• by Erik Sass  @eriksass1, December 9, 2005

Investment research group UBS issued a mixed report on the prospects for expansion of pay-TV service--including satellite, fiber optic, and copper wire--citing widely varying local conditions and a number of structural obstacles in several major markets in support of its overall "neutral" rating.

For UBS (which generally seeks to encourage investment in the companies it publicizes) to issue such a warning, its analysts must indeed take a dark view of the future of pay-TV cable markets, expecting substantial turmoil.

Cable's problems lie in a few key areas, according to UBS analyst Matthieu Coppet, who presented findings with Brian Wieser, Vice president and director of industry analysis, MAGNA Global USA, during UBS' Media Week conference in New York this week.

First, competition against cable has sprung up in places and ways that nobody expected even a few years ago, Coppet explained. According to a white paper issued with Coppet's presentation, "[c]able operators face a real threat from satellite and telecom" industries--exemplified by the success of satellite TV (identifying BSkyB, Star, and Al-Jazeera) and the fast start of Sirius satellite radio. The position paper advises hard-wired industry leaders to increase their rate of conversion to fiberoptic infrastructure, and maximize data transmission on existing copper infrastructure, but is guarded about its long-term prospects.

But limitations on satellite infrastructure's ability to deliver the full "triple play" package--the Holy Grail of video, voice, and broadband in a single bundle--mean that neither satellite or hardwired cable are likely to emerge as clear winners in the next few years. Indeed, copper and fiberoptic cable present a more attractive cost proposition in terms of modernization in the near term, especially with the relative ease of upgrading less efficient asymmetric DSL (A-DSL) to far more efficient symmetric DSL (DSL 2).

The technological gulf between satellite and hardwired networks, and the difference in current pricing and penetration, will probably keep the market unstable, according to UBS. "... [M]ost of these changes do not and will not abolish structural (or fundamental) inequalities among the platforms themselves. Although we believe the four core technologies can provide compelling services due to recurring investments in infrastructure, they are not equal in providing triple play."

UBS admits, of course, that recent "[i]mprovements in satellite technology are staggering, with capacity jumping as much as 10 times from spacecrafts launched 10 years ago." In terms of real commercial deployment, "[t]riple play satellite strategies are likely to be deployed in Asia this year," with operators touting the possibility of real triple play-style service for the first time--claims that have yet to be proven, of course.

Meanwhile, UBS expects hard-wired cable operators to respond to some of satellite's main selling points--specifically its ubiquity and accessibility--by partnering with hotels and other venues to offer personal cable accounts that are "transferable" from place to place, while expanding digital recording and multi-casting services. UBS also expects hardwired cable players to expand their reach by creating more and more local "nodes," decentralizing traffic to many small hubs to increase overall connectivity and download speed.