Cable Operators

Terayon’s Digital Domain

11/28/2004 7:00 PM Eastern

Though it’s exiting the cable-modem termination system business, Terayon Communication Systems Inc. will keep selling modems, and stay in the digital-video space that’s experienced a resurgence as operators plan to simulcast all-digital channel lineups on their analog systems.

In addition, Terayon’s CherryPicker product line is becoming of increasing interest to cable programmers that produce original content in digital format, said Terayon CEO Jerry Chase.

“We are seeing some purchases coming our way beyond the trial phase,” Chase said, for simulcast digital networks. “We’re pretty pleased about that.”

Chase said Terayon’s decision to exit the CMTS business stemmed from a realistic look at market conditions. Cisco Systems Inc., Motorola Inc. and Arris Group Inc. are well-entrenched, he said, and all have the budget to sustain long lead times for new product cycles.

Conversely, he said, “We have a huge market share in DOCSIS [Data Over Cable Service Interface Specification] 2.0, but not many people are in the 2.0 business.” That’s because most operators are content to stay with DOCSIS 1.1, he said.

Chase said Terayon will continue to support the 250 to 300 DOCSIS 2.0 CMTSs it has deployed. But uncertainty over just how soon next-generation architecture will arrive also played into Terayon’s decisions to terminate its CMTS line.

“Our sense is that [next-generation architecture] is probably two years away on the optimistic side and maybe four years away on the pessimistic side,” he said. “We decided we couldn’t stay in the game and continue to invest in it.”

Instead, he said, Terayon decided to focus on a business in which it has an advantage — digital video.

“Content is being encoded, digitized and inserted into the digital domain closer to where it’s created,” said Chase. That community extends to executives at movie studios, TV productions houses and cable networks.

“They are putting content into the digital domain very quickly, and they want to modulate it over cable, DBS and terrestrial broadcasting,” Chase noted.

That’s prompted programmers to look at Terayon’s CherryPicker, line which allows them to optimize bandwidth in the signal and also facilitate ad and logo insertion.

“The value in the value chain is migrating toward us,” he said. “Ad insertion and logo insertion becomes easier and more cost-effective.”

September