We’re not sure if the RFP that is talked about in Cable Digital News this week is for real or just some kind of optimistic joke, but the paper reckons that Verizon has a request out for bids of up to 26.5 million set tops to revolutionize its FiOS fiber TV service.
This paper and others immediately highlighted the danger such an RFP could be to Motorola in its weakened financial state, given that it stands to lose out to a major competitor. The RFP was issued for reply by June, but that has just been extended until this week, when the news broke.
Part of the logic behind that is the part of the specification calls for a new conditional access system, and given that Motorola enjoys an 18 year leadership in US cable set tops, given to it through the acquisition of General Instrument in an $11 billion merger back in 1999, mostly provided by a Conditional Access lock in, it would seem like a great move by Verizon to get out while the going is good and it only has half a million set tops on the Motorola CA system.
GI used to give away CA for free, bundled into its expensive set tops, but once it had a decent amount of installations, it proved difficult for cable operators to wean themselves off the system. This led to the long term lock in, and is the core reason behind the Cable Card initiative of the FCC, which separates CA from the set top hardware.
It was speculated by newspapers covering the story that Verizon wants to opt for downloadable conditional access by which they really mean a Digital Rights Management piece of software. So instead of swapping out the Motorola set tops for a bid from Cisco’s Scientific Atlanta, which is about the only other US company that might deliver that number of set tops, but which would do it in yet another CA lock in, it is likely that this really is an opportunity for one of the software only DRM companies to port their system to the existing Motorola set tops and partner with the big telecoms company.
Fundamentally the FiOS system is like a cable TV system, with each TV channel running on a segregated channel within a fiber, instead of running as a merged series of IP packets.
The reason we asked if this was a joke, was the presumption that Verizon is going to get anywhere near that number of installations, given that it currently has just passed the 500,000 level of installs, and even if it pursues multiple set tops per home (let’s say 2 per home on average) that still implies that it will come close, over the next five or six years to reaching 13 million homes, which is more than a little optimistic given Verizon’s plans.
Verizon has 45 million customers today, and by the end of 2009 it should have around 20 million homes passed by the FiOS fiber service. It is currently getting about one third of customers to take some form of service such as broadband, so 6 million customers by sometime in early 2010, and at present it has around half of them taking FiOS TV. So we would expect that if it does not change its economic formula that’s just 3 million FiOS TV customers by 2010. A small matter of being 10 million homes short, but then again, perhaps it’s planning for 2013.
It could certainly improve that with a simple and cheap set top, prices in the basement for broadband, and a software downloadable DRM system. In the end the key to any network is to keep the CPE and home installation cost to a minimum, but in a new fiber base, the main costs are around $1,000 (a bit less actually) for digging up the garden and physically getting the pipe in, so Verizon can’t really avoid that.
Verizon was just awarded a waiver for its service against the Cable Card rules laid down by the FCC. For most of the IPTV services it was considered that the technology was different, but for Verizon there is every chance that by the next deadline, which is February 2009, it might find that the Cable Card test applies to it as well. So a new set top might as well deal with the issue of separating the device from the DRM.
But speculation that smaller manufacturers like Amino, which only offers IPTV set tops, and Samsung and LG, which really don’t make them at all outside of Korea, or Switzerland’s ABD, all seem wide of the mark.
Small suppliers for DRM are no problem to deal with, whereas for hardware they are. Software can be delivered to 10 million set tops from a single copy, so while that might tempt Latens, Secure Media, Verimatrix, Irdeto or Widevine and even Sun, all of whom can offer software only DRM (among others), the hardware would seem a straight fight between Motorola and Scientific Atlanta, with outsiders being Thomson and Pace Microsystems.
Our guess is that Motorola will work with a favored partner to provide the system that Verizon needs and that the deal will be announced by August, just because Motorola is known to be able to scale and has a 50% US market share, and especially because the 500,000 existing set tops will still need to be supported going forwards by Motorola.