| Fortune Magazine | ||
A champion for Cable 2.0
Industry veteran Wayne Davis says his company Vyyo offers the troubled industry its best shot at redemption. Stephanie Mehta reports.
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| Vyyo CEO Wayne Davis. |
(Fortune) -- Wayne H. Davis doesn't look like much of a rabble-rouser. A tall, balding 53-year-old, Davis has the unassuming demeanor of a high school math teacher. And the way he peppers his conversations with acronyms, he sounds more like an engineer (which he is) than an agitator.
But make no mistake: Davis, now CEO of a small technology company called Vyyo, absolutely is agitating for change. Specifically, he thinks the cable industry is in need of a major attitude adjustment -- not to mention a whole new business model.
"Investors are looking for a way for cable to be successful in this new world," Davis told me in a recent interview. The new reality for cable operators? Once the only game in town, companies such as Comcast (Charts) and Time Warner Cable (Charts) now face tough competition from phone operators selling television services and satellite companies bolstering their high-definition programming.
"Unfortunately," he adds, "cable is still acting like a monopoly, like they're the big boys and everyone will follow them."
Davis knows a little about the cable operators' thinking. Until recently, he served as chief technology officer of Charter Communications (Charts, Fortune 500), the St. Louis-based cable provider. He's spent 25 years working for cable companies until earlier this year, when he accepted the top post as Vyyo, which supplies gear to the cable industry.
So what is this former cable guy's big idea to keep the industry from shedding market share and staying relevant? Davis is proposing a totally new, Web-centric business model for cable -- one that requires the cable operators to bite the bullet and drastically expand the capacity of their current systems.
Davis' idea: Instead of launching new linear video channels as the did in the 80s and 90s, cable operators should partner with online giants such as eBay (Charts, Fortune 500) and Google (Charts, Fortune 500) to offer dedicated channels for new media content.
The cable operator would set aside a big chunk of capacity, enabling its Internet partner to offer a rich, interactive experience far better than anything available online today. Imagine a YouTube channel in high-definition, or an auction site that shows not just photos of the merchandise, but sophisticated, user-generated infomercials.
In Davis' scenario, the cable operators wouldn't charge customers subscription fees for the service, but instead could make money by charging its new media partners for access to customers. Operators could also sell the new media companies long-term leases for capacity on their networks, or even forge some sort of financial model based on sharing the advertising revenue these new channels might generate.
"So maybe there are some warts on this thing," Davis admits. "But there's a lot more opportunity with this idea than anything that's come along for cable in a long, long time."
One such wart would be the investment that cable operators would need in order to create such ultrafast lanes for these potential new media partners.
Indeed, concerns that cable companies will have to spend big sums on upgrading their networks for simple new fare such as high-definition channels have turned many investors bearish on the industry: Shares of Comcast, the largest cable operator in the U.S., are down about 30% this year. Time Warner Cable (whose biggest shareholder is Time Warner (Charts, Fortune 500), parent of CNNMoney) has seen its shares tumble some 40% from its 52-week high.
Davis is peddling a solution that, he says, gives the cable operators dramatically more capacity for a fraction of the price his competitors might charge. The cable television systems of today essentially use just a portion of the raw radio frequency spectrum in their networks. Davis says Vyyo's Ultraband platform unlocks some 800 Megahertz of spectrum that the cable operators already have in hand.
Davis says the cost of installing Vyyo's platform is roughly 10% of the cost of a fiber-to-the-home deployment such as the one Verizon (Charts, Fortune 500) is undertaking.
Still, Davis' idea, which he says he's brought to both cable operators, new media companies and others, has yet to catch on.
Cable operators "are old school; they are fairly conservative," says David Emberley, a research manager with IDC who has been briefed on Davis' big idea. "Wayne is trying to open them up to a more Web 2.0 kind of view. But it remains to be seen is if his solution will be adopted, given the conservative nature of his customer base."
Another big question is just how interested the new media players will be. Why would Yahoo (Charts, Fortune 500), say, spend money on a dedicated channel that reaches just a portion of Internet users (Comcast, the nation's biggest operator, has about 24 million cable subscribers) when it already reaches 100% of potential customers as a free Web portal?
Davis, who says he's discussed his idea with some new media executives, says he thinks Web companies are looking for an edge -- a way to distinguish their services from rivals'. What better way, he argues, than to create a rich, high-speed experience that users can't get anywhere else?
Davis thinks he's onto a good idea, so good, in fact, that he worries that if cable doesn't act on it, the competition will: "If cable doesn't do this, just wait until Verizon gets (scale)," he says.
But there's no question who Davis is rooting for: "There's a window of opportunity here for cable, an industry I happen to love." 
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