All-digital cable move may spark viewer ire (USA Today)

By David Lieberman
June 13, 2008

Cable subscribers who own a cable-ready analog TV — which means most customers — have it easy.

They simply attach a line from the wall into the back of the set, and it's ready to go. On cable's most popular service, that means access to about 80 channels — including those that define the medium, such as CNN, ESPN and USA Network.

They better enjoy it while they can.

Cable companies are eager to sweep away analog channels to make room for digital high-definition and interactive services. And Comcast (CMCSA), the No. 1 operator with 38% of cable's 65 million video customers, is about to lead that charge with the industry's most ambitious — and potentially riskiest — effort yet to change the way cable subscribers watch TV.

The reason is simple: Analog sucks up too much bandwidth, and that makes it hard to deliver the often lucrative services that customers are starting to want.

"We need the (analog) real estate for all kinds of advanced services, whether it's HDTV, higher-speed (Internet) service or more ethnic channels," says Derek Harrar, Comcast Cable's general manager of video services. "We will redeploy the bandwidth for applications that are going to improve the experience for different segments of our consumer base. That's really what it's all about."

But that may create headaches for millions of people who like things the way they are.
Comcast says it will drop its popular analog expanded basic service by year's end in about 20% of its markets. Other systems will follow through 2010. Analog customers affected by the change will have a choice:

•Those who want to continue watching the channels they currently receive must connect each affected TV to a device that converts digital signals into the analog ones that the set requires.
•Those who'd rather stick with their existing set-up will only be able to get a low-price, bare-bones package consisting largely of local broadcast stations.

There's a lot riding on how Comcast decides to mix deals and directives designed to drive customers to go digital.

Subscribers may rebel if they're baffled by Comcast's changes, if they feel pressured to pay higher monthly fees, or if the company-supplied digital converters create hassles — for example, by making it maddeningly slow to change channels.

"There's a reason (analog customers) are still analog," says Bruce Leichtman, president of industry analysis firm Leichtman Research. "They just don't want more" channels and services.

But if consumers like, or merely accept, Comcast's offer — and the cost to the company isn't too high — then other operators likely will follow close behind.

"We'll all pay attention to see how it works," says James Kelso, who oversees video engineering for Cox Communications. "We have to take turns blazing the trail and learning from each other. An awful lot of people are thinking about this."

Some are acting, as well.

Long Island, N.Y.-based Cablevision (CVC) recently yanked A&E, Animal Planet, E, Sci-Fi, TLC and the Travel Channel from the analog-only service, reducing it to about 60 channels — without a reduction in price.

Meanwhile, Time Warner Cable (TWC) is eliminating analog in areas of New York and Los Angeles where subscribers already need a box to watch TV; it's swapping analog boxes for digital at no charge to customers.

With HDTVs flying off the shelves, cable operators will "all end up in the same place in a couple of years," says Sanford C. Bernstein analyst Craig Moffett.

Smooth sailing unlikely

The road to get there may be bumpy, though. Some 43% of cable customers depend entirely on analog service. Other subscribers pay an extra $10 or so a month for a digital box and package of services that include extra channels, an electronic program guide and video on demand (VOD).

But even digital customers frequently have TVs in the kitchen, attic or kids' rooms that use analog service.

"About 65% of the televisions we serve are still connected to our network without a set-top box," says Kevin Leddy, Time Warner Cable's executive vice president for technology policy and product management. "Taking all of the analog services away would be pretty disruptive to the customer base."

Analog cable will serve 126 million TV sets in 2009, the National Cable & Telecommunications Association (NCTA) estimated last year in a filing with the Federal Communications Commission.

That's why some executives say analog is an asset, not an albatross. "One of cable's big advantages is, look, you plug this little wire from the wall into your television and, whammo, you have 80 channels," Kelso says. "No set-top required, and no nonsense. That is a really useful thing."

There's also a danger that consumers will be puzzled when cable operators push digital at the same time the USA prepares for the Feb. 17 national transition from analog to digital broadcasting. After that date, people will need a special digital converter to watch over-the-air television on an analog TV.

The cable industry assures customers in TV ads that their analog sets will "work just fine" with cable after Feb. 17.

"When you talk about an operator going all digital at the same time the government is doing this digital transition, the opportunity for confusion gets pretty high," Kelso says.

Some cable customers have already started to complain to the FCC. In response, it issued a "Consumer Advisory" in April, noting that when operators replace analog channels with digital, it's "a business decision made by the cable companies and is not required by the federal government."

That may be cold comfort to subscribers forced to make a change. Many customers complained last year when Comcast slashed analog channel offerings in Chicago and Calaveras County, Calif.

"I would recommend that they talk to people more," says Chicago Department of Consumer Services Commissioner Norma Reyes. "Comcast informed us as regulators, and the cable commission, about what was happening. But an informed consumer is the best consumer we can have."

Harrar says that Comcast customers won't be baffled when the local system dumps analog expanded basic service. "We're going to hold their hand and help them get through what's happening across the world, which is that everything is going digital."

Maybe not everything — but certainly enough to make a compelling business case to change. Just 70 analog channels take up about half the electronic space on a typical cable system's lines. That puts many cable systems at a competitive disadvantage.

The five largest operators carry an average of 25 HD channels, says The Bridge Data Group. That pales next to satellite: DirecTV (DTV) has 95, while Dish Network (DISH) has 64. Verizon's (VZ) fiber-optic FiOS service offers 21 but promises to have about 150 by year's end.

"The whole industry is trying to figure out how to get orders of magnitude increases in HD," says Shawn Strickland, FiOS' vice president for video solutions. "By this holiday season, there's going to be a stark contrast between who has an HD leadership position and who's not making progress."

Cable systems have several technological fixes to clear room for HD — but the fastest and easiest is to dump analog channels. Operators can fit 12 standard-definition digital channels, or two to three HD ones, in the space it takes to offer one analog channel.

Harrar says Comcast likely will provide free digital service for at least one TV in each home that subscribes to analog. Comcast would love to have customers take a box that also can provide VOD.

But the campaign may only succeed if consumers who don't have the space or desire for a box accept a brand new device: an inexpensive, digital-to-analog adapter that can fit inconspicuously behind the TV.

"For all intents and purposes, it replicates analog service," Harrar says. "There is no (electronic program) guide, there's no video on demand. But you do get all of the channels that are available to you in digital. And because it's inexpensive for us, we'll make it inexpensive for our customers."

The danger is that this seemingly simple device could create annoying new complications. For example, people who want the adapter hidden behind the TV would have to snake a wire to the front to receive remote control signals fired from across the room. That could confound people with complex connections to a VCR, DVR or other device.

Most consumers also would have to use a remote that comes with the adapter, or reprogram a different one, to adjust the volume as well as change channels.

What's more, "Digital channel changes take up to a second, or sometimes even more," says

Imran Shah, managing partner of IBB Consulting, which works with several cable companies. "From a customer perspective, the (fast) channel change experience they're used to on analog will go away."

Comcast says that will be fixed before it orders the adapters. It hasn't ordered them yet, and won't say which manufacturers are on its short list.

Still, the company's largest equipment supplier says that it's on the case.

"We're in the prototype phase, but (eliminating the delay) is a requirement for the product," says

Rob Folk, the product manager at Motorola.
Rule-directed route

It's important to get this right: Cable operators can eliminate analog channels once they can afford to put a consumer-friendly digital adapter on virtually every analog set.

The FCC ruled late last year that cable systems must carry analog versions of most local TV stations unless all subscribers — including those with analog sets — can still watch them from digital transmissions.

Cable operators have several reasons to consider an all-digital system the promised land, aside from making room for HD.
It's relatively easy to encrypt digital signals, which would stop lots of people from stealing cable service. In addition, operators could end the cost and frustration of having to send a technician out every time someone wants to start, or stop, getting cable service.

"No truck would ever roll, because it would be an all-electronic connect and disconnect," Kelso says. "That has an incredible operating expense benefit to a cable company. We definitely have an interest in that."

Cable systems also have to be all digital before they can be redesigned to provide virtually unlimited programming choices.

The first challenge, though, is to persuade people who are satisfied with the status quo to open themselves to change. And Comcast says it's confident that it can make the sale.

"We have worked since 2003 to train people to interact with their TVs in ways that they never thought that they would," he says. "When you say, 'What is the future of television?' it almost has to be that you can look through tons of choices and be able to hit play, pause, fast-forward and rewind on your schedule. We're trying to help customers get into the future in a way that's going to offer them great value and great choice."