Convergence is a common theme among telecommunications and cable television suppliers. These companies think that by offering a portfolio of bundled voice, video and data services they will be able to gain customers and increase their market share. This desire has created a ripple effect in the network equipment market where vendors have focused on developing new IPTV (Internet Protocol TV) set-top boxes.
Video has been the slowest of the different services to take hold because of its high bandwidth requirements. With service providers now offering broadband telco and cable modem services, a growing number of customers are taking advantage of video services. Carriers have a number of options for delivering video content to customers: analog video, digital broadcasting and IPTV.
IPTV relies on two-way digital broadcast signals to send video data through a switched telephone or cable networks via broadband connections. At the customer site, a set-top box translates the IP video content into standard television signals, so consumers can watch programs or take advantage of special services, such as digital video recording or movies on demand.
IPTV promises to offer more services in the future. “Increasingly, the features available on televisions resemble those found with PCs,” noted Bruce McGregor, senior analyst with market research firm Current Analysis. Consequently, telecommunications service providers and cable television suppliers have been adopting this networking option.
“Just about all of the cable carriers have been upgrading their networks to support IPTV,” said Michelle Abraham, a principal analyst at In-Stat. This change resulted in growing sales of IPTV set-top boxes: In-Stat predicts that unit sales will increase from 3 million in 2005 to 27 million in 2010.
Fragmentation Attracts Suppliers
The IPTV market is clearly in an early adopter phase. “The market share among IPTV set-top boxes is quite fragmented now with no vendor being a clear leader,” In-Stat’s Abraham told TechNewsWorld.
The lofty growth and level playing field has attracted well established vendors. The most significant transaction occurred in November 2005 when networking Goliath Cisco Systems paid US$6.9 billion to purchase Scientific-Atlanta. “Cisco’s entry foreshadowed dramatic changes in the set-top box marketplace,” noted Current Analysis’ McGregor. In addition, Motorola bought Kreatel, Tandberg purchased SkyStream, and Thomson acquired Thales.
Additional moves like these may be forthcoming. “I expect networking vendors such as Hewlett-Packard, Nortel and Lucent to move aggressively into the IPTV set-top box space,” predicted ABI Research principal analyst Michael Arden. Many of the networking vendors already have reseller agreements with IP set-top box suppliers, such as Bitband, Entone Kasenna, Optibase, Orca Interactive, and 2Wire, and acquisitions could be the next logical step.
Home Networking Increases in Importance
By adding set-top box product lines, network equipment vendors could gain ground in the increasingly important home networking market. Consolidation among equipment players has intensified as vendors faced slower sales in the enterprise and carrier market segments. Consequently, equipment manufacturers have been looking to enter growing markets, which has meant focusing more on consumer, home networking, video and mobile products.
The vendors’ entry into the set-top box market offers network equipment suppliers a few advantages. By adding set-top box functionality, these vendors can now deliver end-to-end video distribution solutions. They can integrate the products with other devices, such as broadband modems and home networking systems. Lower pricing should result because the devices will include fewer components. Also, bundling of different network devices reduces the complexity of system implementation and integration.
Carriers such as Adelphia, Cablevision, Charter Communications, Comcast, Cox and Time Warner Cable also benefit from bundling. Many of these service providers already use cable head-ends and central offices network switching equipment from various network equipment vendors. The IPTV service providers can have a single company provide all of their network equipment rather than picking and choosing equipment from multiple vendors. Also, the cable TV service providers can use one management system to monitor all of the devices from the customer site to their own networks.
Girding for a Change
However, as the network equipment firms move into the set-top box space, the market also seems poised to undergo dramatic changes. Vendors are developing integrated home network systems that may take many forms. In addition to being integrated with broadband links and home networks, set-top boxes may be included in television sets, something that has already taken place with cable television. “Companies such as Sony are now talking about integrating set-top box functionality into their televisions,” ABI Research’s Arden told TechNewsWorld.
Consequently, the irony is that the set-top box market may be a short term play. If the devices become incorporated in other network equipment, then there will not be a market for the stand alone devices. Hence, the question becomes: which of the networking vendors will emerge as top suppliers in this integrated market?
Cisco seems to be in a strong position. The company could integrate Scientific-Atlanta’s set-top boxes with home router products from Cisco’s Linksys group. Motorola is also in good position because it had been a dominant cable TV equipment supplier. However, other vendors also have a chance to be successful. “The set-top box market is in a very early stage of evolution, so a lot of time will pass before the dominant players become visible,” concluded In-Stat’s Abraham.
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