Latin Operators' Good Reasons To Go Digital

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By Juan Pablo Conti
Juan Pablo Conti, the former editor of UK magazines The IET Communications Engineer and Cable & Satellite Communications International (CSCI), is an independent technology journalist based in Buenos Aires, Argentina.

When it comes to digital TV deployments in Latin America's cable network operations, two simple words are enough to sum up the current state of affairs: At last!—just like that, with an exclamation mark. “At last!,” I found myself uttering earlier this year when my local cable operator in Buenos Aires, Cablevisión, informed me that I was finally able to enter the world of digital television if I was willing to pay an extra 9.90 Argentine Pesos ($3.15) for the basic digital package on top of the 80 Pesos ($25) that I was already paying for its analog counterpart.

Cablevisión is Argentina's largest cable operator with over 1.3 million households subscribing to its pay-TV packages and some 300,000 taking up its broadband service. In September 2006, the company's owners (domestic media giant Grupo Clarin and US investment fund Fintech Advisory) acquired the country's second largest operator, Multicanal. Since then, both Multicanal and Cablevisión (which continue to operate as separate brands) began their preparations to introduce the first digital cable TV services in Argentina. These were eventually launched simultaneously by both MSOs in April this year.

This is not to say digital TV was not already available in Argentina. DirecTV Latin America and Sky - first separately, then as a merged company - have been offering digital satellite (DTH) services to the majority of Latin America's biggest markets for more than 10 years. But, with the exception of Puerto Rico (where Adelphia launched digital cable in 2000) and Mexico (where Megacable started to roll out digital TV in 2003), the rest of the region's cable companies seemed content to just concentrate on expanding their broadband services while leaving their analog video offerings untouched.

One of the reasons which may help explain the cable industry's initial apathy toward digitization in Latin America is the low demand for what has traditionally been considered a “luxury item.” Basic multichannel - let alone digital - television remains beyond the reach of the vast majority of the population in these countries.

“Digital services have been available in Latin America since 1996, so to only accrue six million subscribers in a decade is pretty slow going,” confirms Adam Thomas, media research manager with Informa Telecoms & Media and author of the recent 'Americas TV' report. “But the outlook for digital upgrades is better now than it has been for many years. The region's economies have been growing consistently since 2003 and outperformed the rest of the world in 2006. This sustained economic improvement is promoting greater confidence across the broadcast industry.”

Specifically in the cable sector, Thomas estimates there are currently two million digital subscribers, which Informa forecasts will rise to 12 million by 2012. “Mexico is expected to lead the way, increasing from fewer than a million subscribers at present to 3.8 million in 2012,” he predicts.

Indeed, the last two years have seen a rush of activity across the region's cable scene. Chile's VTR is credited as the operator that kick-started the move toward digital cable television in South America. In November 2005 it announced that it was going to be migrating all 100,000 of its premium analog subscribers to its new digital platform, free of charge. In the space of a few months this process was successfully completed, at which point VTR began to sell the new product to the rest of its analog subscribers and potential new customers.

Meanwhile in Brazil, NET (Latin America's largest MSO with approximately two million pay-TV, 800,000 broadband and nearly 200,000 telephony customers) is already offering its 'NET Digital' service in Sao Paulo, Rio de Janeiro, Porto Alegre, Curitiba, Belo Horizonte and Brasilia, with Campinas added last in May 2007.

Other markets where digital cable TV has recently arrived include Venezuela (via Intercable and Supercable), Ecuador (via TV Cable), El Salvador (via Amnet), Honduras (via Amnet Honduras) and Panama (via Cable Onda).

Three-pronged impetus
So what exactly is prompting Latin America's operators to finally board the digital train? According to Ariel Barlaro, director of research with telecoms analyst firm Convergencia Latina, there are three major motivations: “The main aim of digitization in Latin America is to avoid piracy,” he says.

Fighting piracy was certainly one of the main drivers behind Cablevisión's and Multicanal's decision in Argentina to simultaneously stop analog transmissions of its premium (sports, movie and adult) channels, which are now only accessible to digital subscribers. “There were high piracy levels for these premium services - driven perhaps by the huge interest to watch premium soccer matches and the availability of illegal decoders on the black market,” explains Gonzalo Hita, Cablevisión's marketing manager.

The company replicated Chile's VTR approach by initially replacing all analog boxes at its premium customers' premises with new Motorola DCT 700 boxes. “It has been estimated that for each genuine customer there were possibly three others who that were accessing this content via an illegal analog decoder,” says Hita. “So we decided to reward those subscribers that were actually paying us for the product, giving them the digital boxes and a few months' worth of the service free of charge.”

The second reason Barlaro cites as currently triggering this incipient mass move towards digital video among Latin American cable operators is that “most of the channel providers have been putting pressure on them to digitize their networks, insisting that they want to be offered a more transparent form of control.”

Barlaro says what was happening in Latin America was that there were doubts about the number of subscribers who were actually receiving each channel. “Digital systems allow for a much more precise audit of these figures. It is clear that the channel providers have drawn a roadmap in which a series of deadlines have been given to the operators. For a long time the operators have ignored that roadmap, but there will come a time when they will be told: 'From now on, I'm not selling my content to you until you digitize your network'. I can see for example HBO, HBO Plus, and all the main vendors of premium content refusing to sell their broadcasts to those operators who haven't yet digitized.”

The third motivation to go digital is the threat of IPTV posed by large regional telcos. “This is forcing cable companies to defend their core video business by offering the same type of functionality that IPTV brings, such as video on demand, pay-per-view or digital video recording (DVR) via hard drive-enabled set-top boxes,” says Barlaro.

However, Informa's Adam Thomas plays down the seriousness of the threat that will be posed specifically by IPTV: “With two giants like Telmex and Televisa backing IPTV, then it is sure to have a degree of success. But the environment for IPTV is often not ideal, either because regulation restricts it or because the fixed-line networks cannot support it. Because of this I don't see it as a major threat to the other pay TV services, although in the medium-term it should establish itself as a viable alternative in some markets.”

Ambitious targets As one would expect, most of the network upgrades taking place across the region are being gradually stepped up, with work generally starting on the most densely populated cities and then moving on to the rest of the areas each cable company operates.

In Argentina, Cablevisión initially launched its digital service in the National Capital, the Greater Buenos Aires area and La Plata. But Hita reveals there are plans to extend the service to Rosario, Cordoba and Mar del Plata “in the next few months.”

The initial investment totaled 948 million Pesos ($300 million). Apart from the set-top boxes supplied by Motorola, the rest of the investment went into modernizing the headends and those parts of the network that were not yet bi-directional. Cablevisión's network operates at 750 MHz, which Hita says is enough to deal with today's average traffic needs. “Although there exist networks nowadays that can offer higher bandwidth (beyond 1 GHz), even in the United States there are many important cable operators that are still working on 750 MHz networks. Besides, we have specific technology available today that allows us to use the bandwidth more efficiently.”

The company's target is to double by the end of 2007 the number of digital subscribers whose boxes were initially swapped free of charge. If achieved, it would boost Cablevisión's total number of digital subs to approximately 130,000. From now on, each new potential digital customer is asked to pay 99 Pesos ($31) for the self-install DCT 700.

So that's what I did - both in the interests of testing the technology in order to make this as accurate a report as possible and of course to start enjoying the benefits of digital TV again, as I used to in London with Telewest [then Telewest Broadband, then NTL:Telewest, now Virgin Media] and even at my previous home here in Buenos Aires, where I was a DirecTV customer.

So what have I made of it? Well, there are positives and negatives. Installation was easy and - all in all - the system does work fine, the process of changing channels takes a rather acceptable time to compute and the interactive programming guide gives me all the information I need.

There are three elements that I'm not too happy about, though. The first one: I can understand the argument for launching with a low-end set-top box in a market where ARPU will rarely match that which Telewest was getting from me back in London, for example. But not giving me the option to set up the box to operate with a widescreen TV I find completely unacceptable when most of the TVs expected to be sold in the next few years are of the 16 X 9 kind. This might simply be an issue that could be resolved by reprogramming the box API, but it still needs urgent attention.

The second problem I spotted has to do with audio quality. It's not CD quality and I wasn't expecting that either. What I do find disappointing is that the digital version of a few of the channels (for example ESPN, ESPN+ and FOX) is currently offering me fewer instead of more options: the Second Audio Program (SAP) which carries the original English audio is nowhere to be seen, while - if I unplug the digital box and go back to the analog signal still being transmitted by Cablevisión's simulcast - I can still access this feature. Then there is one particular channel, BBC World, where audio quality is really poor.

Finally, video quality leaves a lot to be desired, too. There is an obvious improvement compared with the analog version in the sense that you don't get that typical signal noise. What you do get - and even my wife noticed it straight away - is the sense of the obvious use of compression techniques; too much compression for our taste.

Meanwhile, Cablevisión is getting ready to launch a hard drive-enabled DVR, also supplied by Motorola. And, at a later stage, high-definition transmissions will follow, as Latin America's cable operators continue to bridge the gap with the more developed digital cable markets. At last!