THE S-A BOOTH AT last month’s National Cable Telecommunications Association gathering in Atlanta was the last one for Scientific-Atlanta.
One of the "big two" cable suppliers in North America with Motorola, S-A was purchased by telecom and broadband gear maker Cisco, so by the time next month’s SCTE Cable-Tec gathering rolls around, the S-A and Cisco booth will be one in the same.
However, the company which brings decades of video expertise to Cisco will not be rolled into the much larger corporation. In recognition of the unique abilities S-A brings to its parent, the company is officially now: "Scientific Atlanta, A Cisco Company."
What does this mean for S-A and its customers? How will it affect Canadian companies who use gear from both? Cartt.ca editor and publisher recently sat down with S-A’s chief technology officer, Bob McIntyre (pictured below). What follows is an edited transcript.
Greg O’Brien: Of course I want to start with the Cisco deal. What does that does that do for Scientific-Atlanta.?
Bob McIntyre: I’ll start by giving you some free wheeling thoughts about what it does because it’s pretty easy for me. First of all, we’ve been working with Cisco for a whole bunch of years on specific aspects of technology in the cable industry that you would expect us to be working on. For example, we have been collaborating on all variants of DOCSIS, making sure all our modems and all of our gear work with Cisco CMTS’s. In recent years, we’ve been collaborating on switched digital video, which is a good way of making bandwidth utilization more efficient.
It requires the server and signaling technology that we have, but it also requires high speed Ethernet switches in front of our QAM modulators to work successfully. In almost every aspect of standardization efforts in the cable industry, we’ve collaborated. Even in areas people don’t expect, like fibre optics – resilient packet ring technology is one of the areas we’ve been working with Cisco to get some of the standards done – so we’ve been collaborating with them for quite a while.
We know them and they know us.
GOB: But what’s the benefit for both of you?
BM: It comes in several areas. I’ll give you sort of the global view of it. We were doing quite well as a company at Scientific Atlanta – very well positioned with our largest customers, great relationships with them – in some cases better than others—but generally pretty good.
Our international revenues are 25% of our sales total. Cisco’s international revenues are 51% to 52% of their total revenue. Cisco sells to almost all the (major telecom service providers) worldwide. In some cases their sales relationship started by selling corporate enterprise solutions to telecom carriers or the other big players.
Well, a lot of these large service provider players outside the U.S. we just couldn’t get to. We didn’t have all the resources in place. We’re very very consumed with making sure we took good care of our customers here in the United States and selective properties, around the world. We made some acquisitions like Barconet and so on, but we still didn’t have the reach internationally that we felt like we should.
Now what we have (with Cisco) is a world-class sales force, all of this technology behind us that can be carried through the world-class sales force and all those relationships to customers that we just couldn’t get to before.
The second thing is – and this kind of comes from the Cisco motivation – but Cisco is the world leader in data services of all types. We all know that Al Gore invented the internet, but Cisco has powered the Internet, if I can say it that way. 
In recent years, Cisco’s made a major investment in voice over the Internet. When they started out an enterprise with switches and IP phone systems, etc., but they’re also doing a lot of work with the cable companies on CMTS modification, cable modem type systems… they’ve been very strong in voice.
They’ve also been strong in wireless and mobility. They’ve developed that through partners. You know one of Cisco’s largest wireless customers is Sprint Nextel, which happens to be, you know, the joint venture partner now…
GOB: A pretty good partner with some of the big MSOs (Cox, Comcast and Time Warner Cable).
BM: The large cable companies. Right and most of the Sprint backbone is Cisco powered. And so they have mobility solutions that they’ve taken around the world. But the one thing that they were really missing and not having in terms of world-class technology, was video.
GOB: So that brings me to what I was going to ask you. What does S-A bring to Cisco that it couldn’t have done on its own?
BM: Well we bring everything in the video solutions. Everything from the video camera – we don’t make the cameras, but once it comes out of that camera, and whatever format it comes out, you’ve got to pre-process it, encode it, multiplex it, transmit it over satellite, transmit it over fibre optics, get it to where it needs to go to – we do all that.
GOB: Piece of cake.
BM: And we’ve done it for a lot of years, ever since the first satellite feed for video.
That’s one side of it. On the access side we also do everything from master headend, the super headend, the hubs – all the way out to the home to the set top. Then we build the fibre optic transport system, we build all the headend equipment. We do services, we install base stations, install head end equipment. We can cable it, wire it, engineer, furnish and install it.
And then we do all the fibre optic transport, the RF transport with amplifiers and so forth all the way out to the pole. And then finally the drop into the house where a set top box or a cable modem for that matter are used inside the home.
So now what we’ve done is we’ve taken a US$2 billion service provider oriented business in Scientific Atlanta with a 75% domestic business and very highly competent video arena and we’ve pumped it into a US$25 billion company that’s the world leader in data, a world leader in voice, almost a world leader in mobility-type solutions, and 50% international and global with great reach.
GOB: Now, what do you see coming – in terms of new products and services – from the two companies getting together?
BM: We actually have four specific integration teams functioning since about Christmastime. One of the things we were allowed to do pre-acquisition is planning. Now we’re about at the point where we’re going to start talking about how do we implement some of these plans.
So let me just give you sort of the generic view of what the four teams were. It turns out that the easiest one was the one looking at product overlap.
GOB: Was there any?
BM: It turns out that between some of our fibre optic solutions and some of our cable modems there was less than $10 or $15 million — that’s out of US$27 billion – in terms of product overlap. So what you don’t see in this deal is massive head-count reductions, layoffs or any cost synergy.
In fact there have been none. It’s all about one plus one equals three on the revenue side. That’s the deal. I get amused by some of the other major mergers that go on where paragraph two after their announcement of merging says 8,000 jobs will be eliminated or something.
That’s not what’s going on here. I can’t think of anybody whose job has been eliminated in the last six months since we announced the deal.
Now let’s get to the three big integrations. The first integration team is the IP next-generation network team focused on cable. Now you’re familiar with NGNA (next generation network architecture project) – which will have downloadable conditional access, IP converged streaming video in the backbone, IP convergence of delivery of all the possible services – voice, video, data and eventually all the video. All the work that Comcast has been doing, with their consolidated network. Cisco’s been at the forefront of that, we’ve been working on that at forefront, mostly from the set top and the network side.
Now we’re combining all these efforts and we’re going to have the best IP converged next-generation systems, period. We demonstrated downloadable conditional access to the FCC in June, but and we have OCAP solutions out running, etc. etc.
And now we’re doing it together with the Cisco guys and it’s just getting exciting because we have the whole end-to-end capability. We can do things in multiple different ways. We can deliver content any way (customers) want. We can transcode content any way they want, etc.
So that’s one effort – a team of five or six of our guys, five or six of the Cisco guys, working systematically through a product road map that shows “here’s what we’ve already got, here’s what we’re working on, here are the next three things that are coming.”
Now I can’t tell you what those next three things are, but you will be hearing about them over the next three or four months.
GOB: Are you sure? What are the other teams?
BM: he second one is IPTV wireline services. This one has some interesting angles to it. With IPTV – we’ve got an AT&T contract, so we’re building for AT&T (formerly SBC) two super hub offices, 41 video hub offices, etc. We’ve got a contract for IPTV set tops, too, so we’re working on all that.
On the IP TV wireline side Cisco’s built the backbone for all these major telephone companies. You know, if you go to a customer like Deutsche Telecom… they’re buying lots of equipment, so they’re very familiar with Cisco, and that’s where the draw is – overseas.
So we’re taking that whole idea of IPTV and we’re packaging it up as an end-to-end solution… with everything except for DSLAMs, because we don’t make these. Cisco used to make them but got out of the business. But we’re packing that whole thing up and are focused on the international telephone companies because the U.S. market’s pretty much already decided where it is. Verizon’s going one way, AT&T going the other way, everybody’s going different directions.
We have over 20 RFPs for IPTV solutions in the international marketplace. And one thing to look at is what we’re really working on is the second generation solution. A lot of people think that this IPTV thing is the new thing and it’s going to work and stuff. Well, the facts are that Fast Web in Italy is deploying IPTV to over 450,000 subscribers.
BCCW in Hong Kong has four or 500,000 subscribers. Telephonica in Spain has over 200,000 subscribers.
GOB: Well that’s where we’re all headed anyway right?
BM: Let me come back to that. So those are first generation solutions of IPTV. The software’s not too user friendly in some cases, they’re doing MPEG 2, not MPEG 4, they’re using ADSL instead of VDSL, so you know they’re only getting one and a half to two Mbps. So you can only get one channel per time in every house.
Unlike the AT&T light speed deal, which is 24 Mbps per house, MPEG 4, VDSL, shorter loop length, hybrid fibre twisted pair.
GOB: And the third team?
BM: The third one is called the connected life team. Cisco’s got the backbone, and they acquired Linksys two years ago. They got over $1 billion worth of business every year and some 7,000 retail channels with everything from routers to Wi-Fi to powerline to twisted pair, or however you can to do it.
And so what we’re doing is our connected life team is basically looking at taking all those things that drive home networks that Linksys was finding – and by the way we think they’re number one in home networks – and we’re saying you know what, it’s really hard to do home networks because you get out of the store, you buy the stuff, you take it home, you plug it in, and it never works the first time right.
There’s always some problems. If it’s just point to point wireless it might work. Mine did, you know, and I have two kids working for Cisco, so when things don’t work I say, “Get over here and fix this – and I’m a propeller head!
The concept behind it is let’s make it easier to install, make it easier to monitor, easier to provision, you know. There aren’t too many companies that can do that because there are not too many companies that know what’s in a secure network and also have all the devices.
So that’s our third team. That’s money right there and what happens is all three of those teams are working and are getting into great detail.
GOB: What else has changed with the purchase? Or stayed the same?
BM: All the senior management of the company with three exceptions (have remained). And those three exceptions would make sense because they’re people who’ve been trying to retire for like six years and we wouldn’t let them. (Cisco) wanted to sign us for two years, but they really want us to stay for five years… As long as I’m having fun, I’m going to stick around.
So, I set it up for five years and they wouldn’t have done the deal unless we signed up… And they’re letting us run the company too. It’s not like I have somebody breathing down my neck. I’ve had a lot of people breathing down my neck, but they’re saying “Hey can you come over here?” I’ve had Cisco sales guys want me to come talk to utilities, banks, satellite providers – in addition to telephone companies and cable companies. The team is, by and large, very enthusiastic.
