Cable Industry
Background We are all familiar with the television today, and many may even say too familiar. According to A.C. Nielsen Co. the average American watches television more than four hours per day, which is equivalent to two months of non-stop watching per year. Over a 65 year life, that person would have spent 9 years of it watching television! How did this phenomenon, when and where did it begin, and what was the past television like compared to today’s watching? Community Antenna Television, or CATV, started in Pennsylvania around the year 1948. In Mahanoy City, Pennsylvania there was a company by the name of The Service Electric Company. The purpose of this company was to troubleshoot General Electric appliances to the town folk. They also sold appliances, such as washers, dryers, telephones, and televisions. The town residents had difficulty receiving network stations out of near by Philadelphia, and the reason was due to the mountains interrupting the signals. The owner of the The Service Electric Company, John Walson, decided to put up an antenna on top of the mountain attached to a utility pole. He then connected the antennae on top of the mountain to his store; he did this with a cable and modified signal boosters. A few months later, he connected this cable to a few customers’ homes. This in turn, created the first cable system in the nation. He has been credited by the U.S. Congress and the National cable Television Association as the founder of the industry. Not only was he the creator of the cable TV network, but he also was the first to import television stations from afar using microwaves. Also, he was the first to use a coaxial cable. Coaxial cables were used in order to improve the quality of the pictures, and through this he was able to make money on distributed pay television. The first channel that was used in distributed pay was HBO.
Unfortunately, a few years after the first CATV network was created, the FCC ceased all new TV station construction. Instead, they created a broadcasting plan throughout the United States and three years after those stations began to begin at a quick pace. Even though the popularity of televisions weren’t even close to that of today, television sets were developed into different models and began to be displayed in popular department stores. TV antennas followed up the sales of televisions and created a new market in the United States economy. Soon after, nearly every home had a television and antenna. As quickly as cable TV’s hit the market, they began to develop the same. Milton Shapp, former governor of Pennsylvania, came up with his own invention to add to the craze. He created the MATV, the master antenna. This ultimately reduced each apartment complex resident from having his or her own antenna to one apartment complex building having one master antenna with multiple signals. Through this, many remote and rural areas were able to access cable television as well. But still, even though almost everyone could receive a signal, the focal point of the industry was soon to transform. Customers began to want more out of this revolutionary invention, and more meant variety. Not only did they have the option to have different kinds of television, they now wanted different television stations. “The cable systems that only had three channels (one for each network) soon had seven or more channels as operators imported programs from independent stations hundreds of miles away. Because of the variety it offered viewers, cable became more and more attractive and quickly moved into cities as people wanted more viewing choice.” (History 1) “By 1962, almost 800 cable systems serving, some 850,000 subscribers were in business.” (History 1) Some of the industry leaders were Cox, TeleprompTer, and
Westinghouse. When these companies began to set up shop in different cities it created another new industry term called the MSO. The MSO, or multiple system operator, was basically just one cable company owning more than one system. Once again, the Federal Communications Commission stepped in and stopped cable companies from receiving signals from another distant station. This restriction was in place until 1972, when the FCC backed a little off of the ‘signal importation rule.’ It seems as though Pennsylvania can be credited for almost anything related to the cable television industry. In 1972, Service Electric (based out of Wilkes-Barre, PA) offered HBO throughout the city. Today, HBO is the largest pay cable TV service. It is a credit to them that they were the first in the business, and today are still the biggest. The programming was eventually broadcasted over a satellite 22,300 miles above the equator. This was also revolutionary because today all cable is broadcasted through satellites. “By the end of the 1970’s, cables growth had resumed and nearly 16 million households were cable subscribers.” (History 1) Over the 60 year history of the cable television revolution, it can still be seen as a rapidly growing sector. Today, 92 million households are cable subscribers, and the numbers keep growing. As many may have heard, in 2009 the broadcast television in the United States will be fully converted to digital. This change from analog will affect over the air and antenna signals. According to dtv.gov, “Converting to DTV also will free up parts of the scarce and valuable broadcast spectrum. Those portions of the spectrum can then be used for other important services, such as public and safety services (police and fire departments, emergency rescue), and advanced wireless services.” (What Is 1)
Regulations Franchising “The major markets, as noted, were where most of the nation’s viewers lived. Franchises were long term, ten to fifteen years, and often exclusive. Companies that failed to secure a beachhead in cities such as Dallas, Pittsburgh, Boston, Chicago, and Denver, faced the prospect of being locked out of 70 percent or more of the national subscriber base for years to come (Parsons, 2008).” The cable industry like many other industries faces regulations that operators must adhere to. “Local regulatory control over cable television comes in limited degree from state agencies. But as already indicated, most local control rests in the hands of municipal agencies (Garay, 1988).” Typically the municipality or franchise authority regulates the use of government property that service providers need to build a network, for example the poles and right of ways that are needed to construct a cable network. When a city decides that they are interested in building a cable network for their residents they draft a Request for Proposals (RFP). “The Municipality or the franchise authority must decide what it is they are seeking in a cable system in terms of its service to local citizens (Garay, 1998).” Once the decision is made by the municipality that a cable network is needed they publish a RFP. Once the RFP is published it acts as a notice to potential cable operators that they are being solicited to build the network (Garay, 1998). During the next stage the municipality and cable operator meet to discuss what the municipality expects out of the deal. The document that contains the franchise agreement between the two parties is enacted as a city ordinance (Garay, 1998). The ordinance goes into detail to make sure that both the cable operator and municipality are on the same page. The cable ordinance of Charles County, Maryland addresses Eminent Domain, monthly and yearly reporting, Emergency Alert System, and how and when subscribers are notified of changes in service. “One critic has described it as a process so absurd, cynical, and
self defeating it amounts to a very nearly hilarious metaphor on the evils and folly of government intervention in the private sector (Garay, 1998).” It is important to note that many authorities are asking for gifts in order for Verizon to get approval for a television franchise. The Wall Street Journal (WSJ) in 2005 reported that when Verizon approached officials in Tampa, FL to offer television services, the city in return asked Verizon to pay $ 13 million in gifts to the city. The gifts included money for a new communications network, editing equipment, and new cameras (Wall Street Journal, 2005). “All over the country, Verizon is squaring off against local governments, as it embarks on a high-stakes upgrade of much of its network (Wall Street Journal, 2005).” The article goes on to state that Verizon is getting slammed with requests, a city in New York wanted a video hookup for a Christmas celebration, Arlington, VA wanted a fiber connection ran to all traffic lights, Holliston, MA wanted free television service for all churches and a 10% discount for senior citizens (Wall Street Journal, 2005). The Cable Communications Act of 1984 The purpose of this act is to amend the Communications Act of 1934. It established a policy for cable communications here in the United States. “Constructing the cable act was no easy task. It was a struggle between two well defined factions: the cable television industry as represented by the National Cable Television Association (NCTA) and the municipalities or franchising agencies as represented by the National League of Cities (NLC) (Garay, 1998).” Garay writes that the NLC wanted a law that favored local cable control, whereas the NCTA wanted a law that moved local cable control to the FCC as opposed to having municipalities run franchises. “It establishes guidelines for the exercise of Federal, State and local authority with the respect to the regulation of cable systems. It also assures that cable communications provide and are encouraged to provide the widest possible diversity of information sources and
services to the public (Publicaccess, 2008).” The Cable Communications Act defines common terms used in the cable industry, the use of cable channels and cable ownership restrictions, cable channels for commercial use, franchise fees, regulation of rates, regulation of services, facilities, and equipment, coordination of federal, state, and local authorities, criminal and civil liabilities, and lastly obscene programming (Publicaccess, 2008). Under the act the cable operator is not required to pay more than 5% of their gross revenue in franchise fees (Publicaccess, 2008). The FCC defines a franchise fee as any tax, fee, or assessment that the franchise imposes on to the cable operator (Publicaccess, 2008). The FCC also states in the act that the government has no right to dictate to the operator what they charge subscribers for cable services. Under Sec.624 of the act, “Any franchising authority may not regulate the services, facilities, and equipment provided by a cable operator except to the extent consistent with this title (Publicaccess, 2008).” The FCC can also impose up to a $10,000 fine and or a maximum of 2 years prison time to whatever entity that transmits anything unconstitutional or obscene. The 1992 Cable Act The cable act explains cable subscriber’s rights in terms of programming. The following information is provided by the FCC. The cable provider has the right and or option to choose the channels and services that are available to subscribers on their network. The only channels that the providers have to include in all their cable tiers are local broadcast channels. For example in the Harrisburg, Middletown, Hershey area Comcast under this act must provide ABC27 because it is available over the air as a broadcast channel. In most cases the cable subscriber is required to purchase specific programming tiers (FCC, 2003). “The basic service tier is required to include, at a minimum, the local broadcast television stations carried on the system and all of
the public, educational, and government (PEG) access channels that the operator may be required to include pursuant to an agreement with the local government. After complying with these minimum requirements, the cable operator may offer additional programming as part of the basic service tier (FCC, 2003).” This act also includes a “tier buy through” prohibition; the prohibition basically prohibits operators such as Comcast from forcing their subscribers to purchase anything above the basic service tier (FCC, 2003). The FCC also under this prohibition makes it a point to let service providers aware that they cannot discriminate against subscribers that choose the basic programming tier. However service providers have the option to request a waiver from the FCC if they are engaged in effective competition (FCC, 2003). Cable operators have the right not to offer pay per view programming, or premium channels if they so choose, however it is in the best interest of the operator to offer such services. Parsons in his book writes about how the evil ways of Cablevision led to a hard lesson learned. Cablevision Hate it or Love it Cablevision “is a cable television operator with 1,500 Long Island customers, today, Cablevision operates the nation's single largest cable cluster, passing more than 4.5 million households and 600,000 businesses in the New York metropolitan area with our state-of-the-art fiber-rich network (Cablevision, 2008).” In 2002 the stock price and the number of subscribers fell. The major factor was the simple fact that Cablevision failed to offer the YES network in New York. Parsons reports that almost 50,000 angered subscribers switched to other carriers, mostly DirecTV (Parsons, 2008). The story is important to note, because the Yankees wanted the YES channel to be included in the basic service tier for all customers. “35 regional cable companies serving 5 million customers agreed to the request (ESPN, 2003).” Cablevision wanted customers to pay extra for the service. The two sides struck a temporary deal on March 12,
agreeing to keep negotiating and allow Cablevision subscribers to pay $1.95 per month for YES in the meantime (ESPN, 2003).” ESPN reports that talks broke down between the two parties; Senator at the time Elliot Sptizer got the two parties back together and a deal was reached about 20 minutes before the2003 season was to start. Within 10 minutes the Yes Network was made available to Cablevision subscribers. “Asked to explain why the Yankees belonged on basic when they were with MSG and on premium with YES, a Cablevision spokesman replied: "It is extremely expensive programming. While we look forward to carrying the Yankees, we believe our customers should have the choice whether or not to purchase the new network."(Kramer, 2002).” So the lesson learned in my opinion is that when customers want specific programming, give it to them. Cablevision & 2012 Olympic Bid I think it’s important to point out that Cablevision in its pursuit to be a media giant disappointed many people in its Tri-state service area. Cablevision was one of the factors why NYC lost the 2012 Olympic bid. The Jets had put in a bid to purchase the space above the west side rail yard from New York's Metropolitan Transit Authority. The location would have been the perfect location to put a stadium, mainly because the majority of the transportation networks that serve New York and New Jersey terminated at the rail yards next door neighbor Madison Square Garden / New York Penn Station, the two are currently housed in the same building. However, Cablevision decided to outbid the Jets. “The Mayor (Michael Bloomberg) himself said the bid was a "joke" and a "disgrace," adding, "Some companies try to block things just by throwing up a roadblock (Chung, 2008)." Why would Cablevision outbid the Jets? Cablevision owns Madison Square Garden, why would they want a media giant next door to them. CNN reports that Verizon has put in a application to offer television service throughout all of NYC. It
is my opinion that the City of New York in some sort of retaliation towards Cablevision has been favoring Verizon FIOS expansion in all five New York City boroughs, both the city and Verizon has publicized this information. Technology Cable internet access utilizes a device called a cable modem. Cable is a useful and popular medium of transmission for internet access because there is a lot of bandwidth available on typical coax cabling. Each television channel is usually given 6MHz of the overall bandwidth, and certain parts of a channel can be dedicated for internet access. Typically the downstream is faster than the upstream speed. This seems to be due to the fact that most people download a lot more things than they upload. Actually, cable internet uses two types of equipment. The previously mentioned cable modem and a cable modem terminator; which is located at the cable company. Normally a cable modem is an external device and it can be bought quite cheaply from a typical store; such as Circuit City or Best Buy. This cable modem converts a signal received/sent from the cable company to a format in which an Ethernet NIC (network interface card) in your computer can understand. The dominant standard in the cable industry for internet access is DOCSIS, which stands for data over cable service interface specification, (Wilson, 2008). This standard exists to allow interoperability and to provide a standard for cable hardware vendors to follow for distributing standardized hardware. A cable modem is needed to convert a signal passing over the coax cable to a format in which your computer can understand. This process occurs because coax utilizes a totally different structure than typical Ethernet cabling; which is what your computer normally uses.
Furthermore, according to How Stuff Works, the tuner inside of a cable modem connects to the coax cable. This tuner is able to separate a cable TV signal from the internet data channel and send it to the demodulator, (Franklin, 2008). In most cases the tuner will use what is called a diplexer, which allows it to use a certain set of frequencies for the upstream data and another set for downstream data. In each case it must go through the demodulator after passing through the tuner device, (Franklin, 2008). The demodulator decodes an analog signal to a digital signal so your computer can understand it. Cable modems usually do QAM demodulation (quadrature amplitude modulation). This means that it varies both the amplitude and phase of the waves and then converts it into a digital signal. This technique allows for more bandwidth, and it is also used in the modulation process, (Franklin, 2008). Next, the modulator converts a digital signal to an analog signal for transmission over the coax cable. A MAC layer also exists inside a cable modem. This is the interface between the different protocols being used between your computer and the cable line. The MAC layer is able to read the MPEG frames used by the cable modem, (Franklin, 2008). A CPU is needed to carry out these tasks, and a network interface card is used to transmit the data to and from your computer, (Franklin, 2008). Also, some cable modems have the ability to transmit data to and from a computer over a USB interface; rather than a regular Ethernet network interface.
Moreover, the other device in this process is the cable modem terminator. This device receives traffic from multiple customers and sends it to the ISP for routing onto the internet, (Franklin, 2008). According to How Stuff Works, “A CMTS will enable as many as 1,000 users to connect to the Internet through a single 6-MHz channel. Since a single channel is capable of 30 to 40 megabits per second (Mbps) of total throughput, this means that users may see far better performance than is available with standard dial-up modems,” (Franklin, 2008). The ISP will provide services such as DHCP and DNS so that the cable modem is able to get an IP address and the customer is able to access the internet via hostnames. Cable modems mainly act like a bridge device, because they are converting one type of signal to another. They provide an always on connection; where the transmissions are always being converted and the end user always has access to the internet. Cable modems are able to provide internet access to millions of homes that are always wired for regular coax cabling. A simple cable modem allows this to happen. One issue with cable internet access is that most users are sharing a connection, and during peak usage periods, internet access can be very slow, (Franklin, 2008). Furthermore, some explanation of the DOCSIS standard may be required. DOCSIS stands for Data Over Cable Service Interface Specification, and it governs the standards for communications over cable systems. As previously stated, this standard allows high speed internet access over the cable system. DOCSIS can be thought of as a similar to Ethernet, but it is instead used over coax cable. According to Tech FAQ, there are three main standards of DOCSIS plus embedded DOCSIS. Each revision seems to increase transmission speeds and increase the feature set, (Tech FAQ, 2008). The first version of DOCSIS was created in 1997. The downstream speeds are around 27-36Mbps with an upstream rate of 320Kbps – 10Mbps. This is the most
common version and it is used by most cable internet customers, (Tech FAQ, 2008). DOCSIS 1.1 came next and it increased the data transfer speeds, increased the feature set, and improved upon features relating to voice and streaming. The latest version is DOCSIS 2.0. This standard specifies upstream speeds up to 30Mbps, improved error correction, and enhanced modulation, (Tech FAQ, 2008). This results in more speed and less errors. Embedded DOCSIS or eDOCSIS was created to provide device management features, such as traffic management, security, etc. Also, a recently passed standard, DOCSIS 3.0, will allow for even higher downstream speeds of around 160Mbps, IPv6 compatibility, and upstream speeds of 120Mbps, (Schwartz, 2006). The Providers
There are many competitors in the cable television industry. Just to name a few relevant, major companies: Comcast, Time Warner, Charter, Adelphia, and Cox communications. These companies provide a wide array of cable television services to millions of customers. There has been quite a bit of deregulation in recent years to allow more companies access to the industry and to provide cable services. Cable television services have gone from providing three or less changes to providing hundreds of channels from across the world, (Kansas State University, 2006). Each cable provider serves millions of customers across the nation, and each provides a wide array of services and products. Most cable companies offer more than just cable services. It makes sense for an existing cable company to get into similar fields of service such as internet, telephone, etc. This offers them a way of bundling services together. This can help attract more customers and retain existing customers by providing additional features. Many of the cable services require extra devices for access. This may include a cable modem, digital cable box, or telephone modem. There are many competitors in
the industry; however, there are only a few dominant players. The largest companies are Cox Communications, Comcast, and Time Warner Cable. Comcast is the largest, most influential cable provider in the United States. Today, Comcast provides more than cable service. They also provide services such as: digital video recording, video on demand, high-definition programming, sports channels, music channels, movie channels, internet access, and telephone service. For the year 2007 Comcast has seen tremendous growth. Since 2006 Comcast has increased their revenues by 24%, added 2.5 million new video subscribers, and added 1.7 million cable internet subscribers, (Comcast #2, 2008). According to Comcast’s website they have 24 million cable, 13 million internet, and 4.6 million telephone customers, (Comcast #1, 2008). They have been in the process of adding additional high definition cable channels. This is something that they will eventually be forced to do in the coming year. It is well known that this date is February 17, 2009, and all over the air broadcasts will be forced to utilize digital transmission. There is some speculation as to whether the cable companies will transmit only digital signals as well, but this depends on what they decide to do. The FCC is forcing over the air transmission to be all digital to free up the analog frequencies for other uses. Currently Comcast offers about 30 channels plus local channels in high-definition format, (Comcast #3, 2008). This includes many local digital or high-definition channels. In addition to the high-definition channels, there are 11 sports channels, 75 movie channels, 47 music channels, and a number of pay-per-view or on-demand channels. The movie channels consist of stations from companies such as Showtime, HBO, Encore, Cinemax, and Starz. Other than Comcast cable services they
also offer internet access. Currently, the speeds provided are 6Mbps, 8Mbps, and soon 50Mbps. (JESDANUN, 2008). This 50Mbps will be offered soon and it will be priced around $150. The existing 6Mbps plan is priced at $43 per month; while the 8Mbps plan is priced at $53 per month, (JESDANUN, 2008). Time Warner cable is another major provider of cable services. According to Time Warner’s website, as of June 30, 2007 they have 14.7 million subscribers, they serve 33 states, and there are 7.9 million digital video subscribers, (Time Warner #1, 2007). This puts them slightly behind Comcast, who has 24.1 million subscribers as of December 31, 2007, (Comcast #1, 2007). This makes Time Warner the second largest cable provider in the nation, (Sloan, 2008). Their services include digital video recording, video on demand, high-definition programming, sports channels, music channels, and movie channels. They are offering the local channels and about 9 additional channels in high-definition. Time Warner’s movie channels consist of channels from companies such as Showtime, Cinemax and HBO. There are also about 10 sports channels and 45 music channels, (Time Warner #3, 2008). These are similar services to what Comcast is providing. One feature that Time Warner offers that Comcast doesn’t offer is called Start Over. This feature allows a customer to jump to the beginning of a TV show that is currently in progress. They can use this feature without any extra hardware (except for the digital box). Time Warner’s cable internet service is provided by a subsidiary titled Road Runner. Road Runner currently offers downstream speeds of 15Mbps, (Time Warner #2, 2008). This significantly faster than the speed that Comcast currently offers.
However, it is on par with Verizon’s FiOS internet service; which uses fiber instead of cable lines. Furthermore, Cox Communications is the third largest provider of cable services. They provide similar services to the other big companies, which are: high-definition, digital video recording, video on demand, sports channels, movie channels, telephone service, and internet access, etc. Cox offers 19 HD channels, local HD channels, 48 music channels, 20 sports channels, and HBO/Cinemax/Showtime/etc. The internet access speeds are tiered as 7Mbps and 12Mbps. The most common service, 7Mbps, is priced at $41.99 per month. As of quarter 4 in 2007 Cox Communications has about 3.7 million subscribers, (Goldman, 2008). Unlike their cable services, they are definitely not one of the top 3 internet service providers; they are much smaller in terms of customer base. According to the same website, ISP Planet, Cox ranks number 7 for the top 25 largest ISPs, (Goldman, 2008). The company has about 3 million digital cable subscribers and 2.38 million telephone customers, (Grabert, 2008). Like the other top 3 cable providers, Cox Communications is a Fortune 500 company. They saw revenues of about $7 billion dollars, but they are a much smaller corporation than Comcast or Time Warner, (CNN Money, 2006). The current state of the industry is very healthy. There are millions of new subscribers each year. The technology behind cable just works and it has been around for decades. Also, with new services such as telephone service and internet access becoming available on the original coax cabling, new life is being woven into the
technology. Coax has much more bandwidth and potential going for it as compared to standard twisted pair. Most houses have both types of cabling, and coax seems to be superior in most respects. There are only a few threats that can be seen, which include fiber and wireless. These two technologies are still in the process of being implemented by many various companies, and they are in their infancy. The cable industry is just about in its maturity as most people (at least in the USA) have some type of cable service. In order for cable to avoid the previously mentioned threats it must continue to innovate and offer more services at competitive prices. If the threatening technologies are able to surpass cable as far as the feature-set is concerned then cable will have to compete on a low price strategy or the cable providers will have to rely on some other type of differentiation to provide value for the customers. Furthermore, if I were an IT director I would learn about how the technology works, what the advantages and disadvantages are, and what is being offered by the local competitors. In order to weigh your options you must first understand what is needed to utilize the service and what you are able to get. A thorough analysis of the industry will be needed to maximize your knowledge of the technologies and competitors involved. An IT director would have to know the industry well in order to choose a cable provider who is able to serve the company well. This IT director must know the current threats to the technology and the opportunities for growth that exist. The company needs to settle on the technology that will be around for awhile, and one that is still able to meet the needs of the corporation.
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