ANALYSIS

The Hybridization of the Set-Top Box

The market for set-top boxes (STBs) in Europe has received a major boost from the transition to digital services.

Right now, terrestrial television is still a major source of video for viewers in some of the larger Western European markets, including France, Italy, Spain and the United Kingdom. Almost 44 percent of the television viewers in these markets relies on terrestrial services.

The migration toward a fully digitized ecosystem for content delivery has been a multipronged process. First, national regulatory authorities have announced the shutoff dates for analog signals within their respective jurisdictions, at which time DTT (digital terrestrial television) will replace the legacy analog terrestrial transmission.

Hybrid Boxes

Healthy rates of adoption of DTT in Western Europe, where Spain in particular has been leading in adoption, are creating new markets for STBs. These aren’t standard STBs but hybrid receivers capable of receiving multiple signals and providing access to paid content. The digital transition is serving as the impetus for growth in these hybrid STBs, and growth is especially evident in Western Europe.

These hybrid STBs support TV services from two or more service platforms, and they are starting to gain global popularity. Telcos and other IPTV (Internet protocol television) operators in Europe are particularly good targets for vendors manufacturing these types of set-tops. The most popular version thus far offers a mixture of IPTV and DTT, which the telcos in Europe have been employing as a strategy to offer low-cost television service for consumers not interested in bundling pay television with other services.

The growing presence of the STB is an important step in the development of the digital home ecosystem, as this device is evolving into the primary point of entry for television services, including cable TV, DTH, and Telco/IPTV. The STB has moved beyond its historical role as a large device sitting on top of a large television set into a smaller form-factor device capable of supporting a rich set of applications and services, including interactive television applications. Service providers worldwide are aggressively upgrading equipment within their installed bases to support these types of advanced digital television services.

The Residential Gateway

However, there is no reason why the STB should stop at video — and market momentum is behind an even larger role for this device. There has been a recent resurgence in the concept of a common residential gateway capable of supporting multiservice delivery including video, data, voice and wireless. Telcos and cable operators are already setting up their infrastructures to support sophisticated residential gateways, and the STB is a clear candidate for taking on many of the responsibilities currently assigned to the residential gateway (RG).

Set-top boxes with integrated modems are able to deliver much more than video to the television, but views within the industry are split on whether RG functions can go into the set-top or vice versa. Some technology providers such as Alcatel-Lucent argue that the RG is completely within the service provider’s domain, while the set-top box is more of a mainstream CE device available at retail. Such functional separation makes it difficult for the set-top and residential gateway to be fully integrated into the same device.

Other players, including 2Wire and Motorola, argue that set-top box functions can be integrated into the RG and that there are significant advantages to such integration. An integrated device allows the service provider to manage delivery of multiple services from end to end and to guarantee good quality of experience for consumers. In addition, they argue that utilizing one platform or gateway for all the services going into a consumer’s home has positive CAPEX and OPEX implications for the service providers.

Advantages/Disadvantages

From Parks Associates’ view, the presence of a versatile gateway, once deployed, allows operators to enable multiple services without having to invest incremental capital expenditure in additional devices. In addition, by retaining the RG within their domain, operators can manage the install and activation processes in a manner that minimizes later support costs.

This scenario creates disadvantages for consumers, however, because they will have fewer retail options in lieu of the gateway. Residential gateways capable of delivering multiple services into the digital home would require considerable integration effort with the back-office and support systems of the operator, and they would not want to take on the additional cost of certifying multiple third-party CE devices for service delivery.

There are no clear indications as of yet on which way service providers are leaning, but as the MSOs and telcos start to adopt an IP-based paradigm for video distribution, they will likely want to integrate the set-top with the residential gateway in order to control costs, have better management, and provide greater (and more walled-in) service options. In Europe, with the growing adoption of hybrid set-tops, consumers will likely acclimate to the idea of receiving multiple services from a single box on or near their televisions.


Jayant Dasari is an analyst at Parks Associates.


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