At times, an incorrect assumption is made: Cable’s research and development is driven by Comcast, Time Warner Cable and other top tier operators through CableLabs. Smaller players patiently wait for the approaches and standards that emerge and the industry marches forward, more or less together.
Comcast and Time Warner contribute mightily to cable’s march forward, of course. But it is important to note that many exciting innovations and competitive responses are happening in areas that are mostly served by tier 2 and 3 operators. It’s a hot topic as denizens of rural communities grow to expect the same type of service as their cousins in New York and L.A. And they are increasingly getting it.
The dynamics of this very interesting sector of the industry are nowhere better illustrated than in the world of fiber. Serving rural and exurban areas with fiber is drastically different than in urban areas on a number of vital levels. The most obvious difference is that the type of service providers in rural and exurban areas is far more varied. David Russell, the solutions product manager for Calix, said three types of players dominate: Combined cable/telcos; companies mounting all-fiber “greenfield” initiatives in new residential areas, and overbuilders trying to unseat - at least partially - incumbent providers. The third category is by far the largest, Russell said.
Rural and exurban areas are all over the map, so to speak, in terms of the nature of the infrastructure serving them. Combined cable/telephone companies are common. These are likely to be the product of an acquisition - the cable company buying the telco or vice versa - and feature discrete phone and video networks. On the other hand, a company with its roots in the most rural of areas (which likely was partially funded by the U.S. Department of Agriculture’s Rural Utilities Service) is likely to use FTTH architectures due to density levels that discourage approaches that terminate fiber short of the home. It may now be looking to expand from the truly rural area to the contiguous town. A pure fiber overbuilder may also be considering a project. The takeaway is that non-urban providers evolved in far more disparate ways than their counterparts in the cities. Each will move forward in different ways.
This is not the only distinction between tier 1 operators and tier 2s and 3s. Providers’ decision-making processes also are far different. Rural organizations can move quickly on tests and trials. Stakeholders and decision-makers can be addressed quickly - perhaps in one room over lunch. “The agonizing process that large corporate entities must undergo can be expedited,” said Fritz Amt, the technical sales manager for CommScope (NASDAQ: COMM). “The small operators do not have a lot of entrenched perceptions on how to do things. They can very quickly do a trial, and if they find benefits, move out to larger deployment.”
Indeed, smaller cable operators are known to follow the leads of Comcast and Time Warner Cable. That certainly is true. However, in many cases the information flow is symmetrical: The big operators rely on information generated by the tier 2 and 3 operators through trials and rollouts that it is far easier for those smaller operators to perform. “Smaller guys sometimes can focus a little better than big guys,” said Rich Loveland, Alcatel-Lucent’s (NYSE:ALU) director of product line management for MSOs. “In the big companies, the commercial guy [says he] needs X, the residential guy [says he] needs Y. The smaller companies sometimes don’t have quite the diversity of opinion and have fewer people making decisions.”
Differences extend to equipment as well. Clearfield Chief Operating Officer Johnny Hill said tier 1 operators in urban environments tend to leverage gear to provide as much bandwidth as possible. But distance, rather than capacity, is the key in rural settings. “The smaller guys use WDM to gain more virtual links vs. the larger guys who are using exactly the same products to deliver bandwidth,” Hill said.
It is far more difficult to make blanket statements about the path forward for rural and exurban systems simply because the situation in each locale is far more different than it is for operators in urban locales. Clearly, however, cable operators are being pushed by competition from Google Fiber, the telcos and new competitors - as well as the general assumption from subscribers that they will get fast and abundant services no matter where they are.
Rural areas no longer are afterthoughts. Indeed, it is an interesting time: The emergence of high-capacity wired and wireless networks - from LTE to Google Fiber - makes it clear to residents that they no longer need to settle for second-class services. Cable operators’ challenge is to be out in front - despite existing networks that don’t always allow them to move quickly.
“They all have their unique legacy networks and need to bring them to the next level,” said Keith Russell, a senior product marketing manager for Alcatel-Lucent. “This is why it is more fragmented in small markets. They all have their unique challenges, and it’s a matter of finding the right niche to [remain] competitive.”