From...

March 12, 1999
Web posted at: 9:07 a.m. EST (1407 GMT)

by Eric Brown

(IDG) -- The dream of interoperable cable modems took one step closer to reality last week when two vendors' entries passed certification testing by a cable industry group -- but only two, which could slow the industry as a whole.

"There is going to be a slowdown," says Gerry Kaufhold, principal analyst for the Digital TV market with Cahners In-Stat Group. "It's kind of a black eye on the [testing] process that only two made it, but nobody's ever tried to do something like this before. Interoperability is trickier than we thought."

Cable Television Laboratories, or CableLabs, announced certification of Toshiba America's PCX-1000 and Thomson Consumer Electronics' RCA DCM105. Both passed tests for version 1.0 of the Data Over Cable Service Interface Specification, better known as DOCSIS. Cable operators hailed the announcement as a breakthrough, but the fact that only two units passed--neither sold by a major cable modem vendor -- indicates that work remains.

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One indication of just how tricky interoperability is proving came during the previous testing phase in November 1998. Despite high expectations, none of the 13 participants passed the test.

The main problem was an incompatibility between "head-end" equipment and the Broadcom chip set used by all the vendors, according to Kaufhold. Vendors have addressed that problem, so observers were surprised that more didn't pass this round of tests. This time, vendors couldn't blame their chipsets -- Toshiba used a Broadcom chip while Thomson relied on technology from Libit Signal Processing.

Marching on

Despite the certification delays, cable modem deployments continue -- although not as fast as expected.

Fourth-quarter 1998 cable modem shipments totaled 355,000, up 44 percent from the third quarter, according to Cahners In-Stat reports. The study predicts end-user cable modem sales will rise 84 percent in the first nine months of 1999. Demand is still high for proprietary cable modems, which function similarly to DOCSIS modems. Some cable providers, meanwhile, are deploying precertified 1.0-compatible modems, hoping that software upgrades can handle any certification glitches.

The next wave of testing begins in mid-March, and certification announcements are expected in early May. Hopes are high that this time more vendors will get it right.

"There were three or four that were very close to passing," notes Tom Cullen, vice president of Internet service for cable provider MediaOne and the chair of the Cable Broadband Forum, an industry group working with CableLabs. "As these certification waves continue, the number of entrants will increase."

But the latest delay pushes the rollout of 1.0 modems up against DOCSIS 1.1, which is expected to begin certificate testing in the early fall. DOCSIS 1.1 offers two new features that keenly interest cable operators: IP telephony support and quality of service features to help overcome bandwidth reduction on congested cable loops. The telephony connection is increasingly relevant with the merger of AT&T and TCI, which became even stronger in the field by cutting a deal with Time Warner Cable to deliver local phone service over cable.

These advances will catch the attention of potential consumers, Kaufhold says. "Each time there's a delay in certification, it makes it harder to sell a 1.0 modem," says Kaufhold. In fact, if the major suppliers don't pass the test next time, cable operators may simply wait to deploy 1.1 modems. Already, number-two vendor Nortel Networks and number-three Com21 plan to ship precertified 1.1-compatible modems this month. It remains to be seen whether vendors will be able to upgrade DOCSIS 1.0 modems to 1.1 via software. If not, 1.0 may be DOA.

Consumer electronics future?

The success of the Toshiba and Thomson modems points to increasing competition from consumer electronics vendors in a field dominated by networking firms. Market leader Motorola, which owns about 42 percent of the installed base, can claim to be a consumer electronics provider, but it entered this market on the networking side. Taking a similar path are competitors Nortel Networks (which has around 18 percent of the market), 3Com, Cisco, and others.

It was only a coincidence that the first two modems to pass muster came from consumer electronics firms, Cullen says. But Kaufhold suggests cable modem experience may not be a prerequisite for success in the new world of DOCSIS. "It could be that the consumer electronic companies didn't have as much history," he says, pointing to the proprietary legacy technology that most vendors must overcome.

Consumer electronics companies have considerable experience meeting stringent industry standards, and they know how to compete in retail. A two-month head start may not win the war for Toshiba and Thomson, but it helps -- and they already know more about winning consumers than Cisco, Nortel, and Motorola combined.

The real retail contest will occur in autumn of 2000, when cable modem services are more widely available. Kaufhold and Cullen expect a broad selection of certified DOCSIS modems to be available on retail shelves this fall -- but only in select areas. "Retail is going to start occurring, but this won't change the world overnight," says Cullen. "If a large percentage of a metro area has upgraded [to DOCSIS 1.0 equipment], then the availability of retail will be greater."

DSL on the horizon

While networking companies battle it out with consumer electronics firms, they'll also compete with the digital subscriber line modems pushed by phone companies. Many cable modem vendors will sell DSL modems, but must compete with a raft of analog modem vendors who see DSL as the logical extension of the V.90 technology standard developed for 56-kbps modems.

The Cahners In-Stat study pegged fourth quarter DSL sales at only 79,000 units, about a fifth of cable modem sales. Yet DSL shipments rose at a faster rate -- 86 percent -- during that period, and could explode once the g.lite standard is formally endorsed this summer. Most market projections say cable modems will continue dominating DSL for several more years, but continuing delays in DOCSIS certification could change the forecast.

Cable companies are moving much faster than the phone companies to evolve from regulated monopolies into nimble high-tech competitors, Kaufhold notes. And DOCSIS is the key to pushing them to the next level.

"The cable industry is opening itself for competition," says Kaufhold. The appearance of interoperable OpenCable digital set-tops late next year will further hone cable's competitive edge, he says. "If cable can come up with a way to make the equipment interoperate, you'll see more wide open competition -- you may even see cable companies overbuilding each other. This has never happened in history."