Why Cisco bought Scientific Atlanta? November 22, 2005Posted by John in Technology.
So Cisco is going to bet 6.9 Billion Dollars on Scientific-Atlanta. That’s a pretty big bet, but is it going to payoff? Well Cisco used to be the Internet company, providing plumbing to connect anything and everything. With Linksys acquisition they successfully entered the $100 consumer device market, and now Cisco is trying to bridge the gap from Internet to home, over cable, by this Scientific-Atlanta acquisition. Lets see what all does Scientific-Atlanta make and how all of this is going to workout.
Cisco provides all the plumbing for the Internet, connecting anything and everything in the data-centers and telco’s. And lately if you have bought a Linksys device, you would have noticed a Cisco logo on the device as well.
On home front, Scientific-Atlanta makes set top boxes and cable modems for the home, delivering DVR, HDTV, email, Internet access and interactive services such as on demand programming. For operators who deliver the services to consumers, they provide Digital Network Control System to provision these set of services. Scientific-Atlanta got Fiber-optic technology to deliver broadband services such as video, voice, data to consumers providing the last mile solutions and full spectrum of backroom end-to-end gear, and thats cool.
On the broadcasting end, Scientific-Atlanta makes the high-end digital video compression systems helping connect cable operators to content by helping broadcasters and service providers transmit more than 2000 channels of digital programming in 170 countries, that translates into roughly 90% of the market. Sweet and the home users do not need to know that (but we do).
So after this deal Cisco will get a strong foothold into your living room – correct? Not so fast. Lets look at what Microsoft is trying to do with Microsoft Media Server and with XBox 360. XBox 360 is Microsoft’s strategy to provide the digital entertainment platform — gaming, online experience, watching movies, Hi-Def content and all the good stuff. As the time goes by and market matures, there is nothing stopping Microsoft from adding more functionality to this family, de! livering rich digital communication and digital media experience. Cisco is betting on owning the back room digital distribution and services part of the market and also owning the end-point in the customers living room.
Guess what, it may not happen, because VDSL (Very high bit-rate DSL) may play spoil sports. VDSL allows download speeds of 52 Mbps and upload of 16 Mbps on ordinary copper phone line which comes to your home. Many companies are in the process of implementing Fiber to the curb (FTTC) and Fiber to the Neighborhood (FTTN) initiatives which will allow rapid full rate provisioning of VDSL to your home. Broadband over power lines is another emerging new technology for last mile solution.
Let me ask you this – what can you do with 52 Mbps? Almost everything we would need in next 10 years I guess. HDTV on demand, IP Telephony, Super fast Internet downloads – you name it. Mix VDSL, Xbox 360 and Internet, and shake well, Volla! – you get the digital content delivered to the digital home. FYI Microsoft has been quietly experimenting with IPTV and Windows Media Center.
So whats my point? By this acquisition Cisco is betting on the use of cable to deliver more broadband services to your home and that 5 years from now you will have more of your services provisioned over cable than you have today, and Cisco gets to pocket the money. For that to happen the telco’s have to fold-up, because if they don’t sell you landlines, DSL, VoIP etc. there would be nothing much left for them to survive. Instead chances are very hight that exactly reverse of this will happen. Once the broadcasting goes completely digital, Internet will play a key role in distribution instead of cable and satellite. VDSL or a similar last mile technology coupled with the enriched Xbox like set-top box of the future, or an open source product, will be the enabler of everything digital to your home.
And probably stock market and analysts understand that, and that’s why there was no reaction to the news of Cisco’s Scientific-Atlanta acquisition on Cisco’s stock.