Cisco’s vision given clarity by SA deal

When Cisco Systems, the world’s biggest maker of internet networking equipment, last week announced a $6.9bn deal to take over Scientific-Atlanta, the second-biggest maker of set-top cable television boxes, many industry watchers proclaimed it a savvy move.

Scientific-Atlanta commands a substantial portion of the market in boxes that decode cable transmissions and display them on television screens – a foothold analysts say could give Cisco an advantage in the coming battle for the digital home.

As the lines between traditional video, telephone and data services continue to blur, cable providers, telecoms groups, and consumer electronics makers are racing to cash in by bundling these three services into a lucrative “triple play”.

“Video is the killer app of triple play, and [wireless] mobility is the killer app of quadruple play,” says Michael Howard, principal analyst at Infonetics Research, a telecoms and networking consultancy. “Cisco now has both.”

Demand for integration of video, telephone, and data across a single home network is poised to lead a new wave of growth in data services, as increasing numbers of households connect to the internet via faster broadband connections.

“The consumer already uses all of these services,” says Ned Hooper, Cisco’s senior director of corporate business development. “The next thing he wants is to
see them integrated.” The acquisition of Scientific-Atlanta could help Cisco chief executive John Chambers’ push into the digital home in two ways.

The first is the presence it will have, thanks to SA, in the “back-end” networks of cable companies – as well as the new internet protocol television networks of telecoms companies – which are experimenting with supplying their own video services, where Cisco hopes to sell more of SA’s gear. Cisco will be able to draw on storage and processing power at various parts of the network, not just in the box in the customer’s home, to design the most effective way of delivering services.

The other is through the combination of Scientific-Atlanta’s set-top boxes with Cisco’s Linksys wireless networking tools. “Today most people have a single [digital video recorder box], but they have an average of 2.5 televisions per home, says Mr Hooper. “With a Linksys home network connected to a Scientific-Atlanta set-top box, you can move that view around the home to whatever device you want.”

Because of its high bandwidth requirements, video has long been viewed as the “killer app” of integrated home networks. There are good reasons to believe that set-top boxes could emerge as the preferred hub for such systems.

Since cable and satellite companies in most countries buy the boxes and recoup the cost through the monthly fees paid by subscribers, set-top boxes have a guaranteed route into the home, says Michael Greeson, CEO of The Diffusion Group, a US research and consulting firm.

Although their original purpose was to provide the “conditional access” needed to manage a pay-TV service, set-top boxes have been evolving into broader consumer devices. Scientific-Atlanta’s Media Center DVR includes a digital video recorder, DVD player and burner. That is a close echo of Microsoft’s Media Center PC, a version of the Windows software that is meant to power PCs with many of the same features.

The market for these more versatile digital boxes remains in its infancy: after a slow start, 6m Med Center PCs have so far been sold, while Scientific-Atlanta has sold 3.7m set-top boxes with built-in DVR capability.

The acquisition of Scientific-Atlanta will propel Cisco into competition with Microsoft, Motorola and a range of consumer electronics companies that have their own visions of how consumers should access, store and manage digital media.