Video + Data: More Channels, Lower Capex

Sept. 11, 2013
Every quarter, operators continue to purchase more and more capacity in the form of edge QAM channels, yet the price per channel is lower than ever. In fact, it has been declining at an annual rate of 15-20%, and during the second quarter of this year, it droppe...
Every quarter, operators continue to purchase more and more capacity in the form of edge QAM channels, yet the price per channel is lower than ever. In fact, it has been declining at an annual rate of 15-20%, and during the second quarter of this year, it dropped 16%, said Jeff Heynen, principal analyst for broadband access and pay TV at Infonetics Research.His firm reported recently that as a result, 2Q13 revenue decreased 4% (to $313 million) in the CMTS and edge QAM market. "Operators expect to expand capacity but at the same time reduce capex," Heynen said. "This is a clear indication that this is what is happening. It (has been) interesting to watch this market in terms of price declines over the last three to four years."Adding to the trend is the fact that this most-recent quarter seemed to be marked by vendors turning up more software licenses on operators' existing equipment rather than shipping new hardware. This isn't bad news. "The margins on licenses are (actually) better than if they have to ship new line cards out," Heynen said.CCAP-capable products began to ship this year. Recently, for example, ARRIS (NASDAQ:ARRS) announced an early order for its E6000 Converged Edge Router (CER) from Comcast (NASDAQ:CMCSA) in June and made the product generally available in July. Also in July, Casa Systems reported an order for its integrated CCAP solution (launched in May) from Chinese operator Guangzhou Digital Media Group.2014, however, is expected to be the year for major CCAP shipments to begin. Vendors will make available integrated broadcast and narrowcast video QAMs and DOCSIS downstreams on the same RF ports. Heynen said it is unclear what the affect on revenues in this market will be."In general, CCAP will continue the trend of higher density and lower price per channel," Heynen said. "It is hard to gauge what the overall price decline or ASP per downstream channel will be. We have seen now the impact of higher density blades in terms of lower price per channel."At the same time, he said it is difficult to forecast growth in volume of channels shipped. "Every quarter I raise my expectations slightly about the number of channels," he said. "Clearly with pay TV becoming less important of a business and multiscreen and IP video becoming vastly more important, channel purchases are going to continue to expand significantly."For the moment, he is predicting global shipments CMTS/CCAP channels to grow 28% next year.As for who the players will be, Heynen expects ARRIS and Cisco (NASDAQ:CSCO) to remain the top two CMTS vendors because of their installed footprint, but notes that Casa Systems' market share grew from about 3-4% to 8% in one year. The density and low price per channel of their product is a main reason, but there is also something less tangible."They are not a traditional startup in the sense that these are all guys that have done successful CMTSs before," Heynen said. "They are well-known in the industry and very well-connected. The headaches and reservations (that usually come) with dealing with a startup are lessened by that fact."Monta Monaco Hernon is a free-lance writer. She can be reached at [email protected].