Reality Check: Leaders and Followers

There are some pretty big architectural shifts underway in today’s cable and telecom market. Some examples include Internet protocol (IP) Multimedia Subsystem (IMS), all-digital, IPv6, switched digital video (SDV), IPTV, DOCSIS 3.0, fiber to the home (FTTH) – and that’s just for starters.

Service providers and operators both large and small who are looking at these projects have an appreciation for the risk and potential rewards that are at stake. Smaller operators, however, have an additional calculation to make: To what extent do they follow larger operators in their business – if at all?

To answer this question, we interviewed CTOs from several smaller North American cable operators. Note that the significance of smaller operators within this market is that together they represent a Tier 1 operator in terms of purchasing power.

The range of responses fell into two broad categories. While all operators are clearly in the business to make money, their ultimate goals varied considerably. Some operators fell into an "exit strategy" group, while others fell more into a "concerted growth strategy" group.

The exit strategy was most common among non-competing smaller operators. These operators are very aware of their surroundings (larger operators they border) and often follow their larger neighbors’ vendor choices very closely.

In fact, in some cases these operators are so closely aligned that during natural disasters they have exchanged equipment with larger operators they border in an effort to restore services. Such exchanges were greatly aided by their close alignment.

These operators may not follow every make and model choice of larger operators, but generally do not sway too far from what they call the big four: Arris, Cisco, Harmonic and Motorola. Their reasoning? Should the exit play out one day, they believe their systems may be devalued if they use some "oddball technology" that potential buyers would have to swap out for what they use instead.

The concerted-growth strategy was most common among over-builders and much smaller operators. While these operators are also very aware of their surroundings, they have a different sense of survival.

Such operators are more open to new ideas – particularly vendor solutions that best meet their requirements for price, features, delivery, spare parts, etc. While these operators pay attention to what the larger ops are doing, they generally rely more heavily on vendor relationships they have built over years.

Perhaps related to the trust is a risk factor: With few resources, these operators can ill afford costly mistakes, such as buying from a vendor who goes out of business.

Both groups showed similar approaches when it comes to buying software.

Both admitted they are not likely to build their own, engage with a vendor to pioneer a new product, or tackle anything beyond what they would call "simple stuff." In this category, pretty much whatever larger operators develop through partnerships or by other means will be used with few exceptions. Smaller operators just have limited resources that they cannot cost-justify putting to work on custom software.

Smaller operators are not all about "following" and can easily provide many examples where their leadership has actually drawn interest from larger operators. The adoption of RF over Glass (RFoG) technology by some is a recent case in point. But generally, following ensures product availability, spare parts, lower prices and a lengthy aftermarket phase that provides the necessary time to retool for the next big wave.

One takeaway: The impact of a major deployment by a Comcast (or an AT&T or a Verizon), especially if it proves successful, should not be taken at street value. Instead, it should be doubled – it will likely be adopted by those following in the big guys’ wake.

Bruce Bahlmann is an independent research analyst.