The HFC BroadbandCable Network: Creating New Revenue Streams fromNon-traditional Sources by Bill Underwood

SetNet International LLC 5979 NW 151st Street, Suite 208 Miami Lakes, FL 33014 (USA) Tel. (305) 825-2570 Fax (305) 825-0852 www.SetNetInternational.com

The HFC Broadband Cable Network Creating New Revenue Streams from Non-traditional Sources

White Paper

TABLE OF CONTENTS ABSTRACT...................................................................................................................................... 1 INTRODUCTION ............................................................................................................................. 2 STEP 1: THE HFC UPGRADE........................................................................................................ 4 Cost Factors Vary ............................................................................................................................ 4 HFC Bandwidth Allocation............................................................................................................... 6 DIGITAL BROADBAND SERVICES DEFINED............................................................................... 7 Interactive Television (iTV) .............................................................................................................. 7 Operating Modes ............................................................................................................................. 7 Delivery Options: Cable Modem vs. TV Internet ............................................................................. 8 TV Internet: The Path of Least Resistance ..................................................................................... 9 Head-End Rendering ....................................................................................................................... 9 "Thin-Client" vs. "Fat-Client Rendering ........................................................................................... 9 DIGITAL SETNET GATEWAY BRIDGING THE "DIGITAL DIVIDE" ............................................ 10 MIDDLEWARE: ENABLING TECHNOLOGY................................................................................ 12 EXPANDED SERVICE OFFERINGS ............................................................................................ 13 Digital Cable Programming............................................................................................................ 13 Streaming Video And Video On Demand (VoD) ........................................................................... 13 Electronic Program Guide (EPG) .................................................................................................. 14 Cable Telephony............................................................................................................................ 14 CBR – Separate Network Required............................................................................................... 15 Advantages of IP Telephony ......................................................................................................... 15 Converting A Cable Network To A Bi-Directional Telecommunications Network ........................ 16

Advantages For The Cable Operator ............................................................................................ 16 Internet Portal Services ................................................................................................................. 17 Distributed Computing ................................................................................................................... 17 OPERATIONAL CHALLENGES.................................................................................................... 18 Interfacing With Existing Legacy Support Systems....................................................................... 18 Comprehensive Real-Time Capabilities ........................................................................................ 18 Multi-Tier and Usage-Based Pricing.............................................................................................. 19 Support for On-Demand Services ................................................................................................. 19 Carrier-Class Availability, Reliability and Scalability...................................................................... 19 Open Architecture.......................................................................................................................... 20 An Integrated Approach for Quick Market Entry............................................................................ 20 SUMMARY .................................................................................................................................... 21 ACKNOWLEDGEMENTS.............................................................................................................. 21 APPENDIX A: DIGITAL VS. ANALOG: DETAILING THE DIFFERENCES ............................... 22 APPENDIX B: DOCSIS: “DATA OVER CABLE SYSTEM INTERFACE SPECIFICATIONS” ..... 31 APPENDIX C: ACRONYM GLOSSARY ....................................................................................... 33 APPENDIX D: GLOSSARY OF TERMS ....................................................................................... 33 APPENDIX E: REFERENCES ...................................................................................................... 37

iii

ABSTRACT In today's rapidly changing and highly competitive communications industry, Cable Operators are in a unique position to dominate the Broadband market with a host of new services - based on an integrated platform of video, voice and Data - with the consumer's Television set as the centerpiece.

Specifically, those efforts have relied on existing telephone lines to deliver Digital content to consumers who own personal computers (PCs); with PC ownership in the region hovering at around 5%, and given the poor quality of the telephone system in Latin America, it is not difficult to see why these initiatives have not met with success.

Many Cable Operators have taken the first step by upgrading their existing systems to high quality hybrid fiber-coax (HFC) Broadband Networks. They are now seeking new revenue opportunities to leverage the substantial capital investment required to complete these upgrades and incorporate Broadband capabilities into their Cable Networks.

At SetNet International, we have chosen to harvest the "low hanging fruit" by developing a solution that allows the Subscriber to gain access to the Internet and other Broadband services via his or her existing Television set. By eliminating the need for computers and other expensive hardware, the SetNet strategy appeals to a much larger potential audience, as approximately 90% of Latin American households own a Television.

At SetNet International, our goal is to help facilitate this transition by partnering with Cable Operators, equipment vendors and other industry experts to offer a "NoCapital-Cost" solution that will make it feasible for Cable Operators to deliver a wide range of Broadband services, thereby creating new revenue streams from nontraditional sources. As part of a progressive rollout strategy, we are focusing our initial efforts on Cable Networks in Latin America, where a number of factors have combined to create what could become the fastest-growing market in the world for Digital Broadband services.

In this paper, we will provide a detailed look at the physical makeup of an HFC Broadband Network and the technical challenges facing Cable Operators who have yet to upgrade their systems, but are considering the possibility. We will also address a number of issues surrounding the delivery of next-generation services and the emergence of the new Digital SetNet Gateway(â&#x201E;˘), which is set to transform the Subscriber's Television set into a multi-functional communications device one that will provide an Interactive point of entry into the exciting world of Digital content.

Previous attempts to make Internet access available on a large scale to consumers in Latin America have stalled, largely because they were modeled after sub-par infrastructure and ignored the realities of the region.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

INTRODUCTION From a financial standpoint, the upside potential of advanced services such as Digital Video, High-Speed Internet Access and Telephony services is having a tremendous impact on Cable system valuations.

With a high-quality HFC Network in place, a Cable Operator has an incredible amount of bandwidth that can be used to deliver High-Speed Internet access and other desirable services to consumers - such as Digital Multiplexed Premium Channels, Interactive Television (iTV), Cable and IP Telephony, T-Commerce, E- Commerce and more.

By the middle of calendar year 1999, leading Cable Operators were acquiring independent multi-system Operators (MSOs) for as much as $5,000 per Cable Subscriber and 19 times forecasted earnings before interest, taxes, depreciation and amortization (EBITDA), doubling recent industry benchmarks.

Total bandwidth varies according to the Cable company's network infrastructure, but most HFC Networks can transmit signals from 54 to 750 MHz - enough for over 80 PAL or 110 NTSC downstream analog channels. Further, each one of those channels can deliver 27 Mbps of Data traffic - equivalent to Product eighteen T-1 lines (1.54 Mbps) per downstream channel. Since many of these channels are unused, spare channels can be utilized for Digital TV, Telephony, and other next-generation services. Digital Cable programming, HighSpeed Internet access and competitive Telephony services can provide new and exciting revenue streams to enhance the value of a Cable Network. Of equal importance in today's highly competitive environment, offering Voice and Data services helps the Cable Operator create a clear differentiation from competitors such as DBS service providers DirecTV and Sky, while serving to increase Subscriber retention rates.

Cumulative 1999 EBITDA Multiple

Incremental 1999 EBITDA Multiple

Cumulative 1999 EV Per Subscriber

Incremental 1999 EV Per Subscriber

$4,500

+$750

Telephony

18.0 x

High-Speed Data

15.0 x

+2.5 x

$3,750

+$625

Digital & Advanced Analog Video

12.5 x

+4.0 x

$3,125

+$1,000

Core Video

8.5 x

$2,125

Source: Donaldson, Lufkin & Jenrette

Table 1: Impact of non-traditional services on (U.S.) Cable system and Subscriber valuation..

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

Year

2001

2002

2003

2004

2005

U.S.*

$6,129

$7,051

$7,339

$8,554

$9,298

Latin America

$7,155

$8,014

$8,816

$9,521

$10,092

*Source: Carmel Group

Table 2. Comparison of projected Subscriber Values, years 2001-2005

According to leading investment banks in the U.S., a Cable Operator's core analog Television service is valued at only 8.5 times EBITDA, equal to $2,125 per basic Subscriber. This would indicate that higher Cable system valuations are justified only by new offerings, such as advanced telecommunications services. Available data indicate that the delivery of Telephony and High-speed Data services together adds equity value (EV) equal to an additional $1,325 per basic Subscriber, or an increase of 5.5 times EBITDA. Using these estimates, a Cable Operator with 100,000 basic Subscribers can increase the value of its Cable system holdings by more than $100 million (U.S.). Table 1 illustrates cumulative and incremental increases in U.S. Cable system and Subscriber valuation when service offering includes Telephony, High-Speed Data and Digital / Enhanced Analog services. It can also be argued that the HFC upgrade itself dramatically enhances the value of a Cable System - even before added services are factored in - as evidenced by Cox Communications’ recent $2.7 billion cash bid for Multimedia Cablevision's 522,000 subscribers in Kansas, Oklahoma and North Carolina (USA).

Cox representatives said the bid, which equals a per- Subscriber price of $5,172, was based largely on the fact that (at the time) almost 90% of the systems in Kansas and Oklahoma had already been upgraded to 750 MHz. When factoring in synergistic elements that will help defray some of the expenses, the adjusted Subscriber cost in the Cox / Multimedia transaction equals $4,500, or 15.6 times estimated FY 2000 cash flow. As attractive as the above numbers appear, based on comparisons between U.S. and Latin American markets – primarily in the form of higher penetration rates for IP Telephony and High-Speed Internet access, and their associated impact on cash flow SetNet believes that the net gain in system value for Cable Networks in Latin America will approach 20x EBITDA, for a net Subscriber value exceeding $10,000. Based on the above factors Table 2 offers a comparison of SetNet International’s projected Subscriber valuations in a typical Latin American HFC Cable System versus projected U.S. Digital Subscriber values. The U.S. Subscriber projections were published recently by the Carmel Group.

STEP 1: THE HFC UPGRADE Before offering voice and Data services, Cable Operators must upgrade their systems into high-quality bi-directional HFC Networks. Coaxial Cable or microwave backbone links must be replaced with fiber-optic lines and optical components installed in the head-end, hubs and nodes. Operators must activate system return path components, balance them and clean return path noise on coaxial plant segments to certify the Network for bi-directional services. Status monitoring systems also must be deployed to detect and correct Network problems that can have a negative impact on service. In order to offer Telephony, redundant powering systems must be implemented and power-passing taps employed to deliver lifeline reliability.

Cost Factors Vary The costs of bi-directional and HFC upgrades can vary widely, depending on such factors as existing Cable system plant conditions, system architecture and size, the prevailing labor costs in the region, and franchise or other requirements. The capital costs for fiber upgrades may range from $150 to $250 per home passed, while bi-directional upgrades generally range between $15 and $30 per home passed. Status monitoring and filtering will typically add $10 to $15 per home passed, and Network powering adds another $20 to $30 (all figures in U.S. dollars). From an accounting standpoint, many Cable Operators assign the cost of fiber upgrades to their core video business, since these upgrades significantly increase channel capacity while enhancing reliability and picture quality. The Operator's High-speed Data and Telephony service (which will be discussed in more detail later in this paper) are typically assigned to carry the cost of bi-directional upgrades, status monitoring and redundant powering systems.

25,000 HP

Once the HFC upgrade is complete, separate Telephony and High-speed Data systems are deployed do support these services.

Figure 1. HFC Cable Network.

For illustration purposes, Figure 1 provides a schematic of an HFC Cable Network featuring a regional head-end and Network Operations Center (NOC) with a total of 200,000 homes passed.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

Note the redundant fiber ring linking eight distribution hubs, each with 25,000 homes passed. From the hubs, fiber lines feed nodes of 500 homes, where coaxial Cable with a capacity of 750 MHz delivers signals to and from the Subscribers. Figure 2 offers a look inside the HFC Digital Head-end, where off-air and satellite channels, along with Digital content from the Internet, are descrambled and rescrambled before being routed to AM & Digital Modulators. From there, the individual signals are fed into an RF combiner and ultimately distributed via Optical Transmitters.

Figure 2. Digital Head-end.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

HFC Bandwidth Allocation An HFC Network is both an asymmetrical physical structure and a passband system (in both upstream and downstream directions) where carriers at specific frequencies are modulated to transmit signals.

As mentioned previously, with the use of fiber optics, HFC Networks are capable of transmitting up to the frequency of 750 MHz. The band between 450 MHz and 750 MHz is allocated for downstream Digital signals.

The diagram in figure 3 illustrates the bandwidth allocation of an HFC Network. The upstream Digital band is allocated between 5 - 45 MHz frequencies, while the downstream analog TV band is allocated between 50 - 450 MHz.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

DIGITAL BROADBAND SERVICES DEFINED As mentioned earlier, with a high-quality HFC Network in place, the Cable Operator has a tremendous amount of bandwidth that can be used to deliver a host of new services to the Subscriber, allowing the Operator to create new revenue streams from non-traditional sources. The primary benefit to the Cable Operator comes from the ability to offer Interactive Programming, which we will discuss in detail, along with quality telephone service. Interactive Television (iTV) Digital Television will do far more than simply show Television in a Digital format. The term actually describes a series of interrelated technologies that will allow Television to become Interactive, so that viewers can play along with game shows, get information from the Internet as they watch a show, or buy a vast array of products and services online. In a report issued in May of 2000, Jupiter Communications, a leading technology research firm, predicted that Interactive Television (iTV) will have "as significant an impact on the consumer economy in the first decade of the 21st century as Television had in the 1960s." SetNet International agrees wholeheartedly with the Jupiter prediction; and while the referenced report focused on the U.S. and Europe, based on our research we feel the impact will be even greater in Latin America.

It is important to note that the Subscriber will not be required to purchase a new Television set to receive Interactive Programming; existing Television sets will be connected to the Digital SetNet Gateway (similar in size to set-top boxes), which will receive Digital signals from the Cable Network and translate them to analog signals. Operating Modes Interactive Digital Television can be divided into three closely related models of operation. Single Mode: The first method, called "single mode," allows the viewer to switch between the Television program and the Interactive application. When the viewer finishes the Interactive session, he or she returns to regular viewing. Simultaneous Mode: In the second model, known as "simultaneous mode," the viewer pops the Interactive application into a picture-in-picture (PIP) window on the Television screen and is able to interact while continuing to watch the program. For example, a viewer would be able to answer questions along with the contestants on a quiz show. Pause Mode: The third model, or "pause mode," records Television programs to a hard disk, thereby allowing viewers to pause the program in order to use the full screen to take advantage of the Interactive service. When the interaction is over, viewers can continue the program at the point where it was paused.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

Internet Access: Broadband vs. Dialup Broadband Internet access represents a potentially lucrative service offering for Cable Operators that have completed the upgrade to a high-quality HFC Network. In the U.S., Cable companies such as Cox Communications, Media One and Rogers Cable Systems are having tremendous success offering High-speed Internet services. To date, these MSOs (and others)

For the consumer, the benefits of a Broadband connection are obvious: when comparing standard dialup service to a Broadband Internet connection, the primary difference is the increase in speed provided by the latter. Faster connection speed means less time spent waiting for e-mail attachments or Web pages to download; files that take several minutes to download with a 56K analog modem take only a few seconds with a Broadband Internet connection.

Digital Video Recorders (DVR) – sometimes called Personalized Television.

Digital hard drive combined with Data broadcasting.

Digital hard drive records programs and enables more control over selecting and recording programs.

Electronic Program Guide (EPG)

Digital SetNet Gateway / middleware

Interactive access to Television programming schedules; Data currently sent through VBI.

Enhanced Television

Refers to broadcasting HTML Data to ATVEF-compliant devices

Platforms interpret Data currently sent through the VBI by broadcasters. Software interprets the Data and presents enhancements on top of or around video similar to a web page. Data written in HTML. With Digital signal, the VBI will not be needed.

Hyper-video (Internet)

Internet

Real-time authoring of streaming video featuring “clickable” selections.

Individualized Television

Proprietary software

Viewers can choose from several camera angles and “smart” advertisements.

Synchronized Television

Proprietary broadcast application viewable with web browser

Pushes Data to Internet application in synch with Television programming

Streaming Video / Video On Demand (VoD)

Digital Video Servers

Streams MPEG2 video in Cable environment

Delivery Options: Cable Modem vs. TV Internet One option for delivering High-Speed Internet access to the Subscriber is the Cable modem, which is a shared medium that delivers access to a PC. As mentioned earlier however, ownership of Personal Computers is quite low in Latin America, making this a less than desirable delivery method.

To offer Cable modem service over the network, the Cable Operator first must Table 3. Examples of Interactive Television obtain a very Highhave achieved penetration rates of more Speed Internet backbone link into its regional than 10% in specific communities. In these head-end (usually from an ISP partner). This areas, the Cable Operator is typically the backbone will interface with a high-end number-two Internet Service Provider (ISP) router, which connects to the Cable Data in terms of market share, trailing only access Network. From the regional head-end, America Online. the Cable Operator needs a fiber transport solution to transport Data to and from Network distribution hubs. 8

The hub houses a layer 3 switch and Cable Modem Termination System (CMTS) units, which convert Digital Data for transport over RF channels to customer locations.

Given the fact that the same amount of bandwidth can be used to convey 25 to 35 Digital TV channels, SetNet believes that a better case can be made for the alternatives.

TV Internet: The Path of Least Resistance

"Thin-Client" vs. "Fat-Client Rendering

Because of its inherently wide frequency bandwidth, the Broadband Cable Network is very well suited for providing Highspeed, "always-on" Internet and other services for the home. Recent technological advances make it possible to view Internet content directly on ones Television set good news for consumers in Latin America, where PC penetration stands at approximately 5% but more than 90% of households own a Television set. Cable Operators wishing to provide TV Internet as part of a service offering can choose from methods including "Head-end Rendering" where most of the computing power resides at the head-end, or â&#x20AC;&#x153;ThinClientâ&#x20AC;? or "Fat Client" Rendering, where processing power is built into the Digital SetNet Gateway. Head-End Rendering With Head-end rendering, most of the computer processing takes place in the Cable plant, with largely "static" screens being conveyed down the Cable Network to the Subscriber. The primary drawback of this delivery method is that current technology can support only a fraction of the households on the HFC Network if a standard 6 MHz channel is allocated for this purpose. In the U.S., most Cable Operators have set aside only three analog channels for all Digital services, making it unlikely they will allocate even one of these channels for dedicated Internet access.

First, an explanation of what we mean by thin vs. fat: The "thin client" model describes a minimal, fully standard application set, whereas "fat-client" refers to rich, more diverse application set that allows for centralized and automated technical support, resulting in higher-quality services to the Subscriber. When compared to the head-end alternative, thin-client solutions include much simpler video integration capabilities and minimal browser support; however, these advantages are offset by the memory constraints inherent in traditional set-top boxes, which often leave just enough room for an Electronic Program Guide (EPG) and nothing more. For these reasons, SetNet believes that the more robust fat-client model will provide the richest Interactive experience for the consumer, and will ultimately make better use of Internet technology. Further, with the power concentrated at the server rather than the head-end or at the Subscriber's home, it will be much easier to upgrade to higher levels of Digital Technology as they become available. However, recognizing the need for flexibility and scalability - as there may be a need to employ a thin-client model in certain cases we have also incorporated that capability into our solution.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

DIGITAL SETNET GATEWAY BRIDGING THE "DIGITAL DIVIDE" Central to our strategy is the Digital SetNet Gateway -- a multi-functional convergence device that will allow the Cable Operator to deliver a full array of Digital content.

To maximize flexibility and combat obsolescence, the Digital SetNet Gateway has been designed to meet the following criteria:

Not only will it deliver hundreds of Digital Television channels, the Digital SetNet Gateway also includes a modem, which will provide High-Speed Internet access directly to a standard TV set, along with ports for an IP Telephony connection, printer, joystick (for games) and wireless keypad.

Open Standards -Perhaps the most significant aspect of the SetNet Digital Strategy for Latin America is our commitment to Open Standards. We recognize the importance of a smooth transition to Digital Cable, and the added importance of flexibility.

Additional ports are installed and reserved for future devices, and to optimize longterm performance, upgrading the device will require no more than a simple, dynamic software download through the Internet or Cable Network, a smart card, or in some cases the installation of an upgrade card into an expansion slot. Digital SetNet Gateway features include: ! ! ! ! ! ! ! ! ! !

Open and Flexible Architecture Supports 16/32/64/128/256 QAM Network Interface Decodes Video and Stereo Audio Demodulates and Decodes MPEG 2 Video Demodulates and Decodes MPEG 2 Layer Audio DVB Transport Compliant DVB Conditional Access Using SMART Card and DVB Descrambler Optional High-Speed Data Port Optional Telephone MODEM (expansion slot for Cable MODEM) Supports PAL (B/M/N) and NTSC Video Formats

With technology evolving at a rapid pace (with no let up in sight), we feel this is a more realistic path than the introduction of proprietary hardware and / or software, which can quickly become obsolete. Our use of Open Standards will ensure compatibility and seamless integration with existing and future infrastructure / technology. Scalable -- System designed to grow as number of services and Subscribers increases. Efficient Use of Capital -- Allows for structured investment and limits initial capital outlay. Backwards Compatibility-- Will not obsolete existing equipment (Cable Operator or Subscriber). Middleware Compliant -- For ease of implementing High-Speed Internet solutions, Interactive Television applications, ecommerce, multimedia games and other value-added services.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

Conditional Access and Subscriber Management Technology -- Increases system security, allows the Operator to access and control each Digital SetNet Gateway from a central location, interfaces with the Subscriber billing system, and makes it easier for Subscribers to add or delete Digital services. Upgradeable Firmware -- Allows for software downloads via the Network, mitigating obsolescence of the delivery platform.

Expandable-- Additional components can be easily added to expand its capabilities, performance, and profitability.

Using the Digital SetNet Gateway(â&#x201E;˘) to transform the Subscriber's TV set into a multifunctional, interactive communications device will allow Latin American Cable Operators to respond to the growing demand for High-Speed Internet access and multimedia services. Digital High-Speed connections will result in improved Subscriber retention rates by offering enhanced graphics capabilities and a positive overall Internet experience for the user.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

MIDDLEWARE: ENABLING TECHNOLOGY Middleware, often referred to as the "glue" that holds disparate systems and applications together, is a layer of software between the HFC Network and the consumerâ&#x20AC;&#x2122;s Televisions set. This software, which resides in the Digital SetNet Gateway, provides services such as identification, authentication, authorization, directories, and security. In today's Internet, applications usually have to provide these services themselves, which leads to competing and incompatible standards. Traditional middleware is comprised of multiple software pieces, which can be en down into various major components. Key components include the application server, enterprise integration software for talking to existing systems and integrating different Internet applications, workflow management software to integrate diverse applications, management software, security software, messaging software, Database software, web server software, and an emerging class of applications that run in this environment.

There are five services which are central to middleware: Identifiers-- A set of computer-readable codes that uniquely specify a subject. Authentication -- Process of a subject electronically establishing that it is, in fact, the subject associated with a particular identity. Directories -- Central repositories that hold information and Data associated with identities. These repositories are accessed by people and by applications to, for example, get information, customize generic environments to individual preferences, and route mail and documents. Authorization -- Those permissions and workflow engines that drive transaction handling, administrative applications and automation of business processes. Certificates and Public-Key Infrastructures (PKI) -- Certificates and PKI are related to the previous four core middleware services in several important ways.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

EXPANDED SERVICE OFFERINGS In addition to offering High-speed Internet access, the HFC Broadband Network will make it possible for the Cable Operator to create new revenue streams from numerous other next-generation services. The following should be viewed as a partial list of these services, some of which are available today and others that are still under development. By its design, the HFC Network will easily accommodate additional services as they become available, and with its built-in scalability, additional components can be easily added to expand the capabilities, performance, and profitability of the Digital SetNet Gateway. Digital Cable Programming Whereas Cable Operators in Latin America have traditionally offered a “Big Basic” package of analog channels, by adopting SetNet’s Digital Platform, they will have the ability to offer Multiplexed Premium Channels in addition to their existing service offering. In so doing, the Cable Operator will be in position to immediately generate additional revenue streams with profitable high-margin programming content. Streaming Video Demand (VoD)

and

Video

Fidler's (1997) coevolution and coexistence principle -- Fidler’s Mediamorphosis: Understanding New Media, 1997 - says that all forms of communication media coexist and coevolve within an expanding, complex adaptive system. Indeed, the current development of Streaming Video seems to influence and be influenced by

other communications technologies, media, and phenomena. These include Television, Radio, Movies, DSL (Digital Subscriber Line), High-Speed Cable Modems, muchimproved CODEC, and Global Broadband Deployment. We believe Streaming Video will have a huge impact on the overall development of Digital Cable Networks in Latin America. Streaming video from a server to a Television set via the Internet will be perfected by the latter part of this year. Intertainer, a VoD service based in Los Angles, is already deploying this technology in the United States. The near future seems to indicate that the next wave of Digital Services will require servers outside the head-ends to provide premium programming, PPV, VoD, and eventually distributed computing. While satellites will still be used, servers linked together by fiber backbone Networks will be the center of the Digital Programming arena for the foreseeable future. Latin America has built fiber backbones connecting most cities, thus the more power that can be concentrated in the servers, the better. With an HFC Broadband Network, the Cable Operator can provide a virtually limitless number of channels - equal in quality and appearance to a typical TV channel - for streaming video. With VoD, the viewer can pause and rewind movies over a predetermined time period. Priced competitively with video rentals, VoD movies will be offer the consumer an alternative to traveling to the video store.

The growth of streaming media from a statistical viewpoint is astonishing: The number of Web pages transmitting streaming video grew from 30,000 in mid1998 to 400,000 by third-quarter 1999. Each week 45,000 hours of live content was “webcasting” by October 1999. There were 58 U.S. Television stations webcasting “live” (34 of those sending video on-demand) and 69 international TV stations. The NetAid concert in October 1999 set a world record for the largest Internet broadcast event for a single day -- 2.5 million streams. The BBC Online's European solar eclipse site served a million streams in a day in August 1999. The BBC last year estimated that its streaming audience was growing by 100% every 4 months. Electronic Program Guide (EPG) The EPG is the channel selection device at the heart of the Digital TV revolution. It is an essential, navigational device allowing the user to search for a particular program by theme or other category and order it to be displayed on demand. Ultimately, EPGs will enable the TV set to “learn” the viewing habits of its user and suggest viewing schedules. An Electronic Program Guide (EPG) can be added to enhance the Subscribers’ viewing experience by enabling them to navigate the available programming, schedule future PPV purchases, or set a VCR to record a particular program. Additionally, the EPG will create advertising opportunities, which will increase the Cable Operator’s revenues.

Cable Telephony As mentioned in the opening, the upside potential from telecommunications services is having a tremendous impact on Cable system valuations today. For Cable Operators seeking entry into the voice market, there are currently two options: Constant Bit Rate (CBR) Telephony or IP Telephony. CBR Telephony uses circuit-switching technology to set up 64 kbps channels that deliver only voice services. It requires the installation of a dedicated Network separate from the one used for delivery of Broadband Data. Conversely, IP Telephony takes advantage of advanced packet-switching technology to send voice traffic over the same Broadband IP Network that carries Data. IP Telephony offers support for next-generation end-to-end services as they mature. Both CBR and IP Telephony will deliver tollquality voice service – including Local, National and International Long Distance over the Cable Network; and both can provide all of the CLASS and custom calling features supported by a Class 5 Telephony switch. To the customer who has been receiving less than dependable service from an incumbent carrier, reliable access to these basic services will be a welcome change, and an added benefit to the Cable Operator.

CBR – Separate Network Required One of the more significant cost factors with CBR is the need for a separate voice Network that runs parallel to the DOCSIS Data Network. CBR Telephony may also create bandwidth management issues: whether a node serves one or one hundred voice customers, valuable bandwidth in the HFC plant must be assigned to Telephony services. Much of this bandwidth goes unused during lowtraffic periods. Deployed at every head-end of the CBRbased Network are Host Digital Terminals (HDTs); HDT modems must also be assigned to every node that has at least one Cable Telephony user. At the customer’s home, separate terminal devices are required for voice and Data services. Along with the obvious construction delays with CBR, management and Operations Support Systems (OSS) issues must also be considered. From a management standpoint, the billing and operations infrastructure of CBR Telephony and packet-switched IP Telephony are identical, as both solutions leverage the Class 5 switch for these services. Another factor is the increased cost involved in building parallel Telephony and Data Networks. Advantages of IP Telephony Ultimately, Broadband Network Operators will be able to deploy voice, video and Data services over an HFC Network through a common Internet Protocol architecture.

Currently, IP does not provide lifeline reliability, nor does it presently support the full range of calling features Cable Operators must offer to compete against incumbent carriers. However, the prevailing opinion among industry experts is that IP Telephony platforms will match the functionality of existing circuit-switched Networks by the end of 2001. As a result, Broadband Network Operators entering the Telephony business today are deploying dedicated circuitswitched products. The practical advantage of an IP solution lies in the fact that voice and High-speed Data travel on the same Network. IP Telephony allows MSOs to avoid the capital, operational and bandwidth inefficiencies that result from maintaining separate voice and Data Networks. With IP Telephony, Cable Operators are capable of creating an integrated multiservice communications system that takes less time to deploy and costs less to operate. IP Telephony also offers the potential for several value-added services, such as integrated voice and e-mail, web-based services and “click-to-talk” web sites. As a result of deregulation across Latin America (and the U.S.) Cable Operators are in a unique position to stake a claim in this lucrative market. IP Telephony offers a full featured, high margin, low cost and highly attractive alternative for rapid deployment of voice services over Cable. Moreover, IP Telephony paves the way for the rapid implementation of end-to-end Packet Telephony.

Converting A Cable Network To A BiDirectional Telecommunications Network By enhancing the return path (to provide greater bandwidth, and hence signal capacity) a Cable Operator can quickly and economically convert a one-way video Network into a highly profitable two-way Telecommunications Network. This process typically consists of three major steps: First, the introduction of return path amplifiers and diplex filters (if they are not already installed) to allow communication from the Subscriber to the Operator; Secondly, the deployment of end-user modems to manage access to forward and return RF channels and to interface with standard telecommunications equipment; And finally, cleaning up the Cable Television infrastructure to remove noise sources and to increase reliability. Typically, an integrated Cable Telephony Network will use the existing Cable infrastructure to deliver residential and business telephone services. The system has three main elements: An Element Management System (EMS), which handles configuration and monitoring of the Network and is typically linked to higher-order Network management systems. The Host Digital Terminal (HDT) which is located at the Cable Network head-end and provides integration with the Public Telephone Network.

The Remote Service Terminal (RST) and Remote Subscriber Unit (RSU), which provide the interface between the Cable Network and Subscriber equipment concentrating voice and Data traffic from several businesses and residential Subscribers or providing voice services to singleSubscriber homes. Advantages For The Cable Operator With a noise-free, two-way Network in place, the Cable Operator has several advantages over an incumbent Operator with a copperbased delivery system. The Cable TV Network, which is in essence a Broadband pipe, is designed to deliver multiple video channels and offers very high capacity for the delivery of Digital services. In principle, the Operator has a high-capacity data backbone running past every household and small business on the Network. In addition to plain old telephone service (POTS), Cable Operators offering Data Services such as High-Speed Internet Access, Home Banking and Home Shopping have another advantage over the incumbent carrier, inasmuch as using copper-based Networks for such services requires expensive additional electronics to compress signals and transmit them down what is essentially a narrowband pipe. Another factor to consider is that a mature Cable Television Network has an existing Subscriber Base to call on when marketing the new telephone services.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

Internet Portal Services This feature will allow the Subscriber to access an Internet portal featuring a number of desirable services, all designed to increase Subscriber retention rates and create additional revenue streams for the Cable Operator. Initial portal offerings might include: !

Personalized Home Pages

Electronic Program Guide

e-mail

Virtual disk storage

Chat rooms

Online shopping

Search Engines

News * Sports * Weather

Investment Services

Classified Advertising

Distributed Computing This evolving paradigm represents perhaps the most exciting potential of the Digital Broadband Networks. In a Distributed Computing environment, the processor, hard drive and software are all housed on the Internet. For a nominal fee, Subscribers can access software, and can also store and retrieve files remotely.

By combining the Digital SetNet Gateway with a High-speed bi-directional Broadband Internet connection through the HFC Cable Network, Distributed Computing will provide the benefits of PC ownership to Cable Subscribers in Latin America - with the Digital SetNet Gateway providing the same functionality as a Personal Computer.

While satellites will still be used, servers linked together by fiber backbone Networks will be the center of the Digital programming arena for the foreseeable future. Latin America has built fiber backbones connecting most cities, thus the more power that can be concentrated in the servers, the better.

With an HFC Broadband Network, the Cable Operator can provide a virtually limitless number of channels - equal in quality and appearance to a typical TV channel for streaming video and other profitable services.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

OPERATIONAL CHALLENGES To compete effectively, Cable Operators offering Broadband services must meet the challenges of: •Accelerating deployment of new Broadband services. •Pricing services based on their value to each Subscriber. •Automating Subscriber serviceability, registration, activation and account settlement. Cable Operators offering Telephony services must meet the additional challenges of: •Billing for offloaded Network traffic •Ensuring new services interoperate with existing Operations Support Systems (OSS). •Making usage Data available to multiple systems. Interfacing With Support Systems

Existing

Legacy

Legacy Subscriber and billing frameworks, which were designed for use with analog Cable systems, are batch-oriented and typically built on inflexible architectures with closed interfaces. Conversely, advanced Digital services often are Internet-based, and as such require a higher level of flexibility. For example, new standards that are being defined to enable interoperability also require new levels of interaction with products developed by independent 18

software vendors. Advanced services are operating under open communications standards such as DOCSIS, DVB/DAVIC, PacketCable and OpenCable. While this move to a standards-based approach serves to lower costs, increase reliability, and facilitate the rapid deployment of new services, it also creates a new set of Subscriber management and billing requirements. Comprehensive Real-Time Capabilities As mentioned earlier, advanced services require a higher level of flexibility. If a Cable Operator's Subscriber management and billing system does not deliver comprehensive real-time capabilities meaning that all operations are performed and managed “end-to-end” in real time- the Operator will be unable to deploy advanced services fast enough to take advantage of new business opportunities; nor will the Operator be able to rate, track and analyze customer usage and billing. As a result, Cable Operators might miss revenue-generation opportunities and may not have the flexibility to proactively drive the pace of emerging markets or quickly respond to competitive pressures and changing customer expectations. Internet Subscribers today demand service that is immediate and responsive to their unique needs. Cable Operators can expect no less from Subscribers who expect to purchase services at anytime - and in any way they choose.

Not only do they expect to be able to view current account status anytime of the day or night, as soon as a new service is purchased, they expect to be able to use that service. Evolving Subscriber expectations are also driving the need for advanced services to be packaged in a manor quite different from analog Television service. For example, a VoD promotion such as "buy two get one free " requires a real-time Subscriber management and billing system that immediately lets Subscribers know when their transaction has been completed and when to expect their “free” movie. Multi-Tier and Usage-Based Pricing The Digital Broadband services detailed earlier each present a different demand elasticity, and as such need to be offered with multiple tiers (based on a variety of attributes such as quality of service (QoS), VoIP CODEC standards, number of e-mail accounts and number of IP addresses) rather than a flat monthly subscription basis. Also needed is the ability to price services according to usage such as traffic volume generated upstream and/or downstream and number of VoD movies viewed. In addition, the Subscriber may access multiple services concurrently, which will require a real-time Subscriber management and billing system to track and rate a combination of subscription and transactional fees. Since Broadband Cable Television is a shared medium, usage-based pricing is critical. It simply is not efficient or profitable for high-bandwidth Subscribers (who run a video streaming application, download MP3, etc.) to pay the same monthly rate as those who only use e-mail and surf the World Wide Web.

Support for On-Demand Services On-demand services such as bandwidth on demand, application on demand, true video on demand and phone line on demand require the flexibility of a real-time billing system to offer Subscribers these services at anytime, on-demand. Additionally, on-demand services can employ an equity-pricing model while offering more efficient use of Network resources. For example, a Subscriber who only occasionally orders pay-per-view or other services can sign up for a basic tier of service at a lower bandwidth and upgrade the bandwidth when needed, without the involvement of a customer service representative (CSR). Carrier-Class Availability, Reliability and Scalability By offering carrier-class services, Cable Operators are transforming themselves from entertainment companies into communications carriers. Cable Operators must have a real-time business infrastructure with high availability, reliability, and scalability in order to support carrier-class services. While traditional Cable services do not require high availability, advanced services, such as primary line VoIP over Cable, require a carrier-class Subscriber management and billing system that can provide high availability with a distributed architecture and scale to support a growing customer base.

Open Architecture Given the rapid evolution of technology, no one knows for certain how future business models and services will develop in the dynamic Cable market. For this reason, a Subscriber management and billing system must be built upon a flexible, open architecture that delivers built-in functionality to grow quickly with key features such as easy ongoing integration, business rules flexibility, Data model extensibility, and more. Therefore, Cable Operators who are planning to roll out advanced services need a business infrastructure based on a flexible architecture so pricing structures and service offerings can be easily analyzed and modified. An Integrated Approach for Quick Market Entry Cable Operators have made significant investments in existing billing systems, which are custom-tailored solutions to meet the unique needs of the analog Cable market. These business systems simply cannot accommodate the advanced services that Cable Operators want to offer. This new breed of service requires a real-time Subscriber management and billing system capable of handling advanced services while ensuring that legacy data remains accessible. Integration with existing systems is key to avoiding any discontinuity of service, preserving investment, and accelerating time-tomarket. This flexibility will allow Cable Operators to instantly and inexpensively modify their business model as often as market conditions demand.

Internet Subscribers Want It Nowâ&#x20AC;Ś

Internet Subscribers today demand service that is immediate and responsive to their unique needs.

Cable Operators can expect no less from Subscribers who expect to purchase services at anytime - and in any way they choose.

Not only do they expect to be able to view current account status anytime of the day or night, as soon as a new service is purchased, they expect to be able to use that service.

Cable Operators planning to roll out advanced services need a business infrastructure based on a flexible architecture - so pricing structures and service offerings can be easily analyzed and modified.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

SUMMARY This is truly an exciting time for Cable Operators. For those who have already made substantial investments in their Networks, in the form of HFC upgrades, the opportunity to create new revenue streams from non-traditional sources represents a tremendous upside potential. For those who have yet to complete these upgrades, the resultant increase in system and Subscriber valuations should provide ample incentive. Rapid implementation of integrated voice, video, and Data services along with home Networking and other value-added services, will create an explosive market for products like the Digital SetNet Gateway over the next several years, according to Cahners In-Stat Group.

The high-tech research firm predicts that the market for residential gateway devices will rise sharply from $100 million in calendar year 2000 to $5 billion in 2005. According to Mike Wolf, Director of Enterprise and Residential Communication for In-Stat: "The residential gateway is the waterfront property of the Digitally connected home of the future. “This strategic arbiter of Broadband service delivery will ultimately help decide the winners in the connected home of the future."

ACKNOWLEDGEMENTS The authors wish to acknowledge the efforts of CableLabs, The NCTA and others for their part in making Broadband Cable technology a viable delivery vehicle for next-generation services. This paper has attempted to offer the reader a clear picture of the HFC Network (and Broadband technology in general), along with ways in which Cable Operators and their customers can benefit from the move to an HFC Network; however, as technology is continually evolving, information contained in this document may be subject to revision.

"The residential gateway is the waterfront property of the Digitally connected home of the future”… Mike Wolf, Director of Enterprise and Residential Communication for Cahners In-Stat Group

APPENDIX A: DIGITAL vs. ANALOG: DETAILING THE DIFFERENCES Prior to any HFC upgrade, it is imperative that a Cable Operator’s technical staff develops a thorough understanding of the differences between analog and Digital signals. In this section, we will attempt to shed light on those differences, with particular emphasis on measuring and maintaining the integrity of the Digital signal. We will also briefly describe measurement techniques recommended by the National Cable Television Association (NCTA) and the Federal Communications Commission (FCC) that, when used properly, will enable a technician to accurately measure Digital signals that are operating in either the “continuous” or “burst” mode of transmission. Spectral Characteristics Differ When comparing Digital signals to standard analog video signals, it is important to first note the difference in spectral characteristics between the two. While a Digital signal has its power spread out uniformly across a channel, analog video signals have their power concentrated in the visual carrier, meaning the use of analog measurement techniques on Digital signals can lead to inaccurate Digital level readings, transmission errors or other performance irregularities, such as Digital signal levels that are too high or too low; if the problems are severe enough, they can cause loss of signal. To eliminate these problems, it is imperative to use proper measurement techniques that 22

Figure 4. Amplitude Modulation of an RF Carrier by an Analog Video Signal

account for the full power of the Digital signal. In addition to differences in spectral characteristics, Digital carriers in the reverse path use a non-continuous or “burst” mode of transmission, as opposed to the continuous transmission mode used with analog video. This makes the task of accurately measuring the Digital signal level even more complex, while highlighting the need for different measurement techniques. Signal Level Defined In the Cable industry, the term “signal level” is used to refer to the power of the signal, and is typically presented in terms of decibel millivolt (dBmV), which is a method of referencing power relative to a voltage measurement; dBmV is defined as the signal power referenced to a 1-millivolt RMS signal across a 75 ohm impedance. However, it is important to determine the type of power that is actually being measured (e.g., average power, peak power, peak or average during a particular interval or some other factor) because this will have a significant impact on the signal level measurements.

This will not be an issue when the RF signal is un-modulated, or continuous wave, since both peak and average power are constant. However, with a Cable system, the RF carriers will not be continuous wave, but instead will be modulated by a baseband signal, typically using either Amplitude Modulation (AM) or Quadrature Amplitude Modulation (QAM). These modulation formats present two sets of variables, which must be taken into consideration. First, they result in signals with levels that are different than they would be without modulation; secondly, they result in signals with different spectral characteristics. Since removal of the modulating signal would cause interruption of the transported service, signal level must be defined with modulation present. This definition will be different for analog and Digital signals, which we will discuss in more detail. Analog Video Signals As seen in Figure 4, analog video signals consist of a visual carrier and color subcarrier, as well as an audio carrier - with each individually modulated by a different analog component of the video - signal color, light, and sound.

Figure 5. Quadrature Modulation of an RF Carrier (with Filtering)

Given the fact that the audio carrier utilizes a different modulation format (Frequency Modulation), and contains less information than the visual carrier, it can function properly at a level that is significantly lower than its associated visual carrier. As a result, the majority of the power in the video signal resides in the visual carrier. It is important to note that without modulation, the power of the video signal (video and audio) is virtually equivalent to the power of the visual carrier; however, when modulation is applied, the power of the visual carrier, on average, is about two to three dB lower than it would be without modulation. The power of the visual carrier is equivalent only to the un-modulated power during the synchronizing interval, or synch pulse of the baseband video signal. This synch pulse is used by the Television set to delineate each scan line, and is the only part of the baseband video signal that has a fixed rate and a constant level. Both the National Cable Television Association (NCTA) and Federal Communications Commission (FCC) have used this characteristic in defining the level of a video carrier, stating that the video signal level is the RMS (root mean squared) voltage of the visual carrier during the synch interval (or at the peak of the modulation envelope). Defining the signal level in this way allows for a consistent method for measuring the power of the video signal whether modulation is present or not. As a result, with analog video signals the signal level is a measurement of the peak power of the modulated visual carrier, and not a measure of the average power of the 23

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

modulated video signal, which would be several dB less than the “peak” power. Digital RF Signals Digital RF signals are produced by varying the phase, and in most cases the amplitude, of either one carrier or two orthogonal carriers. Modulation in this manner enables symbol states that each represent a given bit set (i.e., 00, 111). Depending on the complexity of the modulation, the number of bits per symbol will vary, with higher-level modulation formats (i.e. more symbol states) supporting a greater number of bits per symbol.

This can produce a signal with a trapezoidal shape, depending on the modulation type and symbol rate. Since the power is spread in-frequency and not concentrated around the Center Frequency of the carrier, the signal level cannot be determined by making a simple peak power measure at the center frequency (as is done with analog video signals). Doing so would result in a measured level that is significantly lower than the true digital signal level. Additionally, there would be no repetitive peak power intervals (synch pulses) in which to measure signal level, because the symbol states will vary according to the more or less random bit stream driving the modulation. Accordingly, a Digital signal must be measured as an average power, with the resultant power being the sum of the power at each point within the signal bandwidth. As defined by the NCTA, the Digital signal level is “the average power in the signal, integrated over the actual occupied bandwidth of the signal.” Determining Signal Bandwidth

Figure 6. Channel Bandwidth

Due to channel bandwidth constraints, the modulated signal is typically filtered to limit the final occupied bandwidth of the RF signal. When a carrier is modulated in this fashion, its power is spread out infrequency.

Based on the NCTA definition detailed above, it is clear that utilizing the correct signal bandwidth is a critical element of any Digital signal measurement. It is also important to note that signal bandwidth is dependent on the symbol rate of the signal and the type of filter that is used at the signal transmitter and receiver, and thus will vary with signal type.

Downstream

Upstream

Modulation

Symbol Rate (Msym/s)

Channel Bandwidth (MHz)*

Modulation

Symbol Rate (Ksym/m)

Channel Bandwidth (KHz)

64 QAM

5.06

6.0

QPSK / 16 QAM

160

200

256 QAM

5.36

6.0

QPSK / 16 QAM

320

400

QPSK / 16 QAM

640

800

QPSK / 16 QAM

1,280

1,600

QPSK / 16 QAM

2,560

3,200

Table 4. DOCSIS-Defined Channel Modulation Formats, Symbol Rates and Bandwidths.

As a general rule, for the same filtering a higher symbol rate signal will occupy more bandwidth than a lower symbol rate signal. While there are a number of ways to define the signal bandwidth, two of the more common methods are to define it as either the 3 dB or the channel bandwidth. As illustrated in Figure 6, in both cases signal bandwidth is the bandwidth at the point where the level of the signal is some number of dB below the nominal signal level. For a 3 dB bandwidth, the signal bandwidth is measured 3 dB below the nominal level. For channel bandwidth, the measure is typically made at a much lower signal level (–X dB), such as –30 or –40 dB. Channel bandwidth is a reliable reference when the measure utilizes the full signal power (such as with automated power measurements) or when measuring a Data burst. Since the power contained within the channel bandwidth approaches 100 percent, using this signal bandwidth improves the accuracy of the measure.

On the other hand, the 3 dB signal bandwidth provides a good reference when the power is measured within a spectral slice of the channel and the result extrapolated to determine the total signal power. Use of the channel bandwidth with this method would result in an overestimation of the signal power, since the power contained in the signal edges is much lower than the power contained in the center of the signal. Both the 3 dB bandwidths and the power estimation method work especially well with systems using Nyquist filters, since the power in the signal beyond the 3 dB point is exactly equal to power lost in the shaping, or roll-off, of the signal within the 3 dB bandwidth. Additionally, for RF modulated signals using Nyquist filtering, the Nyquist bandwidth is equal to the symbol rate. The specification (which is discussed in detail in Appendix B) requires that the filtering characteristics of both the upstream and downstream signals are such that at the channel bandwidth, the signal is attenuated to a level that is 30 dB below the nominal signal level within the channel. 25

DOCSIS defines two downstream symbol rates, and five upstream symbol rates. It also specifies Nyquist root-raised cosine filtering for both the upstream and downstream transmission. This results in downstream signals that fit in the standard 6 MHz channel spacing, and upstream signals that have a channel bandwidth that is 25 percent greater than the symbol rate. These bandwidths are shown in Table 4 above, with the associated symbol rates and modulation formats. The Network might also carry other Digital signals for systems such as Digital music, games, and other service offerings. These signals will typically have symbol rates and filtering characteristics different from the DOCSIS rates shown in Table 4. Information on their signal bandwidths should be obtained from the manufacturer of each system.

Figure 7. Analyzer Display of a QAM Signal (Reduced VBW)

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

DIGITAL SIGNAL MEASUREMENT As mentioned at the beginning of this section, in addition to having different symbol rates and formats, upstream and downstream Digital signals will also operate in different modes. The downstream signals will operate in a “continuous” mode (where the Digital signal is always present), while the upstream signals - as defined by DOCSIS - will operate in a “burst” mode (where the Digital signal is present only for the duration of the burst of Data). Consequently, different techniques will be required for measuring downstream and upstream signal levels.

CONTINUOUS SIGNALS There are several viable methods for measuring a continuous Digital signal, however the simplest method is to utilize the auto capabilities available on many of today’s spectrum analyzers and signal level meters. Using these instruments, the measurement can usually be made by pressing one or two buttons (once the channel is defined as being Digital). The instrument then measures the signal, adds any correction factors, and provides the signal level results. The most accurate equipment accomplishes this by taking readings in small increments across the channel, then totaling the individual measurements to determine the total signal power. This is known as integrating the power of the channel. Typically, the only thing required of the person taking the measurement is to designate the channel as digital, and to

specify the Center Frequency and Signal Bandwidth. To ensure proper measurements, the exact details of making an auto measure should be obtained from the specific instrument manufacturer. An alternative, but less accurate method is to take a single measurement at a Resolution Bandwidth that is much less than the Signal Bandwidth, and extrapolate this measure to encompass the full bandwidth signal power. This methodology differs from the auto measurement in that it does not take into account the fact that the Digital signal doesn’t have straight (vertical) edges and in some cases does not have a flat top. As a result, the power contained at the edges and top of the signal will be over-estimated, making the estimated measure high. This inaccuracy will decrease as the spectral shape of the signal approaches a trapezoidal shape. With the use of the proper Signal Bandwidth, the inaccuracy can be kept to under a few dB. To simplify the calculations needed for this method of measure, Table 5 gives the bandwidth correction factor (needed to convert the measured power to the full signal power) at 1 Hz, 100 KHz, and 300 KHz Resolution Bandwidth (RBW) for the two DOCSIS downstream symbol rates. This number will be added to the power measurement made at the particular RBW. As the table shows, the difference in signal bandwidth factors (using 3 dB bandwidths) between 64 QAM and 256 QAM is so small 27

that factors of 67.3, 17.3, and 12.5 can be used for either signal type. For other signal bandwidths and RBWs, the following formula can be used: Bandwidth Correction Factor = 10*log (3 dB Signal Bandwidth/RBW). To take a measurement utilizing this estimation method, it is recommended that the RBW be between 1/20 to 1/100 of the occupied bandwidth of the signal. After measuring and extrapolating to the full signal power, a correction factor will also need to be added to compensate for the detector and filter responses of the analyzer. Please refer to the following page for recommended estimation methodology.

Instrument Resolution Bandwidth

Bandwidth Correction Factors

64 QAM

256 QAM

1 Hz

67.0

67. 3

100 KHz

17.0

17.3

300 KHz

12.3

12.5

Table 5. Bandwidth Correction Factors for a 6 MHz DOCSIS Channel at 1 Hz, and 100/300 KHz RBWs.

The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

The Estimation Method for Measuring Digital Power Referencing figure 7, the following steps are required to measure Digital power using the estimation method: 1.

Determine the Channel Bandwidth.

Set the RBW between 1/20 and 1/100 of the Channel Bandwidth.

Set the span to slightly more than the Channel Bandwidth (use a factor of ~1.25).

Center the carrier to be measured in the middle of the instrument screen.

Place the marker at the center of the signal.

Choose from the following: a.

Reduce the Video Bandwidth (VBW) until the noise is eliminated from the trace, and measure the signal level.

- or b.

Turn on video averaging, and measure the signal level.

Add the bandwidth correction factor to account for the rest of the channel power:

Add the instrument correction factors to step 7 (typically 2 to 2.5 dB).

Figure 8. Analyzer Display of Data Burst (QPSK) in Zero Span Mode

29 The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

Bursty Signals A bursty signal is more difficult to measure than a continuous signal and requires the use of triggering to capture the signal. Currently, field instruments do not provide an automated way to make this measurement, so the only method available is to manually configure the instrument. The following is one method for determining the signal level of a burst mode signal:

1. Determine the channel bandwidth. 2. Set the RBW to slightly more than the channel bandwidth. If there are adjacent channels, the RBW should be set to the channel bandwidth of the signal. 3. Set the video bandwidth so that it is greater than the RBW. 4. Center the carrier to be measured in the middle of the instrument screen, and set the instrument to zero span. 5. Set the sweep to 500 µs. 6. Set the trigger to Video. 7. Set the trigger level to slightly above the noise floor. 8. Measure the signal level using either the screen reference line or the display (trigger) line.

Example: Measuring a DOCSIS reverse path signal at a Center Frequency of 35 MHz, with a symbol rate of 1,280 Ksymbols/s. 1. With Figure 8 as a reference, the following steps and settings should be used to make the measurement: 2. From Figure 7, the channel bandwidth is 1.6 MHz. 3. Set the RBW to 2 MHz (slightly more than 1.6 MHz). 4. Set the video bandwidth to 3 MHz (greater than the RBW of 2 MHz). 5. Set the center frequency of the instrument to 35 MHz, and set the instrument to zero span mode. 6. Set the sweep to 500 µs. 7. Set the trigger to Video. 8. Set the trigger level (via the display line) to slightly above the noise floor.

9. The measured signal level is 0 dBm.

APPENDIX B: DOCSIS: “DATA OVER CABLE SYSTEM INTERFACE SPECIFICATIONS” Historically, Cable Networks have utilized proprietary or vendor-specific equipment, however a recent initiative to move the Cable industry to standards-based products was spearheaded by Multimedia Cable Network System (MCNS), a holding company made up of North American Cable Operators. MCNS employed CableLabs, a non-profit consortium of Cable Television system Operators, to oversee the standards process.

DOCSIS 1.1 builds on this framework by adding dynamic QoS, voice support (fragmentation) and additional security features (certificates). DOCSIS 1.1 allows support for VoIP by introducing fragmentation, precise scheduling mechanisms and "per service flow QoS". It is designed to enable a variety of Internet Protocol (IP) services including multiple service levels and VoIP, among others.

In 1996, CableLabs developed an open standard – called DOCSIS (Data Over Cable Service Interface Specification) - for Cable modem products. DOCSIS defines interface and security requirements for Cable modems involved in High-speed Data distribution over a Cable Television Network.

The key difference between DOCSIS 1.0 and DOCSIS 1.1 hardware is support for MAC layer fragmentation, which is most important at lower upstream Data rates, when 1500-byte IP packets can block higher priority real-time transmissions.

The standard, which has been approved by the International Telecommunications Union, was developed to ensure compatibility between equipment from a number of manufacturers. DOCSIS is an end-to-end specification that covers Operational Support Systems (OSS); Management; Data Interfaces; Media Access Control (MAC); and Physical (PHY) layers. Under DOCSIS, each Cable user is allocated pre-defined upstream/downstream bandwidth (e.g., 64 Kbps up, 256 Kbps down - controlled by the head-end). As a result, Subscribers will not experience performance degradation when new users are added. The DOCSIS standard incorporates security features, which are discussed in the following paragraphs. Cable modems are able to use a separate 56-bit DES (Digital Encryption Standard) encryption key to ensure privacy.

Baseline Privacy Interface (BPI) The DOCSIS Baseline Privacy Interface (BPI) addresses certain issues of vulnerability presented by the shared-coaxial Network. In particular, it provides security mechanisms that are effective defenses against any eavesdropping threat. BPI provides 56-bit Data Encryption System (DES) Cipher Block Chaining (CBC) encryption, along with key exchange based on 768-bit RSA encryption. The primary advantage of this level of encryption is that it provides a virtually unlimited combination of options for scrambling the HFC Network’s Data, and an equally sophisticated method of sending “keys” to authorized users. These mechanisms provide substantial protection against eavesdropping on the sharedmedium RF Network.

BPI+ DOCSIS 1.1 BPI+ will add protection from pirates’ programmable clone attacks (a clone is hardware and/or PC-based software that emulates the functionality of a Cable modem and additionally clones its identity, copying secret “key” information). BPI+ adds certificate-based authentication, where a Cable modem presents a Digital certificate that binds its MAC address to its RSA public key. Certificates allow one party to convince another of the authenticity of a third item in a public manner –similar to the function of a notary public. In BPI+, the vendor’s factory creates a certificate that includes the vendor’s name, Cable modem MAC address and serial number, and their public key signed by the DOCSIS public key. Does A Cable Modem “Guarantee” Security? In spite of the protections provided in DOCSIS, a Cable modem should not be considered a guaranteed secure Network device. In a Telephony-return system there is sufficient physical protection against upstream link attacks. However, in a

BPI and BPI+ are very good defenses against eavesdropping and some clone attacks. There are remaining issues of trust that are not entirely addressed by DOCSIS. In many scenarios, the various parties may have different and even conflicting security interests. For example, the end user wants to protect proprietary Data or personal information; the Cable Operator wants to protect against theft of service, head-end intrusion, and liability; and the content provider wants to ensure service only to paying customers.

Prior to any HFC upgrade, it is imperative that a Cable Operator’s technical staff develops a thorough understanding of the differences between analog and Digital signals.

two-way system, the upstream Data is transmitted in a shared environment, making it vulnerable to piracy and misuse if proper measures are not taken to guard against such abuses.

APPENDIX C: ACRONYM GLOSSARY AM: amplitude modulation

CW: continuous wave dBmV: decibel millivolt DOCSIS: Data-Over-Cable Service Interface Specification FCC: Federal Communications Commission FM: Frequency Modulation MODEM: Modulator / Demodulator NCTA: National Cable Television Association QAM: Quadrature Amplitude Modulation QPSK: Quadrature Phase Shift Keying RBW: resolution bandwidth RF: radio frequency RMS: root mean squared SLM: signal level meter VBW: video bandwidth

APPENDIX D: GLOSSARY OF TERMS ANALOG - Analog Data is expressed in the form of continuously variable waves (e.g. amplitude or frequency of sound waves or electromagnetic waves). ASPECT RATIO-The width-to-height ratio of the picture frame. Television broadcasts at a 4:3 (1.33:1) aspect ratio; Digital TV is broadcast with a 16:9 (1.78:1) ratio; and most feature films are shot in at least a 1.85:1 ratio. ATM- Asynchronous transfer mode. A high speed Data transmission and switching technique that uses fixed size cells to transmit voice, Data, video which greatly increases the capacity of transmission paths, both wired and wireless.

BACKBONE - A “fat pipe” within a Network. The term is relative to the size of Network it is serving. BROADBAND - describes a communications medium in which a frequency range is divided into channels to carry multiple signals — Data, voice, video or any combination of these — at the same time. Cable Television is an excellent example, as multiple TV channels are broadcast over a single Cable. In Internet terminology, Broadband is used to describe any Highspeed transmission medium — usually T1 speeds and above. CABLE MODEM- A device that permits one-way or two-way high speed Data communications over a Cable Television system,

for purposes such as Internet access, at speeds of around 1.5 MBPS. Download rate is 27 Mbps. CABLE TELEVISION The system Network for the distribution of the Television signal and now Digital Data via Cable (coaxial, twisted pair or fiber optic). DIGITAL SETNET GATEWAY- An electronic device that sits on top of your TV set and allows it to connect to the Internet, games or Cable systems. DIGITAL SUBSCRIBER LINE (DSL)- Modem telecommunications technology that enables Broadband, Digital Data to be transmitted over ordinary telephone line.

DIRECT BROADCAST SATELLITE (DBS)Satellites powerful enough (approximately 120 watts on the Ku-band) to transmit a signal directly to a medium or small receiving dish (antenna) at 18" and 3 feet in diameter. DBS does not require reception and distribution by an intermediate broadcasting facility and transmits directly to the end user. DOWNSTREAM Information path sent from the Network to the user. ELECTRONIC PROGRAMMING GUIDE (EPG)- The channel selection device at the heart of the Digital TV revolution. An essential, navigational device allowing the user to search for a particular program by theme or other category and order it to be displayed on demand. Ultimately, EPG's will enable the TV set to learn the viewing habits of its user and suggest viewing schedules. ENHANCED TELEVISION (ETV)- A type of Interactive Television technology that allows content producers to send HTML Data and graphical "enhancements" through a small part of the regular (US) NTSC analog broadcast signal called the Vertical Blanking Interval (see below). HEAD-END- The electronic control center of

a Cable Television systemgenerally located at the antenna site of CATV system. The head-end takes incoming signals and amplifies, converts, processes, and combines them into a common coaxial or optical Cable for transmission to Cable Subscribers. HIGH BIT RATE DIGITAL SUBSCRIBER LINE (HDSL)- HDSL is a type of DSL that Transmits 2 Mbps bi-directional signals over one or two twisted copper pairs. HDSL is used in applications such as corporate InterNetworking, video conferencing, and remote Data center access. HIGH-DEFINITION TELEVISION (HDTV)- A higher quality signal resolution using a Digital format for the transmission and reception of TV signals. HDTV provides about five times more picture information (picture elements or pixels) than conventional Television, creating clarity, wider aspect ratio, and Digital quality sound. HOST - Any computer on a Network that offers services or connectivity to other computers on the Network. A host has an IP address associated with it. HYBRID FIBERCOAXIAL (HFC)- A local Cable TV or telephone distribution Network. An

HFC consists of fiber optic trunks ending at neighborhood nodes, with coaxial Cable feeders and drop lines downstream of the nodes. HYPERVIDEO - A type of Interactive Television technology invented by a company called Veon located in San Francisco, California. Hypervideos are, essentially, Digital video clips embedded with hotspots and markings, links to the Web or to other movies and media formats, and/or other triggers leading the viewer in different directions. INDIVIDUALIZED TELEVISION- A type of Interactive Television technology invented by a company in New York, NY called ACTV. This technology allows viewers to control camera angles during live events, select which commercials they want to watch, and generally control a selection of choices content producers provide as part of the broadcast. E-commerce and interaction with those commercials is possible. In the backend, ACTV's servers collect choice information and offer viewers further selections based on those choices. INTERFACE- A set of textual or graphical symbols that allow a computer user to communicate to underlying software. Computer Interfaces work

34 The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

in many ways. Some are text-based and communicate only in letters, numbers, and other keyboard symbols. Others are graphical and require the use of a mouse, while some are touchscreen. INTERLACED SCANNING- The rectangular area of the TV screen is scanned by an electronic beam (raster) as it is deflected horizontally and vertically and creates an interlaced video display we see as the TV picture. Referred to as interlaced scanning because the raster skips every second line on the first pass and then fills in those lines on a second pass. The interlaced scanning system may result in a screen flicker. INTERNET PROTOCOL (IP) - A protocol telling the Network how packets are addressed and routed. INTERNET SERVICE PROVIDER (ISP)Telecommunications companies that sell Internet access. Users either dial-up to an ISP server or have a Broadband connection such as DSL. Once connected, they can branch out onto the World Wide Web. Mb or MEGABIT -Bits of information (usually used to express a Data transfer rate; as in, 1 megabit/second = 1Mbps). MHz or MEGAHERTZ A frequency equal to one

million Hertz, or cycles per second. MODEM: Modulator / demodulator (see Cable Modem). MPEG- Moving Pictures Expert Group Established in 1988, the Moving Picture Experts Group is a working group of the International Standards Organization (ISO)/International Electrotechnical Commission (IEC). MPEG is a open to experts who are “duly accredited by an appropriate National Standards Body,” according to the group’s home page (www.cselt.it/mpeg/). MPEG-1 1/4 broadcast quality which translates to 352 x 240 pixels. Typically compressed at 1.5 Mbs. MPEG-2- Similar to MPEG-1, but includes extensions to cover a wider range of applications. MPEG-2 translates to 704 x 480 pixels at 30 frames per second in North America and 704 x 576 fps at 25 fps in Europe. Typically compressed at higher than 5 Mbs. The primary application targeted during the MPEG-2 definition process was the all-Digital transmission of broadcast TV quality video. MPEG-3 Targeted at HDTV (high definition television), it was folded into the MPEG-2 standard. MPEG-4 - The standard for multimedia on the Web.

While MPEG-1 and MPEG2 deal with frame-based video and audio, the MPEG-4 standard describes digital AV scenes as “AV objects” that have certain relations in space and time. Because it is based on objects, MPEG-4 is a powerful standard that offers a new kind of interactivity (with each AV object, and at the levels of coding, decoding or object composition). It allows you to create composite scenes from multiple media elements including video, audio, still images, text, 2D or 3D Graphics and animations. MSO (Multi-System Operator) – An entity whose holdings include more than one Cable System. MSO (Multi-Service Operator) – A Cable Operator offering a variety of non-traditional services. NATIONAL TELEVISION STANDARDS COMMITTEE (NTSC) The committee formed to determine the guidelines and technical standards for monochrome and color Television. Also used to describe the 525-line, 59.95Hz color Television signal used in North America and several other parts of the world. NET TV- NetTVs are Televisions which have the ability to dial up to the Internet. Often, a 35

manufacturer has integrated or offers a special set-top, which permits the viewer to connect online over telephone wires. NEAR VIDEO ON DEMAND( NVoD) -The service of providing a movie to Subscribers on multiple channels and staggering its start time (for example every fifteen minutes). Subscribers can then tune in to the next available showing. PAY-PER-VIEW (Also PAY-PER-USE) - One pays a fee for every service, product, and download often on a tiered basis. PERSONAL TELEVISION (PTV)- A type of Interactive Television technology featuring a Digital hard disk drive inside a set-top box. Viewers can Digitally record broadcast Television in real-time much like a VCR, but watch instant replays during recording, pause, playback, or reverse. PROTOCOL- The "language" spoken between computers to help them exchange information. More technically, it's a formal

description of message formats and rules that two computers must follow to communicate. SPECTRUM- The range of electromagnetic radio frequencies used in transmission of voice, Data and Television. SYMMETRICAL DIGITAL SUBSCRIBER LINE (SDSL)- SDSL is a type of DSL that uses only one of the two Cable pairs for transmission. SDSL allows residential or small office users to share the same telephone for Data transmission and voice or fax Telephony. TERMINAL- A device that allows user to send commands to a computer that is somewhere else. UNIFORM RESOURCE LOCATOR (URL)- The address of a document or other resource available on the Internet by clicking a link. A URL has three components, the protocol ("http:"), server domain name ("intel.com"), and the file location on their server. UPSTREAM - Information from the user to the Internet or Network.

VERTICAL BLANKING INTERVAL (VBI) - Part of the TV signal that is not used for video information and left available to transmit other Data such as captions, Web Data, current stock market prices. VERY HIGH BIT RATE DIGITAL SUBSCRIBER LINE (VDSL)- VDSL is a type of DSL that is primarily intended to be used as the last transmission system section in a Network. VIDEO SERVER- The business end of a client/server setup, a server is usually a computer that provides the information, files, Web pages, and other services to the client that logs on to it. (The word server is also used to describe the software and operating system designed to run server hardware.) VIDEO-on-DEMAND (VoD) - The service of providing content through Subscriber selection off a large menu of options, available to viewer at any time

36 The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC

APPENDIX E: REFERENCES “U.S. & European Cable Subscriber Valuation Assumptions”, Carmel Group October 2000. Jupiter Research: “ITV Portals: Defining and Controlling the Home Screen”, published September 27, 2000; “iTV Platforms: Balancing Capability with Deployment” published August 11, 2000; “Latin America: Online Projections”, published March 6, 2000; “Global iTV Markets”, Published July 25, 2000." Cahners In-Stat Group: Press Release dated December 19, 2000, “Integrated Broadband Services to Drive Residential Gateway Market. “VoD: Moving From Concept To Reality”…Broadcasting & Cable Magazine May 15, 2000.

“Cox Pays Top Dollar For Multimedia's Upgraded Cable Systems.” News Release from Communications Daily July 28, 1999. Accessed from Computer Database Plus Information Access Co. Mediamorphosis: Understanding New Media." Roger F. Fidler: Pine Forge Press, 1997. Data-over-Cable Service Interface Specification, “Radio Frequency Interface,” Version 1.0. "Set-top box markets in Europe and the US: profit opportunities in Digital TV", Datamonitor Report January 1999 - taken from press release "Digital Television will bring Interactive services to Television across Europe", 11 January 1999. “Developments in technology set to bring TV audiences back", report from Strategy Analytics at http://www.strategyanalytics.com/cis/epm.html.

Hewlett-Packard Co., Spectrum Analyzer Measurements and Noise, “Measuring Noise and Noise-like Digital Communications Signals with a Spectrum Analyzer”, Application Note 1303, literature part no. 59664008E, April 1998. Test and Measurement Online Page http://www.testandmeasure ment.com. The Federal Communications Commission, Code of Federal Regulations (CFR), Section 47, Subpart K, “Cable Television Service,” Oct. 1, 1997. NCTA Recommended Practices for Measurements on Cable Television. Systems,” Supplement on Upstream Transport Issues, October 1997. National Cable Television Association, “NCTA Recommended Practices for Measurements on Cable Television Systems,” Second Edition, October 1993.

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38 The HFC Broadband Cable Network: Creating New Revenue Streams From Non-Traditional Sources A SetNet International White Paper ÂŠ2001 SetNet International, LLC