At the National Cable and Telecommunications Association show in Chicago last May, Adelphia Communications CFO Timothy Rigas used basic math to illustrate the cable industry's fundamental revenue opportunity.
A cable operator charging $40 a month for TV service to a home can raise rates only so far before subscriber resistance or government regulation stops him. That means in order to maximize revenue on his pricey digital cable line, the operator must offer services other than TV and charge for them separately.
The answer, Rigas said, is to bundle telephony service and charge another $40. Add a two-way link to a home security service and collect $40 more. Add a video-conferencing capability and charge another fee. Soon, using little more than that basic cable line, the operator is collecting $150 per household rather than $40--without raising rates or consumer ire.
Cable operators in North America are experimenting with yet another service they can bundle into their offerings, a service AOL chairman and CEO Barry Schuler calls broadband's most powerful new application, or killer app--home networking. At its most basic, home networking connects major electronic appliances--personal computers, televisions, sound systems and more--to one another so that data and ultimately video and sound can be transmitted seamlessly among them.
No one knows how big the market is. Allied Business Intelligence estimated that the market for home gateway equipment alone--the hardware that connects all the equipment--will rise to $7.1 billion in 2006 from $267 million in 2000, excluding service fees. The Strategis Group predicts that 80% of broadband homes will have some kind of home networking by 2006.
Whatever the size, multiple-service cable operators (MSOs) in Canada and the United States are holding trials to iron out technical details and learn which services subscribers are willing to pay for. That's the key to home-networking success.
Analysts say it's still too early to pick the killer home-networking app.
"We're watching closely to see which technologies will be first to gain widespread consumer acceptance and how service providers will successfully manage the customer service responsibilities incumbent with this technology," says Strategis senior analyst Keith Kennebeck.
On the hardware side, traditional set-top-box makers like Scientific-Atlanta (S-A), Pioneer and Motorola are building home-networking equipment. CableLabs is developing CableHome standards aimed at coordinating the technical requirements of equipment that will eventually form the network.
In the United States, Comcast has begun lab testing a networking product made by Maynard, Mass.-based software company Ucentric and could move into field trials by the end of the year, according to Ucentric marketing director Paula Giancola. Comcast officials confirm the trials, but are keeping the details close to the vest. Two other large U.S. MSOs are privately experimenting with Ucentric networking as well, Giancola adds.
The most advanced home-networking trials are taking place in Canada. Toronto-based Rogers Communication, an MSO with 2.3 million cable subscribers, is working with Ucentric on one 50-sub trial and is preparing to launch a second, says Michael Lee, VP and GM of interactive television for Rogers.
Rogers jumped into home networking because, with 14% to 15% broadband penetration--higher than penetration rates in most U.S. systems--it has a more mature market and its subscribers are ready for the next step, Lee says. The Canadian MSO calls its home-networking service "Triple Play" because it includes video, data and voice.
"We're seeing a significant audience of people who are ready to do more things with their computers," he says. "Behaviors like downloading music, people who have multiple PCs and want to connect those PCs together."
The Rogers-Ucentric experiment--which uses a box custom-built by Ucentric for the trials but would likely move onto other hardware when mass marketed--offers a rainbow of services ranging from interactive television (ITV) applications and networked home computers to more exotic fare.
A popular item, Lee says, is linking telephone caller ID to the television. The name and number of the person calling would pop up in a corner of the TV screen so the viewer can decide whether to interrupt, say, Law & Order to take a call from cousin Lily. More broadly, the system allows unified networking on all phones, TVs and PCs, including voice mail.
