Cable companies have to change. Not "expand." Not "rise to competitive challenges." Change. Fundamentally change if they want to be a leader in the broadband universe.

Optical fiber is the instrument of this change.

Wield fiber deployment wisely, and MSOs emerge stronger. Fumble with it, and they might find their company listed under Top 10 Corporate Goof-Ups in the annual Darwin Awards.

Cable operators are used to careening from one crisis to another. Why is this one different?

Because MSOs face the threat of losing the one major advantage they have over their competitors: the ability to offer more bandwidth coupled with two-way transport thanks to that big, fat coax pipe.

Now every communications company is deploying fiber. With the exception of wireless and satellite companies, eventually everyone will have fiber and two-way transport — and no single company will have a bandwidth advantage.

Is that going to happen next year or in 2002? No. So why the urgency? Because if cable companies aren’t using the next few years to prepare for what happens when they do lose the bandwidth advantage — which could happen as early as 2003 or 2004 — it may be too late to make up for lost time.

It really is a race to the home. As customers/subscribers start seeing fiber creeping closer and closer to them, they’re going to start questioning the value of having separate lines running into their homes for phone service, games, TV, e-mail and/or connecting their PCs to a network.

A scenario is now looming where all access to a customer may be possible through a single line. This is shaping up to be a winner-takes-all race.

The first company to touch an individual’s home or a business’s office with one single, magic line offering enough bandwidth to satisfy all the customer’s communications demands is in great shape.

Probably.

There are a lot of "ifs," "mights" and "mays" involved in becoming the customer’s one-stop pipeline. For cable operators, there lies the risk that while it is virtually impossible to over-react to the challenges, it is eminently possible to mis-time a strategy. As with crime or sex, timing the deployment of fiber is everything. Therein lies the peril.

Get there first too soon, and MSOs might fail to get adequate return on their investment flowing quickly enough. If they get there first by an appropriately large margin — in other words, timing their fiber build perfectly and locking in the majority of customers — they may also lock out their competitors.

On the other hand, if the cable operator gets there just in time, they’re likely to end up in a dogfight with the competition for every single customer. If they get there too late, they will be the ones on the outside looking in.

Too early and too late are disastrous; right on time is troublesome. Just early enough is optimal. While the equation for determining when "early enough" is the same among cable operators, the variables are truly variable.

What kind of equipment has the MSO already employed? How do they migrate that to a mostly fiber digital network? Who is the competition, and how aggressive are they? What kind of budget has been allocated? What are the expectations for return on capital outlays? Juggling all these factors is, to say the least, nerve-wracking.

"I’ve got friends at every major cable operator, and they have to go through this brutal, painful budget process every year," says Ken Wright, the CTO of C-Cor, a supplier of components for fiber optic communications systems.

"Cable operators are famous for not spending capital until they need to," Wright says. "They’re used to a rapid rate of return. Even the largest MSOs with the healthiest backing are still focused on ROI [return on investment] and cash flow. Cable operators of every size still have the mind-set that you don’t deploy prematurely. I think that’s wise, entrepreneurial and savvy."

That’s the way cable operators have always worked, but because everyone may be playing for winner-take-all stakes, a fundamental change in the traditional way cable operators behave is more than merited.

Are cable operators’ competitors really moving fast enough to merit considering such a behavioral shift?

"The popular question is: Why is the optical rollout going so slowly?" says Agnes Imregh, VP-marketing at Tollbridge Technologies, a company she describes as providing voice-over-broadband solutions to "the new generation of carriers."

Imregh says the optical rollout is, in fact, "not moving that slowly" because competitive local exchange carriers (CLECs) are moving faster than most cable operators might realize.

"Cable companies have a shorter ROI horizon than a CLEC like BellSouth," says Keith Johnson, director of market development for Nortel Networks’ optical Internet operation. "But cable operators have to get bolder. Cable modem penetration is outpacing DSL right now, but once the CLECs see cable modems taking share, they will spend much more over the next two years."

"The CLEC/cable line is blurring," Johnson adds, noting that some cable operators are also CLECs. "So for cable companies, the urgency has to be there. They’re not just competing with other MSOs anymore."

It’s not just CLECs, either. Feisty overbuilders are building fiber networks from the ground up, are trying to edge out cable companies by bringing fiber to the home — or close enough to it — to offer gigabit services.

"The question now," says Imregh, "is will the guys with legacy stuff be able to deploy fast enough to survive the onslaught of these new players?"

New challengers have popped up before, and the competitive challenge has often been tough, but not dire. Is this a similar situation? Perhaps not.

Cable’s new competitors will certainly try to stretch fiber all the way to the customer, or sufficiently close, and then just sit tight until the customer is ready to use it.

The challenge for the cable industry is whether these new carriers really can afford to do that.

Time Warner Cable might not be the first to have seen all this coming, but it was among the first to make a pre-emptive strike. Years ago it began upgrading its backbone to fiber, and with the exception of a few recent system acquisitions, it has accomplished the task. Every major MSO is engaged in a similar upgrade.

Once a fiber backbone is installed, a cable operator can deploy more fiber as needed, adding DOCSIS channels or splitting nodes to address fewer and fewer customers per node. This alleviates bandwidth allocation problems until they can, if need be, run fiber straight to the home. The key is having the flexibility to deploy whatever is necessary as quickly as need be.

Time Warner Cable is, as CTO Jim Chiddix says, "ready for a rough and tumble competitive future."

"It’s possible to get sloppy and mismanage your bandwidth," Chiddix says. "But if you plan aggressively and manage your bandwidth well, then you’ll be well-positioned."

Which brings up the critical question of how to get there from here? There is a multiplicity of technological options, each with far-reaching implications.

Cable operators typically started with analog over fiber and are in the early stages of making the transition to digital. The industry is grappling with how quickly to make the transition from analog to digital.

The questions to answer, and the factors to weigh, are mind-numbing.

Where should the cable modem go: in the set-top box, right in the TV, in the PC or wherever the consumer wants it? Should the consumer be allowed to make that choice?

In deploying the more expensive digital boxes, should the cable operator subsidize the cost or charge subscribers a higher monthly rental fee? Should subscribers be encouraged to buy their own set-top boxes? This might alleviate MSOs’ fiscal responsibility but also means giving control over the box to subscribers.

By relinquishing control over how subscribers hook up to that box, whose wires get connected to that box, and who makes money off the service?

Cable operators are also mulling over gateway boxes for home networks. Do they deploy set-tops, or just go straight to the gateway? Should the gateway be placed within the home?

If MSOs go with a model where subscribers position the gateway inside the home, they may, in effect, be giving competing communications companies the opportunity to hook up to their subscriber’s house.

This means that someday in the not too distant future, when subscribers start deciding they really need only one wire into their homes, the line they choose to disconnect could be the one belonging to their cable company.

If the gateway is placed outside the home, that could go a long way in locking in the customer but may also give the cable operator more responsibility for the subscriber’s entire home network — a potentially costly exercise the MSO may not be equipped to provide.

The other area under debate is what kind of interfaces to offer: a cable jack, of course, and maybe some RC-11 jacks, but how about an Ethernet jack, a connection for Bluetooth networking and another for wireless systems?

Innovation in communications may be the lifeblood of the industry, but too many choices can be bewildering.

Deciding which technologies to bet on and which ones to deploy are costly and time-consuming — as is the cost of making the wrong decision.

"That’s one of the risks of the business," says Chiddix, who cautions that "being paralyzed by fear is a formula for business death."

According to Nortel’s Johnson, "As cable companies transform from video to voice-over-IP or voice-over-circuit switch, it will increase their need for bandwidth, and that will fundamentally change the way their networks look."

Fiber, of course, makes it easier to provide data-intensive applications such as video and streaming video to consumers wanting video-on-demand, for instance, or to businesses, such as a production company which wants to send a film crew’s daily rushes from out on location to a central editing facility.

Cable operators could also expand into other sectors such as Web hosting services for business customers, says Ken Wirth, Lucent Technologies’ global product marketing VP-optical networking.

As more companies deploy more and more fiber, Wirth sees cable operators having to decide how to manage their bandwidth, especially as more companies experiment with increasing their bandwidth by using dense wave division multiplexing (DWDM) or time division multiplexing (TDM).

"You can do bandwidth trading," says Wirth. "We can switch wavelengths around the Net. By using our solutions, an operator can add channels or wavelengths. Now carriers can buy, sell, and trade bandwidth. We’ve been doing this for 12 months, [but] it’s still just emerging. It lets new or small carriers expand while letting the big companies leverage their bandwidth assets."

In short, the introduction of fiber will give cable operators the ability to act as carriers. The notion is intriguing but carries its own set of risks.

"The business model for cable companies in the past has been to add more value than just common carriage," says TWC’s Chiddix. "I can’t expect the business folks to get excited about that."

Wall Street values cable as a value-add proposition, Chiddix adds. Getting away from that could be a mistake, making a cable operator subject to all the government regulation that applies to a common carrier.

With fiber leveling the playing field, can the cable operator count on the regulatory environment remaining static?

Each operator will have to decide whether it wants to explore a carrier business model.

At the end of the day, of all the questions now facing the cable industry, that issue could prove to be one of the biggest questions for an MSO to successfully answer in the face of the fundamental changes looming in a fiber-networked broadband world.