to tenants. Designing, building, installing and maintaining two distribution systems——rather than a single infrastructure from which all services can be delivered——increases the PCO’s operating expenses. In addition, more potential points of failure exist, and the consumer often receives a lower-quality signal.
Fiber’s Advantage
In the past, the typical PCO viewed an all-fiber distribution system as cost-prohibitive. While pioneering work is being done to extend fiber to the home, today there is no cost-effective fiber-exclusive distribution system. However, hybrid fiber coax systems succeed in overcoming the limitations of coax-only delivery systems. An HFC system is a reliable way to provide a high-quality infrastructure to a large number of users. The operator who installs an HFC system can expect uptime rates of 99.99 percent.
Compared to coax, fiber has high bandwidth and very low attenuation. Because fiber’s attenuation is only 0.6 dB per mile, the network requires no in-line actives. A fiber-based system offers higher reliability because there are fewer components. Fiber systems also are easier to design and install. New services can be added, using the same fiber, without needing to upgrade in-line components.
The HFC Business Case
The business case discussed here is based on the following assumptions:
Service Offering - SMATV w/ Coax: At the end of the seven-year equipment payoff period, the provider who selects the first option — coax-delivered SMATV services — makes $38,852 profit (including capital expense). The potential ROI is 15.3 percent per year. The PCO needs 41 months to break even on the investment. Service Offering - SMATV w/ Fiber: In the second option, SMATV is delivered over an HFC system. This option’s ending profits are $48,704 (including capital expense); expected annual ROI is 17.13 percent; and 39 months are required before the project breaks even. Upgrade Service Offering - SMATV / L-Band w/ Coax: By delivering SMATV and L-Band services over a coax-only delivery system, the PCO boosts ending profits to $64,523 (including capital expense). The potential annual ROI jumps to 23.77 percent. Thirty-two months — nine fewer than with the SMATV-over-coax option — pass before the project breaks even. Upgrade Service Offering - SMATV / L-Band w/ Fiber: The fourth option, in which the HFC infrastructure delivers both L-Band and SMATV to residents, is highly economically effecient. By delivering SMATV and L-Band over the same single-wire infrastructure, the provider ends up with a considerable profit (taking into consideration capital expense). The PCO’s potential annual return on investment grows to 29.81 percent, and it takes 28 months to break even. Over its fiber backbone, a single wire HFC solution distributes services from the headend to multiple optical nodes throughout the network. Each node serves a group of apartments. SDTVplus™ includes five active components: a low-noise block downconverter (LNBF), a transmitter, a receiver, a subscriber unit (downconverter) and the fiber cable. The LNBF or upconverter combines or "stacks" both 500 MHz horizontal and vertical or circular polarities of the satellite downlink onto one 950-MHz to 2,050-MHz output.
Combined with off-air channels and other analog channels, these signals are sent via coax to the fiber-optic transmitter, which is centrally located, perhaps in the complex’s electrical or equipment room. Next, the signal is transmitted over a single fiber cable to one or more receivers. Every port is connected to a receiver; typically, one receiver is located in each building. Within the receiver, the optical signal is reconverted to radio frequency (RF). Each port connects to individual apartments via a short coax cable, known as the home run, which is part of the existing infrastructure. The signal is transmitted to apartments via the home run. At the apartment, the subscriber unit "unstacks" the L-Band signal into the vertical and horizontal polarities. The resident’s IRD switches the required polarity by sending either a 13- or 18-DC Volts signal to the subscriber unit via the coax cable that connects them. The individual channel is descrambled by the IRD. Life Cycle vs. Initial Costs In evaluating the best service delivery platform, the PCO should consider project life cycle, not just initial, costs. Operators tend to focus on equipment costs when they evaluate hardware, but they should look equally hard at a project’s bottom line. It is true that both a single wire HFC solution and an exclusive coaxial SMATV distribution system can be used to deliver analog signals. However, the only way to add a DBS signal to the SMATV service from a coaxial system is to install a dish on every roof and capital-intensive distribution equipment in order to overlay the DBS services. On the other hand, operators who deploy a single wire HFC infrastructure only need to add a single dish at the headend to upgrade the system. The operator does not incur any additional distribution expenses. A multitude of bundled broadband services — some of which may not yet be defined — can be transmitted over a single cable. A one-wire infrastructure can serve hundreds of apartments, offering income-generating services to the PCO and the property owner. About the author Mor Allon is Vice President, Business Development with OnePath Networks. The author may be contacted via email at mallon@onepathnet.com |