'First-Strike' Cable Strategy Would Drive New Revenues, Hinder Telcos' Fiber Plans for 80% Less Cost

February 13th, 2006 -- For 80% less than the cost of telco fiber builds, the cable industry could launch targeted next generation offerings that would increase profits, drive shareholder value and outperform telecom competition, according to a new whitepaper from Vyyo Inc., a global supplier of broadband access equipment for cable and private wireless broadband network solutions.

The paper discusses how cable system operators can use spectrum overlay technology to launch a "first strike" against telecoms' fiber plans by providing a suite of analog, digital, high-definition, high-speed data and voice services that would equal or exceed those offered by the telecom industry. The paper suggests that a first-to-market, targeted service delivery strategy by cable would dampen investor enthusiasm for expensive telco fiber deployments, and boost cable valuations by creating new revenue opportunities.

Sanford C. Bernstein & Co., an investment bank with active analysis in the cable and telecom space, estimates that fiber-to-the-home (FTTH) and fiber-to-the-neighborhood (FTTN) builds by the telecom industry will cost upwards of $1,000 per customer and $800 per customer, respectively. As a result, says the firm, it will take telcos nine years to break even on fiber operations.

"Because of these massive capital expenditures and lack of scale in video programming costs, telcos are unlikely to sustain aggressive price discounting for their fiber service bundles," says the Vyyo white paper. "Therefore, telcos are counting on attracting consumers with a new set of fiber-based services, including symmetrical high-speed data and IPTV, that in the consumers' minds, outperform today's cable offerings."

According to the paper, cable operators will require a downstream capacity of nearly 225 6 MHz channels -- more than twice the capacity of today's HFC networks -- to deliver a competitive mix of analog video, broadcast and on-demand SD and HD video, high speed data, telephony and business services. Similarly, the paper says, upstream capacity requirements will more than double to 60 MHz to accommodate high-speed data, telephony, increased set-top box traffic, business services and network management.

By proactively -- and dramatically -- increasing the bandwidth of its existing plant, the paper states, cable system operators could lessen the market impact of telcos' fiber launches, enabling strong customer retention rates and high ARPU and cash flow, and extending telcos' breakeven timeline for fiber deployment.

"If MSOs can launch a capital-efficient, first-strike strategy, they should be first to market with next-generation broadband services, significantly thwarting the consumer uptake of telco fiber offerings," the white paper says. "FTTH and FTTN breakeven points are even longer than expected, pressuring Wall Street to pull the plug on financing for telco fiber deployments for the residential market."

The paper is available at the Vyyo website, http://www.vyyo.com/firststrike