TREND: an industry perspective

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Presentation to international broadband operators on the trend of broadband business

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  • But DBS has proven to be a formidable competitor Digital cable is behind, but is closing the gap The race to capture (and hold) digital subscribers is in full swing. (Could say something about getting to 100% digital to protect cable’s core video business. Is this a forecast? Do we want to say that?)
  • In fact, there are even more opportunities in the “Video” space than at first meet the eye Not only can MSOs capture share in the current space… But they can also expand the pie in areas such as: Non-TV Advertising market…for example: Shifting advertiser “Direct Marketing” dollars from catalog, direct mail, telemarketing, etc. to E-TV Shifting share from print and other media, etc. Getting paid to carry content: Something like the pay-me-up-front syndication business on TV Transactions Developing the applications to “close the sale” in real-time with TV advertising and getting paid a nice commission for doing it.
  • CMS: typically performs call administration and connection functions. It may use SIP to do that in pure IP environment. It is also the place that end-to-end QoS insurance would be performed, including QoS mapping between different segments of networks. It would interact with CMTS and also router in the IP cloud. In most cases, call feature will be supported here too, but some times they are in independent, so-called Application Server (not in the picture). MG: This is the place that IP network and PSTN network interact and conversion is performed, including negotiation of the use of codec, echo cancellation,etc MGC: The control function for MG. Sometimes it is part of the MG, most cases it is stand alone and control multiple MG, therefore realizing a distributed architecture. It talks to MG using H.248, H.323, or others. Packet Cable uses TGCP SG: this is the gateway that talk to SS7 network and perform signaling conversion between SS7 and IP network. In Europe, Sigtran is used. Packet Cable uses ISTP MS: usually include Announcement Server and controller. RKS is the Record Keeping Server. All these are function blocks. Generally speaking, IP connection (DHCP, DNS, etc), Call Administration and Connection, Voice Application (including announcement), Interconnection to PSTN and its control, and Back office are the main functions that support a call. In real implementation, this is done using either centralized or distributed methods, or the combination, by different vendors. They may also be functionally separated but physically collocated. To add more confusion, both CMS and MGC are called Softswitch, depends who we talk to. At very high-level, one could think they are the same: performing call administration and connection establishment (not physical switch, but signaling for terminal-to-terminal connection, including the procedure agreements), except that MGC is specifically for interacting with PSTN. Namely, without PSTN, one only need CMS, or vice versa, or just a single piece.
  • Advertising & Content are the drivers of growth To capture that value, Content owners & Advertisers must have access to subscribers Access is the leverage of Distribution players Land grab for 40 million narrowband subs now underway Cable is winning the land grab vs DSL
  • CMS: typically performs call administration and connection functions. It may use SIP to do that in pure IP environment. It is also the place that end-to-end QoS insurance would be performed, including QoS mapping between different segments of networks. It would interact with CMTS and also router in the IP cloud. In most cases, call feature will be supported here too, but some times they are in independent, so-called Application Server (not in the picture). MG: This is the place that IP network and PSTN network interact and conversion is performed, including negotiation of the use of codec, echo cancellation,etc MGC: The control function for MG. Sometimes it is part of the MG, most cases it is stand alone and control multiple MG, therefore realizing a distributed architecture. It talks to MG using H.248, H.323, or others. Packet Cable uses TGCP SG: this is the gateway that talk to SS7 network and perform signaling conversion between SS7 and IP network. In Europe, Sigtran is used. Packet Cable uses ISTP MS: usually include Announcement Server and controller. RKS is the Record Keeping Server. All these are function blocks. Generally speaking, IP connection (DHCP, DNS, etc), Call Administration and Connection, Voice Application (including announcement), Interconnection to PSTN and its control, and Back office are the main functions that support a call. In real implementation, this is done using either centralized or distributed methods, or the combination, by different vendors. They may also be functionally separated but physically collocated. To add more confusion, both CMS and MGC are called Softswitch, depends who we talk to. At very high-level, one could think they are the same: performing call administration and connection establishment (not physical switch, but signaling for terminal-to-terminal connection, including the procedure agreements), except that MGC is specifically for interacting with PSTN. Namely, without PSTN, one only need CMS, or vice versa, or just a single piece.
  • CMS: typically performs call administration and connection functions. It may use SIP to do that in pure IP environment. It is also the place that end-to-end QoS insurance would be performed, including QoS mapping between different segments of networks. It would interact with CMTS and also router in the IP cloud. In most cases, call feature will be supported here too, but some times they are in independent, so-called Application Server (not in the picture). MG: This is the place that IP network and PSTN network interact and conversion is performed, including negotiation of the use of codec, echo cancellation,etc MGC: The control function for MG. Sometimes it is part of the MG, most cases it is stand alone and control multiple MG, therefore realizing a distributed architecture. It talks to MG using H.248, H.323, or others. Packet Cable uses TGCP SG: this is the gateway that talk to SS7 network and perform signaling conversion between SS7 and IP network. In Europe, Sigtran is used. Packet Cable uses ISTP MS: usually include Announcement Server and controller. RKS is the Record Keeping Server. All these are function blocks. Generally speaking, IP connection (DHCP, DNS, etc), Call Administration and Connection, Voice Application (including announcement), Interconnection to PSTN and its control, and Back office are the main functions that support a call. In real implementation, this is done using either centralized or distributed methods, or the combination, by different vendors. They may also be functionally separated but physically collocated. To add more confusion, both CMS and MGC are called Softswitch, depends who we talk to. At very high-level, one could think they are the same: performing call administration and connection establishment (not physical switch, but signaling for terminal-to-terminal connection, including the procedure agreements), except that MGC is specifically for interacting with PSTN. Namely, without PSTN, one only need CMS, or vice versa, or just a single piece.
  • Cellular has already captured 50% of the value in a decade Cellular has blurred the traditional Residential – Business segmentation The residential wireline business is under significant pressure
  • CMS: typically performs call administration and connection functions. It may use SIP to do that in pure IP environment. It is also the place that end-to-end QoS insurance would be performed, including QoS mapping between different segments of networks. It would interact with CMTS and also router in the IP cloud. In most cases, call feature will be supported here too, but some times they are in independent, so-called Application Server (not in the picture). MG: This is the place that IP network and PSTN network interact and conversion is performed, including negotiation of the use of codec, echo cancellation,etc MGC: The control function for MG. Sometimes it is part of the MG, most cases it is stand alone and control multiple MG, therefore realizing a distributed architecture. It talks to MG using H.248, H.323, or others. Packet Cable uses TGCP SG: this is the gateway that talk to SS7 network and perform signaling conversion between SS7 and IP network. In Europe, Sigtran is used. Packet Cable uses ISTP MS: usually include Announcement Server and controller. RKS is the Record Keeping Server. All these are function blocks. Generally speaking, IP connection (DHCP, DNS, etc), Call Administration and Connection, Voice Application (including announcement), Interconnection to PSTN and its control, and Back office are the main functions that support a call. In real implementation, this is done using either centralized or distributed methods, or the combination, by different vendors. They may also be functionally separated but physically collocated. To add more confusion, both CMS and MGC are called Softswitch, depends who we talk to. At very high-level, one could think they are the same: performing call administration and connection establishment (not physical switch, but signaling for terminal-to-terminal connection, including the procedure agreements), except that MGC is specifically for interacting with PSTN. Namely, without PSTN, one only need CMS, or vice versa, or just a single piece.
  • TREND: an industry perspective

    1. 1. TREND: Broadband Business An Industry Perspective Xiaolin Lu August 26. 2002
    2. 2. What is this all about? Bubble burst, led by the US communication industry – what to do in new environment? European has similar and also different regulatory and business environment. What could learn from the US?
    3. 3. CHALLENGES Street Opportunities Perspectives Operation Reality RegulationCompetition Assets Technology Financial Industry Innovations Markets Environment
    4. 4. TOPICS Industry Perspectives Technology Platform Operation Challenges
    5. 5. Perspectives and Dynamics
    6. 6. LANDSCAPE TELECOM IN US Long-Haul Metro Access“Unregulated” “Unregulated” Regulated or Semi-Regulated  AT&T  MSO  Worldcom  ILEC  Spring  CLEC  Qwest
    7. 7. REGULATION AND BUSINESS VOICE DATA VIDEO  Communication  Information  ContentRegulation Services Services Service  Title 2  Title 1  Title 6Requirement  Open Pipe  None  FranchisingBusiness  Selling Minutes  Flat rate  Flat rate + Usage Regulation Business Platform
    8. 8. HARVEST ON REGULATIONRegulation (intend) Harvest  Managed Infrastructure Open Access  Managed Services: multi- dimension business Open Conditional  Open platform Access  CPE innovation Digital Video  Full digital platform
    9. 9. INDUSTRY DYNAMICS Cable Dominates ILECs Dominates Cable Leads HSD Video Market Voice Market Market Video Voice Data Cable ILECs Other Competition  Reduced margin  Reduced margin on from Satellite on circuit sale access sale Desire for more  Desire for change  New business more revenue stream of service nature looks like video
    10. 10. CHANGING PERSPECTIVES Video  Competition  Standard based Proprietary  Digital Technology  Capture shares Monopoly  New revenue  Expand the pie Data  Reduced margin  Managed infrastructure  Regulatory  Service Package Access  Changing service Flat fee model  New business model nature Voice  VoIP possible  VoIP platform  Opportunity to  Vertical service Costly change the nature proposition of voice service  Differentiation
    11. 11. REALITYOpportunity Fantasy New revenue  New technology Competition  Sale pitch Assets  Embedded base  Investments How to maximize operation and economic scale? How to differentiate our business from others’? How to evolve the business and define the future? What technology direction MSO should direct vendors to?
    12. 12. Looking Forward: Triple Play 2002 Data $28BCable Voice ILEC Video  SDV VoIP $75B $128B  VDSL  Standard based equipment  IP Infrastructure  OSS/BSS  New Services
    13. 13. POSITIONING Data Video  Change service nature Voice Expand business  Change service Go digital nature Core Competence  Content aggregation & delivery  Service-base infrastructure
    14. 14. INTERDEPENDENCY OSS/BSS Service Platforms IP – DOCSIS Regional HFC Vertical and horizontal interdependent Any change at any layer or any segment will affect others
    15. 15. INDUSTRY EFFORTSBroadband Full Service Platform Packet Cable Open Cable Cable Home  End-to- End-to-end IP  Universal set  Home platform top box network N DOCSIS G  Strategy  Network C  System  Operation UPGRADE N DWDM  Capacity RF  Quality DSP  Reliability Standards CL efforts MSO efforts
    16. 16. NETWORKS
    17. 17. HISTORICAL OVERVIEW SS7Telco Class 5 Class 4 Switch Switch  Communication Service (Title 2)  LD  Selling connection  Circuit, connection orientated  InternetCable FN FN Headend FN FN  Content Service (Title 6)  Selling content  Broadcast, push-and-pick push-and-
    18. 18. OPTIONS LEC Narrowband Switched  DLC  Rebuild Wireless  Mobility FTTH  Broadband Cable  Network Upgrade Deep Fiber Broadband Broadcast  Cable modem Penetration
    19. 19. Photonic Moore’S Law: Unlimited 10K TDM Commercial WDM Commercial 1K TDM ResearchCapacity (Gb/s) WDM Research 100 10 1 0.1 1985 1990 1995 2000 Year
    20. 20. Photonic Moore’S Law: Positive Trend DWDM Price Performance 1400 $350 1200 $300 1000 $250 $/Gbps/Km 800 $200Gbps 600 $150 400 $100 200 $50 0 $0 1996 1997 1998 1999 2000 2001 Year Capacity Cost
    21. 21. DWDM IN CABLE 1.5 Xmod EDFA DWDM HHP 120 100000 100 HHP/Wavelength 10000Cost Decline % 80 1000 60 100 40 10 20 0 1 96 97 98 99 00 01 02 Year
    22. 22. CABLE NETWORK EVOLUTION Demand Bandwidth per Customer Take Rate Applications User Behavior Push Fiber Deeper Split Nodes Higher RF Efficiency Time
    23. 23. NETWORK RATIONALITY  Cell-Bus HFC HE/Hub FN  VolumeMigration switching Aggregation Segregation Aggregation RT  Multi-stageSwitched star CO/HE RT  PredefinedStructure RT PTP BW & connection switching Aggregation Aggregation Segregation  It’s all about resource sharing through multi-stage aggregation and segregation  Different cost structure, different efficiency
    24. 24. APPLICABILITYSwitched“Overlay” Plug-in HFCMigration Residential SOHO Large Business
    25. 25. HFC IN THE MAKING HE FNPrimary Primary Hub HE Ring HE FN Broadcast  Multi-Service
    26. 26. HFC IN THE MAKING SH FNPrimary Primary Hub SH Ring SH FN DWDM Transport Segmentation End-to-end Transparency 4X capacity
    27. 27. OXiom TM SH mFN mFN PH CMTS SH S mFN mFN SH mFNs replace all coax amplifiers XTR XTR XTR  Less active components  More bandwidth and flexibility WDM PON  Deep fiber penetration with cell structure Optical add/drop to daisy chain mFNs  Reduced fiber management & labor  Provisioning for growth Distributed processing at mFN
    28. 28. Network Buildouts - Cable 105.4M TV HH, 72.95M Cable HH, 69.2% 30 25Homes (Millions) 20 15 10 5 0 AT&T AOL-TW Comcast Charter Cox Adel Cblvsn Rogers Mcom Insight Classic 2-Way Homes Homes Not Upgraded Source: Kagan
    29. 29. NETWORK MIGRATION Continually improve current HFC capability  DOCSIS 2.0 and beyond  Optimization of network architectures for opex reduction Investigating new architecture for more flexibility and scalability  New build  Expansion Single platform, Core competence, Lower Capex and Opex
    30. 30. VIDEO
    31. 31. VIDEO: GOING DIGITAL! Total Households110 111 100 106100 90 Analog Only Houses 89 82 80 Total Digital Today 70 70 Digital Cable 60 59 50 45 40 36 Satellite Digital 30 30 25 22 20 Analog Only 10 5 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source = Kagan 2000 Databook
    32. 32. DIGITAL CABLE SUBSCRIPTION 25 20 Cablevision CoxMillion 15 Adelphia Charter 10 Comcast AOL TW AT&T 5 0 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 00 01 Source: UBS Warburg
    33. 33. US CABLE DIGITAL PENETRATION 40 35% of Basic Sub 30 25 20 15 10 5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 00 01 02 Source: UBS Warburg
    34. 34. STRATEGIES Increase Subscription Rev$ Expand Non-TV Ad Market “Video” Pie Get Paid To Carry Content Transaction Revenue “Video” GrowthStrategies Recapture DBS Subs Recapture Tape Rental Capture “Video” Share Get Ad Share From B’Cast Own The Content
    35. 35. PRODUCT EVOLUTION More revenue opportunity ITVDigital Penetration HDTV Reduce churn Extended VOD/PVR VOD Digital Plus Digital Basic Time
    36. 36. INTERACTIVE TV MARKET 40,000 35,000 30,000 Interenet TV 25,000 Direct Response$M Internet Portals 20,000 IPG 15,000 VOD 10,000 T-Comm 5,000 0 2001 2003 2005 2007 2009 2011 Source: Kagan
    37. 37. CONTENT DISTRIBUTION DMC Regional HFC Network HE CPE Network  Post production  Store and distribution  Aggregation  Conditional access  1st level distribution Scale Flexibility Open, managed infrastructure
    38. 38. HIGH SPEED DATA
    39. 39. HIGH SPEED ACCESS North American 100 90 80 70HP (Millions) 60 56 50 51 48 44 40 40 36 30 30 20 22 13 10 7 0 00 01 02 03 04 05 06 07 08 09 Marketed Cable HSD HP Marketed DSL HP Other Subs Total HSD Subs Source: Kagan
    40. 40. SPLIT THE PIE: 2001 US Only OtherDSL 2% 32% Cable 66% Source: Kinetic Strategies
    41. 41. CABLE MODEM SUBSCRIBER 12 10 Adelphia 8 CablevisionMillion Charter 6 Cox Comcast 4 AT&T TW 2 0 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 00 01 Source: UBS Warburg
    42. 42. MARKET DYNAMICS OF DATA BUSINESS A Land Grab For 40 Million Existing Narrowband Subscribers 1994 2002 2007 $0.6 B $28 B $55 B AdvertisingContent 5.4 E-Commissions 15.4 0.24 7.9 0.6 15.7 0.32 13.9 19.8 4.1 $5.0B 57% Access 50% Cable 18% $9.9B 36% Cable 18%  Increasingly difficult to capture value merely with access fee  Key sources of future value in the data business  Advertising  Ability to close the transaction  Data business starts to look a lot like the video business
    43. 43. IP INFRASTRUCTURE OSSServer Farm Managed HFC Network CMTS CM IP Network (DOCSIS) Many IP Technologies DOCSIS Standard  MPLS/VPN/BGP  Optical Networking  Advanced OSS/BSS Packet Cable Standard  Standard based end-to-end solution  Operation and scalability are the keys  New business model
    44. 44. KEY DIFFERENCIATIONISP ISP Service Service ISP ISP Managed “Carrier” Network Network Customers Customers Content Pipe
    45. 45. VOICE
    46. 46. Voice Isn’t What It Used To Be… 1994 2002 2007 $93 B $149 B $170 BResidential Residential local LD 44.3 30.8 43.6 23.7 39.3 39.7 73.7 103 13.7 Total 15% 50% 60% Cellular  Cellular has already captured 50% of the value in a decade  Cellular has blurred the traditional residential-business segmentation  The residential wireline business is under significant pressure
    47. 47. REDEFINE VOICE SERVICE Average Monthly Phone Bill: Constant $ Vertical Services CallerID, VoiceMail, Integration, etc.Price competition Access to voice Product Differentiation network (Local, Toll, LD, etc) Time VoIP  Low-cost bundled offering  Web based provisioning  Persistent voice Benefit to Consumer Benefit to Cable  Convenient  Differentiation  Lower cost  Customer retention  More service value  Additional revenue
    48. 48. VoIP REALITY HDT SONET 5ESS PSTNNIU HFC CM CMTS Local IP Router Internet Cost saving in access  Intelligent IP metro networks  Classify -- Policy  Accommodate legacy  Coexist NIU/HDT, CM/CMTS  Existing 5E
    49. 49. Today’s ArchitecturePSTN 5ESS SONET HE HDT HFC CMTS Local IP Network NIUInternet CM  Separatevoice and data platforms sharing the same HFC network
    50. 50. Transition: IP Digital TerminalPSTN 5ESS SONET HE IPDT HFC Router Local IP CMTS NetworkInternet EMTA  Integrated voice and data over HFC network  Utilize 5ESS platform for voice interconnect & features
    51. 51. End-to- End-to-End IP Platform PSTN PH PSTN Gateway HFC Router CMTSSoftswitch IP NetworkInternet EMTA  Cost reduction through common IP infrastructure  New revenue with emerging IP-based services  Flexible user interfaces stimulate more creativities
    52. 52. VoIP Over Cable Network MTA CM CMS MS HFC Network CMTS (DOCSIS) Managed MGC IP Network MG PSTNMTA SS7 CM SG HFC Network CMTS (DOCSIS) OSS   TGS DHCP & DNS Server  TFTP or HTTP Farm  RKS  Provisioning CMS: Call Management server MGC: Media Gateway Controller MS: Media Server MG: Media Gateway SG: Signaling Gateway
    53. 53. CABLE TELEPHONY SUBSCRIBER 2.5 2Million 1.5 Cablevision Cox 1 AT&T 0.5 0 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 00 01 Source: UBS Warburg
    54. 54. TRIPLE PLAY Create a customer destination  Reduce churn  Create differentiation Build a common platform for innovation and gain economic scale Increase ARPU Offensively and defensively change the services/products nature
    55. 55. OPERATION REALITY
    56. 56. OPERATION CHALLENGES Diversed  Operation Business structures  Scale Assets based  Balance sheet  Margin ARPU driven  Cash flow  Scale and efficiency  Re-train wall street
    57. 57. OPERATION STRUCTURE - Industry example COO CTO East Technical West Engineering operationSystem System System System System System HFC IP Service PM NOC Execution Platform  Centralized strategic decision  Distributed daily execution
    58. 58. OPERATION LOGIC Strategy Business case Engineering Operation  Guidelines  Processes Support  Leverage/utilize  Support Vendors
    59. 59. SUMMARY: The Industry Trend Change business dynamics Leverage and grow core competence Harmonize operation structures and processes Utilize industry resources Improve and leverage economic scale

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