Imagine if you will this scenario: a large segment of the market is willing to pay for digital satellite television service, and the technology exists to provide that service, but the means to deliver it to those consumers willing to pay for it appears to be cost prohibitive. Also, imagine that the market forces are such that failure to deploy this new technology might mean the difference between a private cable operator (PCO) growing a sustainable business and going out of business altogether. This scenario isn't so far fetched - it exists for the PCO industry today. Now, however, with the availability of Quadrature Amplitude Modulation (QAM) technology, there is an affordable solution. QAM allows a PCO to bring high-quality digital satellite television service to market in a way that grows revenue, while simultaneously minimizing upfront costs.

The Problem Faced By Private Cable

Private cable operators and multiple dwelling unit (MDU) owners can and should benefit from the millions of MDU households in the U.S. desiring digital service. Unfortunately, delivery of digital service has been disrupted by the perception among most PCOs of a significant financial barrier, creating a chasm of choice and opportunity for the consumers they serve, resulting in a new "digital divide." Consequently, digital broadcast satellite (DBS) services have become for many of consumers in MDU households the answer to receiving digital service, but it need not be the only option they have.

In order to construct a viable business model, PCOs have historically deployed analog systems with limited channel line-ups in order to curb costs. While a seemingly prudent strategy from an economic standpoint, competitive pressures from both franchise cable operators and DBS companies for existing properties and new rights of entry (ROE) have altered the status quo. Also, heightened emphasis on controlling costs inevitably hampers the ability of a PCO to pursue revenue-generating growth that would ultimately offset any capital expenditures incurred by upgrading their cable plant and channel offerings. Unfortunately, without increasing market share, the average PCO serving smaller market segments (i.e. MDUs) is finding it increasingly difficult to invest in new technologies. It's a vicious cycle that seemingly leads nowhere.

It is now possible, however, for a PCO, using QAM technology, to expand its subscriber base while offering MDU residents competitively priced digital services with packages of up to 200 channels, for very reasonable upgrade costs.

Technically Speaking, QAM Defined

For those unfamiliar with QAM, it is by some measure the most cost-effective method of providing digital satellite television using a building's existing cable wiring, and it eliminates the need for a satellite antenna or dish on each building within a multi-building complex. QAM uses satellite signals that have been converted from QPSK/L-Band satellite signals (QPSK, or quadrature phase shift keying, is a very robust but bandwidth hungry digital frequency modulation technique used for sending video and data over satellite networks). The satellite signal needs to be robust to survive the 44,000 mile round trip from the uplink center to the satellite and back to the downlink receiving station. Typically, the uplink center can transmit 10 compressed channels on each transponder. Each transponder (Ku-Band 12GHz in this case) is 27 MHz wide. Most satellites are equipped with 24 on- board transponders and are grouped into two 500 MHz polarities - one vertical, the other horizontal - with each containing 12 transponders. Each satellite, therefore, requires 1,000 MHz of bandwidth to be used at its full potential.

Because satellite receivers need to see both polarities of a satellite, a system would need 2,000 MHz of space - 1,000 MHz per satellite - to distribute the signal if it is going to be kept in its native format (WSNet's QAM service requires the use of two satellites). Basic arithmetic shows us that 2,000 MHz won't fit 750 MHz of distribution bandwidth, which is the typical distribution bandwidth found in the MDU and cable markets.

QAM is the solution to that bandwidth problem.

With QAM the satellite portion of the transmission scheme is unchanged. There is, however, a conversion of QPSK to QAM that occurs at the downlink headend location. At the headend, all the video contained in each 27 MHz QPSK-coded transponder is transcoded and slotted into 6 MHz of bandwidth in QAM format. This process is completed on a transponder by transponder basis using a device called a transcoder. In WSNet's case, only 18 of the 48 available transponders are currently being utilized. After the conversion, each 6 MHz slot contains 10 video channels. Thus, the amount of bandwidth required to deliver all 18 transponders is 6 times 18 or only 108 MHz! Most MDU or small cable distribution systems can accommodate this amount of bandwidth with few if any upgrades. Typical distribution systems support up to 750 MHz bandwidth CATV delivery, although older distributions of 550, 450 and 330 MHz are still common in some markets. In addition to being bandwidth efficient, QAM can and does coexist with various other transmission schemes on the same cable including analog and other forms of data.

The Economics of QAM

Private cable operators generally welcome new technologies, but the financial constraints that inhibit them from capitalizing on the benefits of new technologies have often resulted in technology "outrunning" the PCO industry, and with it, the PCO industry's financial stability. Also, PCOs have not kept pace with DBS and franchise digital cable due in large part to issues of restricted bandwidth and the high cost of developing the infrastructure necessary for delivery of these services.

QAM helps the PCO solve both of these problems.

For the private cable industry, perhaps the most significant psychological hurdle is the entrenched perception of the high cost/low return of adding channels to a line-up. Typically, PCOs will transform that perceived hurdle into what they see as a permanent barrier for upgrading service offerings. This can and often does result in a diminishing of their appeal in the eyes of an MDU looking to offer a more competitive service offering to its residents.

Cost fears among private operators are certainly not without merit, at least in the world of analog service. Adding channels to the typical analog cable plant can cost anywhere from $500 up to $3,000 per channel for a receiver, modulator, and decoders. If the PCO is only serving a 250-unit dwelling and wants to add, say, 10 channels, a minimum additional investment of $5,000 up to $30,000 would be required. The PCO would then be faced with a fairly long period before its sees any return on its investment.

Alternatively, to provide a full package of services utilizing QAM, modifying the same 250-unit property would require an initial capital investment of about $15,000 at the headend, including two satellite dishes and the necessary transcoders required to convert 18 transponders from QPSK to QAM. The only other requirement to execute the QAM solution is to install a digital set-top box for each customer subscribing to the digital service.

Taking Advantage of the Digital Divide

Many factors prohibit MDU households from accessing top-quality digital cable service. Traditional franchise cable operators reap greater profits from a single family home market that presents fewer problems with infrastructure and subscriber churn and in the past have been reluctant to deploy digital cable to MDUs, although that is rapidly changing. Until recently with the advent of QAM technology, a PCO could not deploy digital signals because of the high cost involved. Also, real estate investment trusts (REITs) and MDU owners, though they cannot prohibit their deployment, can and do discourage the installation of DBS service antennas on balconies because of unsightliness and the potential for property damage by unskilled and inexperienced residents attempting to put in the necessary hardware.

However, these MDU residents still want the same opportunity and choices available to their single-family home counterparts. Digital television service has a strong perceived value in the mind of the consumer. It is perceived as helping to enhance their quality of life, their sense of community, and their perception of their dwelling as a home and not simply a transitional environment.

Some have argued that MDU residents cannot afford or are unwilling to pay for high-quality digital service. The facts say otherwise. The cost per service with the QAM- enabled digital solution is competitive when compared to traditional cable providers or DBS. The fact is that $10-$15 more in revenue per digital subscriber per month can realistically be achieved with the deployment of QAM.

The misconception regarding affordability is partially explained by the historical mindset of the cost of adding a channel, which, as noted above, can be particularly burdensome for a smaller PCO. However, for close to the same cost of adding one analog channel a PCO can now add as many as 10 channels more affordably with the 10-to-1 compression ratio offered by QAM.

QAM Applied

Now, for the first time, a PCO can deploy QAM video technology along with its traditional analog service under its own brand name. For the PCO, this provides enough profit margin for a quality signal, quality line-up, and customer service/support. As a private brand offering, the PCO is able to negotiate individually with each MDU owner. The value for an MDU owner lies in the ability to retain and maintain a per unit resident baseline. The digital service, made possible through QAM, now becomes a value-added service to their current and potential residents, as well as a possible revenue source for the MDU. Finally, the increased quality of a QAM digital service from a PCO is part of the value-added equation for an MDU to consider when selecting a provider.

A PCO using QAM can now offer nearly 200 digital channels, including up to four multiplex brands like Showtime(r), HBO(r), CineMax(r) and STARZ/encore(r), plus numerous pay-per-view screens and dozens of digital music channels. In providing QAM digital service a PCO has two deployment options: either as 100% digital system or as a hybrid service consisting of an analog basic with a digital overlay tier.

In the case of 100% digital delivery, subscribers would receive all of their satellite video channels digitally. This provides the best picture quality and would require a digital set-top for each television.

In the case of the digital overlay, the basic tier consists of several dozen channels delivered via analog, while the bulk of the 200 channels are delivered digitally via QAM to the digital set-top. This way, residents who do not want to subscribe to the digital tier will retain their analog service. For residents who do choose to subscribe to the digital service, the analog basic can provide a satisfactory service level for 2nd and even 3rd outlets. This overlay concept maximizes the use of the analog headend equipment investment that the PCO has already made. The analog channels are therefore offered as a basic tier, with additional channels offered as digital tier with a set-top box, allowing the "big leap" into digital service.

Conclusion

QAM presents private cable operators with a bold new frontier in product offerings, market potential and increased revenue. By leveraging QAM, PCOs will be able to affordably provide MDU residents a competitively priced digital satellite television service that traditional homeowners have enjoyed for years. And that's a secret weapon that is very good for business.

About the Author
Doug Truckenmiller, is executive vice president and chief technology officer with WSNet.