FreeWheel, Comcast’s ad-tech company, said it will begin selling commercials during set-top-box video-on-demand programming using a solution developed by Comcast Technology Solutions, another arm of the company.

There is an increasing number of ad buyers and clients looking to buy commercials using data to target viewers and programmatic to automate the process.

Distributors are figuring out how to automate selling ads in programming that is not delivered via internet protocol, including traditional linear channels and set-top VOD.

“Programmatic advertising is becoming a more important part of our premium video buying strategies,” said Jason Kanefsky, chief investment officer, Havas Media. “Advancements that allow us to get greater scale, more consistent targeting and a unified view of the total viewing audience are needed. As viewers continue to shift their consumption across platforms, in particular younger demographics, extending reach in new ways is critical. The addition of STB VOD inventory to our programmatic arsenal will be an important step in this direction.”

Comcast said its new solution gives advertisers that access to more content as part of their programmatic buys across connected TV and digital video channels. The solution manages to overcome special issues with set-top-box VOD than had hindered the ability to bring it to advertisers at the speed required for automated bidding within FreeWheel’s unified auction structure.

“Our key goal is to ensure buyers and sellers can seamlessly transact across all content types and allow for our robust data and decisioning capabilities to work wherever viewers are watching premium video. Working with Comcast Technology Solutions to bring Set-Top Box VOD into the mix is an enormous step forward,” said Dave Clark, general manager, FreeWheel. “Allowing programmatic, marketplace access to this growing viewership segment will open new sources of growth to our supply-side clients, and just as importantly, will allow advertisers to tap into this premium, living room quality content as part of their unified video strategy.”

The new system combines the ad targeting capabilities of FreeWheel’s ad decision engine with the ad creative distribution capabilities of Comcast Technology Solutions’ Ad Store, providing realtime, broadcast quality creative conditioning and distribution to all STB VOD MVPD end points, the companies said.

“Video-on-demand content has skyrocketed in importance in terms of video viewership, as consumers flock to the engaged, big-screen viewing environment in their own living rooms. However, until today, it has not been possible to effectively monetize this content in the same programmatic fashion as other video inventory,” said Richard Nunn, VP and general manager of advertiser solutions at Comcast Technology Solutions. “By enabling unified programmatic auctions and seamless distribution of ad assets across all inventories including STB VOD, we are helping programmers and distributors open up new opportunities for advertising."

CommScope has laid off approximately 160 employees across its Home Networks division, as sales of one of the unit’s primary products, pay TV set-tops, decline.

Chatter among current and former CommScope employees on TheLayoff indicates that CommScope’s entire video customer premises equipment (CPE) staff based Horsham, Pennsylvania has been let go. Layoffs among CommScope Home Networks employees in San Diego have also occurred, according to message board postings.

"CommScope continuously monitors evolving marketplace conditions as a matter of business practice,” the Hickory, N.C.-based CommScope said in a statement emailed to MCN Tuesday. “We review our entire business to make our organization lean and agile, and to leverage global growth opportunities. Across the industry, there has been a significant decline in service provider investment in video programs, as the result of continued reduction in PayTV subscriptions, increased competition from over-the-top services, and the transition to lower-cost video devices.”

CommScope, Technicolor and other original equipment manufacturers (OEMs) servicing the pay TV set-top business are under pressure from video cord cutting affecting their cable, satellite and telco operator clients. These customers lost more than 5 million linear TV subscribers in 2019.

Concurrently, the days of the multi-tuner, multi-gigabyte DVR set-top are on the wane.

With what remains of their video businesses, CommScope’s operator clients are moving to OTT-centric models that utilize, in many cases, consumer grade video streaming devices such as Roku and Amazon Fire TV. Proprietary set-tops, meanwhile, have in other instances been reduced to thin-client devices running Android TV middleware.

CommScope got into the video CPE business in 2018 with its $7.4 billion purchase of Arris.

“Home network space is a significant challenge this year as operators and carriers continue to deal with material subscriber losses,” noted CommScope CFO Alexander Pease in February, projecting a 20% sales decline for Home Networks sales in 2020.

“We are taking steps to reduce our current workforce in our Home Networks segment to instill greater efficiency, cost-competitiveness and focused innovation in areas with long-term growth opportunity,” CommScope added in its statement. "We plan to lead in the transformation of the digitally connected home, leveraging our core skills in systems, software, and hardware to create and connect a device ecosystem that enables new services and solutions, transformational consumer experiences, and profitable new business models. We are committed to positioning Home Networks to be a healthy, competitive business moving forward."

CommScope has laid off approximately 160 employees across its Home Networks division, as sales of one of the unit’s primary products, pay TV set-tops, decline. 

Chatter among current and former CommScope employees on TheLayoff indicates that CommScope’s entire video customer premises equipment (CPE) staff based Horsham, Pennsylvania has been let go. Layoffs among CommScope Home Networks employees in San Diego have also occurred, according to message board postings. 

"CommScope continuously monitors evolving marketplace conditions as a matter of business practice,” the Hickory, N.C.-based CommScope said in a statement emailed to Next TV Tuesday. “We review our entire business to make our organization lean and agile, and to leverage global growth opportunities. Across the industry, there has been a significant decline in service provider investment in video programs, as the result of continued reduction in PayTV subscriptions, increased competition from over-the-top services, and the transition to lower-cost video devices.

CommScope, Technicolor and other original equipment manufacturers (OEMs) servicing the pay TV set-top business are under pressure from video cord cutting affecting their cable, satellite and telco operator clients. These customers lost more than 5 million linear TV subscribers in 2019.

Concurrently, the days of the multi-tuner, multi-gigabyte DVR set-top are on the wane.

With what remains of their video businesses, CommScope’s operator clients are moving to OTT-centric models that utilize, in many cases, consumer grade video streaming devices such as Roku and Amazon Fire TV. Proprietary set-tops, meanwhile, have in other instances been reduced to thin-client devices running Android TV middleware. 

CommScope got into the video CPE business in 2018 with its $7.4 billion purchase of Arris. 

“Home network space is a significant challenge this year as operators and carriers continue to deal with material subscriber losses,” noted CommScope CFO Alexander Pease in February, projecting a 20% sales decline for Home Networks sales in 2020. 

“We are taking steps to reduce our current workforce in our Home Networks segment to instill greater efficiency, cost-competitiveness and focused innovation in areas with long-term growth opportunity,” CommScope added in its statement. "We plan to lead in the transformation of the digitally connected home, leveraging our core skills in systems, software, and hardware to create and connect a device ecosystem that enables new services and solutions, transformational consumer experiences, and profitable new business models. We are committed to positioning Home Networks to be a healthy, competitive business moving forward."

Arris continues to struggle with the global shortages of key electronic components, which it said was the principal cause of a 13% drop in CPE sales in the second quarter.

“Most companies like us are in an environment where trying to secure supply is on a week-to-week basis and prices fluctuate pretty significantly,” Arris CEO Bruce McClelland told investment analysts during the company’s second quarter earnings call last week.

“We're not in a position we can absorb those costs. And so, we've been pretty upfront and open with customers on what the price increases are,” McClelland added.

Related: Arris to Be ‘More Selective’ With Its Set-Top Box Business

Arris conceded in March that it has been among the suppliers affected by spiking global demand for dynamic random access memory (DRAM) chips. During its Q2 call, the company also conceded that the strained supply of multilayer ceramic capacitors (MLCC) is also taking a toll on business.

MLCCs are used in a wide range of electronic devices—everything from modems and gateways to smart phones to pay TV set-tops. In June, the National Cable TV Cooperative issued a warning to its operator constituents to expect delays on product shipments. And one Midwestern operator has admitted to switching its modem supplier from Arris to Hsinchu, Taiwan-based supplier Hitron.

For his part, McClelland said he visited Asia himself in July to meet with key parts suppliers.

“It's a reality of the entire market at this stage and we'll stay close both on the supply side and on the customer side to be as optimized as we can around the cost of production,” he said.

Related: Arris to Unload Taiwan-Based Set-Top, Modem Factory

Arris saw revenue in its CPE division decline from $1.15 billion in the second quarter of 2017 to $1 billion. Broadband device revenue declined 17.1% year over year to $405 million, while video CPE revenue declined 7.6% to $603 million.

In addition to raising prices to account for rising components costs, Arris said it was shifting focus to profitability and eliminating “low-contribution customer engagements.”

For Arris, and a broad array of other similarly situated companies rooted in electronics manufacturing, the shortages might not ebb soon.

With sectors like the automotive industry using exponentially more MLCCs these days, the leading global manufacturer of these parts, TTI, released a memo in April that indicated a somewhat intractable problem.

“We have reached a point that some manufacturers are concentrating their future activity on smaller case sizes and less commoditized technologies of the market like high voltage and flexible termination, with a particular focus on high-reliability end-markets such as automotive and medical,” the company said. “So while manufacturers are adding capacity, it’s generally not for commercial commodity parts—making this market condition even more difficult to navigate.”

In a move that will get TiVo out of the hardware-making business, the company announced that it has signed a “major” device manufacturer to serve as its direct-to-consumer box partner.

Tied in, this partner, yet unnamed, will also take over retail sales of TiVo products outside of TiVo.com, including outlets such as Amazon and Best Buy, Enrique Rodriguez, TiVo’s president and CEO, said Thursday on the company’s Q1 earnings call.

TiVo, he explained, won’t produce or contract directly for the manufacturing of TiVo’s retail devices, but will secure the volumes needed from its new partner for sales made via TiVo.com.

RELATED: TiVo Refreshes Retail Lineup With Voice-Powered 'Vox' Devices

“In that sense, we’re acting as a distribution channel,” Rodriguez said. With respect to sales through other retail channels, “we’d be completely out of that transaction.”

For consumers, there will be no material change, as products will continue to be branded as TiVo and run the TiVo experience, he added.

TiVo has already made a similar move on its MSO partnership business, as its software and experience have been ported to devices made by Arris.

On the MSO front, TiVo has completely transitioned out of the hardware business, as Q1 was the last with MSO hardware revenue, as TiVo has completed fulfillment of orders made last year, Rodriguez said.

On the software front, Rodriguez reiterated that TiVo’s new platform, TiVo Experience 4, was released to the retail market in Q4 2017, and is becoming broadly available to MSO customers this quarter. In the MSO realm, TiVo is using that new platform to help partners embark on IPTV transitions and as a catalyst to migrate MSOs from legacy Rovi guides to the higher-end TiVo experience.

RELATED: TiVo Goes Device-Agnostic with New Platform for MVPDs

Service Electric Cable TV is already on board, as is RCN Corp., which will be the first to roll out an IPTV service using TiVo Experience 4 using an Android TV device. Mediacom Communications recently renewed and extended its deal with TiVo.

TiVo is also preparing to launch a new advertising product that provides sponsored, in-guide recommendation results for relevant programming. A mid-tier MSO with coverage across “multiple, large DMAs” is signed on to deploy this on mobile devices and set-top boxes, Rodriguez said.

That capability will be deployed within TiVo’s personalized content discovery suite, he added, noting that it enables TiVo’s anonymous viewership data to be matched with other anonymous first- and third-party information.

TiVo had no new detail to share about its ongoing exploration of alternatives aimed at driving shareholder value that could include M&A or taking the company private.

RELATED: TiVo ‘Exploring All Alternatives’ to Drive Shareholder Value

That process is ongoing, though TiVo expects to be ready to provide an update when it announced Q2 results, Rodriguez said.

There’s also no significant movement with respect to TiVo’s ongoing litigation with Comcast.

RELATED: Comcast Wants to Speed Up TiVo Case at ITC

“Getting a license [with Comcast] remains one of our top priorities,” Rodriguez said, holding that he’s “confident” that Comcast will eventually come to terms.

TiVo posted Q1 revenues of $189.83 million, down 7.7% year-over-year, driven by drops in its legacy TiVo solutions IP licenses and hardware line items.

TiVo, which merged with Rovi in the fall of 2016, said it reached its goal of realizing $100 million in integration synergies, and expects to complete its extended goal of $110 million by the end of Q2.

Arris turned in a generally solid Q4, but pressures being applied to its set-top business, driven in part by rising memory costs, is causing the company to adjust its strategy in a way that could have the company steering clear of less profitable opportunities.

“As we enter 2018, the team continues to sharpen the focus on enhancing economics within the CPE [consumer premises equipment] business, and we are taking a number of steps to improve efficiency,” Bruce McClelland, Arris’s CEO, said Wednesday on the company’s Q4 2017 earnings call.

One of those steps is to sell its set-top manufacturing facility in Taiwan to Pegatron. Once completed, Arris will be able to tap into Pegatron’s scale and supply chain, and yield an annual benefit of $20 million or more and lowering product costs, McClelland explained.

Arris is “in extensive discussions with customers to adjust pricing to reflect increased memory costs, and are being increasingly more selective on the projects that we pursue,” McClelland added, noting later that the adjusted selectivity will have Arris focus more on profitability than on sales growth.

That adjustment comes as video set-top sales in Q4 2017 declined 13% year-over-year amid lower volumes and the shift toward lighter-weight clients, trends that are emerging due to new gateway-client architectures and the expanding use of cloud DVR services.

McClelland said Arris expects the cost of memory to continue to be an issue for its CPE business, and is currently projecting another 10% increase in costs in 2018 relative to the fourth quarter of 2017.

“It’s a situation where we think we have to have these discussions with customers and find a path forward,” McClelland said. “It’s an extremely active dialogue across the board, and I think we'll be successful in finding a middle ground that works for everyone. If we can't on some pieces of business that just don’t look like they are long term the right place for us to be, I think you'll find us trim those out." 

Arris’s strategy to be more selective and focus on more profitable opportunities for its set-top box business is not out of the ordinary. Cisco Systems, which sold its CPE business to Technicolor in 2015, opted a couple of years earlier not to pursue business for low-margin set-top boxes, particularly in Europe.

On the positive side, McClelland said the upgrade cycle for boxes that support 4K video gained momentum in 2017 and is expected to accelerate this year, citing Arris’s recently announced deal to provide 4K-ready boxes to Bell Canada.

RELATED: 4K-Ready Boxes From Arris Part of Bell Canada’s MediaFirst Move

But generally speaking, Arris expects sales from its CPE segment to shift toward a higher mix of broadband devices (the company anticipates CPE sales to be down 4% this year as it adjusts its operational efficiencies and focuses on profitability and price adjustments). 

McClelland said Arris will likely provide more perspective on that evolving mix during its investor conference, set for March 28 at The Westin New York at Times Square.

That shifting mix was reflected in Q4, as sales of broadband CPE in the period jumped 7% amid growing demand of advanced DOCSIS-based gateways. Of note, Arris shipped 1.6 million DOCSIS 3.1 units in 2017, representing a bit under 10% of total volume, McClelland said, adding later that D3.1 has begun to progress from trials to full-scale commercial deployments.

The challenge faced by Arris’s video set-top business was a relative blip when compared to just about every other aspect of its business.

Overall Q4 sales came in at $1.73 billion, on the high end of Arris’s guidance range, and close to expectations of about $1.74 billion.

Arris expects 2018 sales of $7.1 billion to $7.35 billion, and earnings per share of $2.80 and to $3.05. That compares with consensus of $7.26 billion and $2.92 EPS, according to Raymond James analyst Simon Leopold, who maintained a “Strong Buy” on the stock and a target of $36.

Q4 numbers included a month of enterprise sales coming way of Arris’s acquisition of the Ruckus Wireless and ICX Switch business from Broadcom, a deal that, for example, will help Arris chase down new opportunities in the emerging CBRS market.

RELATED: CBRS Spectrum to Open Windows of Opportunity for Cable Ops

For that CBRS LTE portfolio, Arris has an active pipeline with traditional wireless service providers, wireline providers expanding into wireless, enterprise customers what are looking to deploy private, secure LTE networks, as well as wireless ISPs. Use of 3.5GHz CBRS spectrum for initial commercial trials are expected to start later this year, McClelland said.

That business [Ruckus] “hit the ground running,” McClelland said.

Arris’s projected increase of 9% in sales this year includes expectations that the company’s new enterprise business represents an opportunity in the $650 million to $700 million range.

Arris’s Network and Cloud business, meanwhile, saw profitability rise in part due to continued sales of DOCSIS capacity licenses for its flagship converged cable access platform, the E6000. Shipment of “Gen2” modules for the E6000 also accelerated in the second half of the year.

RELATED: Arris Touts Deployments of ‘Gen 2’ Modules for Flagship CCAP

He also noted that a portion of revenue projected for 2018 includes projects involving the use of Remote PHY, an emerging architecture that distributes certain electronics further toward the edge of the network.

RELATED: Cable-Tec Expo: Arris Paves Path to Remote PHY

WASHINGTON — A new Government Accountability Office report concludes that the FCC conducted limited analysis of the need for set-top box regulations before proposing some, and that most experts and stakeholders it consulted for the report “said that further regulations for this purpose were not needed, given recent changes in the video content market.”

That pretty much squares with the view of the current Federal Communications Commission chair, Republican Ajit Pai, who is unlikely to exhume a previous effort to unbundle cable channels for easier online access.

Related: Pai Pulls Set-Top Proposal

Nineteen of 35 experts the GAO turned to found further regulation of set-top devices was not needed. Eight said they were needed, and the rest provided “uncertain” responses or did not comment, per the GAO.

Widespread changes in the video market in recent years have expanded consumers’ choices of video services as well as devices to access those services, the report noted, something the FCC would be well served studying in a “comprehensive analysis,” the GAO said.

Pai pushed back on efforts by his predecessor, Tom Wheeler, to impose new regulations on set-tops. That effort, which drew widespread protest from programming providers and others worried about the impact of government interference with carriage contracts, eventually failed when Wheeler could not secure three Democratic votes. Commissioner Jessica Rosenworcel had issues with the regulations’ impact on content protections.

Read More: Complete coverage of the Tom Wheeler FCC's proposed set-top rules

The GAO study was based on research data, interviews with the 35 stakeholders who filed comments with the FCC (12 MVPDs, five video content producers, three device manufacturers and 12 industry associations among them), as well as with 11 industry analysts and experts identifed in news coverage.

A voluntary set-top box energy conservation agreement that’s supported by the pay-TV industry, consumer electronics manufactures and other advocates have saved $2.1 billion and 11.8 million metric tons of carbon dioxide over the past four years, a report shows.

The report, from independent auditor D+R International and distributed Wednesday by the Consumer Technology Association and the NCTA – The Internet & Television Association, found that consumers saved about $941 million in energy costs in 2016 alone.

The carbon dioxide savings is equal to removing 2.5 million cards from the road for a year, the report found.

RELATED: Pay-TV Firms, CEA, Energy Agree On Set-Top Standards

The voluntary agreement aimed at boosting the energy efficiency of set-tops as signed in 2012. Signatories include MVPDs such as AT&T/DirecTV, Comcast, Charter Communications, Verizon, Dish Network, Cox Communications and CenturyLink as well as box makers that include Arris, Technicolor and EchoStar Technologies, and energy efficiency advocates (Natural Resources Defense Council, American Council for an Energy-Efficient Economy, and the Appliance Standards Awareness Project (ASAP). CableLabs has also contributed by researching and developing energy efficiency strategies.

D+R estimated that nearly three-fourths of all DVRs in the field today were purchased under the voluntary agreement’s energy standards, and that new DVR models now use an average of 40% less energy than those bought prior to the agreement. Service providers are also upgrading devices to support reduced power modes during periods of inactivity. 

Among set-tops purchased between 2013 to 2016, the weighted average of energy consumption for DVRs is down 40%, non-DVRs are down 28%, thin-client boxes are down 48%, and DTAs (digital transport adapters) are down 28%.

The initial term of the Voluntary Agreement is set to expire at the end of this year, but the parties recently issued a joint statement that there are talks underway and optimism that there will be a consensus to extend the terms for several more years.

Per the latest annual audit, 98.6% of all new set-tops meet Energy Star efficiency standards, and that signatories pledge to support higher energy efficient standards that became effective Jan. 1, 2017 for 90% of their purchases this year.

NEW YORK — Though there’s some frustration about set-top box video-on-demand advertising being undervalued, the category must continue to evolve, or risk getting overrun by other, more agile platforms.

Cable VOD advertising needs to get better and faster, “or it will fall out of the mix,” Scott Rosenberg, senior vice president and general manager of advertising at Roku, warned at VideoNuze’s 2017 Online Video Advertising Summit here.

Related: Set-Top VOD Ad Views Surging

Set-top VOD can suffer from delays in reporting and from other shortcomings that aren’t present in the OTT advertising realm, he said.

Set-top-box VOD tends to focus on C3 and C7 ratings, but from days eight and beyond, “it’s feeling fragmented,” Maureen Bosetti, chief partnerships officer at media planning and buying company Initiative, said. “There’s an opportunity to get the measurement right.”

It’s also important to get the right creative for dynamically inserted ads, Pooja Midha, senior vice president of digital ad sales and operations at Disney/ABC Television Group, added. “It’s a different pitch process,” she said, noting that such inventory tends to get lumped in with traditional TV.

Although set-top VOD faces challenges ahead, it’s still a significant growth business. Canoe, the MSO-backed advanced ad joint venture, reported in April that VOD ad impressions reached 5 billion in the first quarter, a 21% jump. Canoe, now on track for more than 20 billion ad impressions for 2017, delivered a record 17.9 billion impressions in all of 2016.

However, in the digital advertising realm, there is an increasing pivot toward TV-connected devices. Last week, FreeWheel, the online ad-tech firm owned by Comcast, said Roku players and other TV-connected OTT devices toppled PCs/desktops to jump into the lead with respect to online ad view share in the first quarter of 2017.

Related: OTT Devices Gobbling Up Ad View Share: FreeWheel

“There’s incredible growth to be had there” when set-top VOD and OTT are combined, James Rooke, general manager, publisher platform at FreeWheel, said here as he presented those results.

“We’re very bullish on OTT,” Bosetti said. “The growth there is tremendous … but we need to plan for it appropriately.”

MOBILE MUST BE ‘AGNOSTIC’
A separate panel here focused on the evolution of advertising in another big growth area — mobile.

Mobile video advertising faces a significant challenge because it’s supporting a wide variety of short-form as well as premium, long-form TV content.

Mobile video must be approached as “agnostically as possible,” but the way the market is evolving also means one can’t put a 30- or 60-second spot in front of every piece of content heading to a smartphone, Mike Law, executive vice president and managing director of video investment at Dentsu Aegis Network U.S., pointed out. “I don’t know if we’ve completely solved for that.”

But what type of content is being viewed also matters. Shorter ads and smaller ad loads should be tied to shorter videos viewed on mobile devices, but not so with a show such as ABC’s Scandal, if it’s being viewed on a smartphone.

“That shouldn’t limit the [ad] supply,” Law said. “They’re still a viewer.”

For something like Scandal, those core metrics will be the same across multiple platforms, agreed Justin Fadgen, vice president of business development at Beachfront Media.

Spotify, the music streaming service that has expanded into video, is experimenting with ad models that use smaller loads in order to provide a better overall experience, Brian Danzis, head of global video monetization at Spotify, said.

Using TV-like ad loads on a mobile device can be “kind of annoying” to the viewer, he added.

Spotify has also created an ad matrix that delivers a certain ad format, depending on the device the consumer is using. “Fragmentation is a result of convergence,” Danzis said.

A group of privacy advocates have asked the Federal Trade Commission to act on a complaint against MVPDs' collection and use of subscribers' personal information.

The group filed a complaint a year ago charging that Comcast, AT&T and Cablevision (owned by Altice USA) were not providing adequate disclosure of their collection and marketing of customers' personal information gleaned from set-top boxes.

In a letter dated June 12, those groups -- Public Knowledge, Center for Digital Democracy, TURN–The Utility Reform Network, Consumer Watchdog, Consumer Action and Consumer Federation of America -- urged the FTC to act on the complaint.

An intervening court decision -- FTC v. AT&T Mobility -- cast doubt on the FTC's authority to act on the privacy practices of the non-common carrier businesses of common carriers; AT&T, Comcast and Cablevision are all ISPs under Title II classification at the moment.

But they pointed out in the letter to FTC chair Maureen Ohlhausen that the even-more-recent decision by that court has vacated the earlier decision, so the FTC is now free to act on the complaint, and should.

Related > FCC to Court: FTC Common-Carrier Exemption Is Activity Based

"You have underscored the important role that the FTC plays as an expert cop on the privacy beat, and now that the AT&T Mobility decision has been vacated, it is time for the FTC to do some policing." they wrote. "We ask that you now publicly and expeditiously resolve the pending complaint concerning cable TV and satellite TV privacy, an area of joint jurisdiction with the FCC."

Related > Court Throws Out Throttling Case Against AT&T Mobility

The U.S. Court of Appeals for the Ninth Circuit last month agreed to an en banc (full court) review of its three-judge panel decision that left the Federal Trade Commission's authority to oversee privacy in some circumstances very much in doubt. The court also said that in the interim that panel decision was not to be cited as precedent of the Ninth Circuit. Such en banc review is unusual, but the decision had prompted a lot of attention given that potential consumer privacy impact.

Layer3 TV, the Denver-based next-gen cable operator, has been putting a fresh, new face on the much-maligned set-top box using a colorful and modular lineup of whole-home gateways.

While the industry has known for a while that Pace plc, the U.K.-based set-top maker now part of Arris, was tapped to make at least the first wave of Layer3 TV boxes, the MVPD revealed Tuesday that Designworks, a subsidiary of BMW Group, designed the whole-home gateway exclusively for Layer3 TV.

The use of modular color schemes, the companies said, is a first for cable in that it provides a way for the devices to "best fit into each room’s aesthetic" of the subscriber. 

This video offers a more detailed look at the different colors supported by the design: 

Layer3 TV’s main Gateway box supports HD, 4K and High Dynamic Range video, integrated WiFi, a DOCSIS 3.0 modem, and whole-home DVR that can store more than 3,000 hours of HD, integrates access to certain OTT apps, and features a Full Color Front panel LCD screen that displays info about what’s being watched. It’s also Zigbee and Bluetooth-ready, the company said.

RELATED: Layer3 TV Goes For The Big Bundle

Layer3 TV and BMW Group have connected elsewhere, as the pay TV provider uses a fleet of electric BMW i3 vehicles for installations and other service visits. Layer3 TV has also been using Tesla vehicles for its partnership with NextLight, a municipal service provider that is building out a city-wide fiber network in Longmont, Colo.

RELATED: Layer3 TV's Fleet Goes Green

“Designworks and the BMW Group have a long history of designing high end and intuitive products that customers love using every day,” Layer3 TV CMO Eric Kuhn, said in a statement. “After conducting an exhaustive global search for a design firm, we were attracted to the firm’s commitment to combine elegant design with tangible improvements to how media is experienced.”

“The user experience is at the heart of what we design for at Designworks, whether we are working on aviation interiors, user interaction concepts or solutions for the smart home” said André de Salis, creative director and project lead for Layer 3 TV at Designworks.

Layer3 TV has launched service in Chicago, Washington, D.C., parts of Los Angeles, and Longmont, Colo.

RELATED: Layer3 TV Launches in La La Land

Apps that deliver the pay TV experience on Roku boxes and other retail devices are poised to broaden, not replace the market for operator-supplied set-tops and gateways, Bruce McClelland, Arris’s CEO, said.

“I don’t think of it as an experiment as much as an augmentation to the offer they [MVPDs] have today,” McClelland said Wednesday at the Goldman Sachs Technology and Internet Conference in San Francisco. “We don’t see it as a replacement approach as much as an augmentation of what they do today.”

The question about the impact of those apps emerge soon after Comcast started to beta test an app for Roku devices, and will soon offer on Samsung smart TVs and will likely support on a broader range of retail platforms in the months to come.

RELATED: Roku, Comcast Kick Off Xfinity TV App Beta Trial

That trend is important to Arris, which now leads the set-top market following acquisitions of Motorola Home in 2013 and of U.K.-based company Pace plc last year.

Though the retail model for MVPDs will certainly grow, operators tell Arris that they “like controlling the technology in the home,” as it helps them differentiate their offer, predict how their services evolve, and enables them to keep tabs on the overall customer experience, said McClelland, who succeeded Robert Stanzione as CEO at Arris  last fall.

RELATED: Stepping Up to the Plate

But he doesn’t expect this gradual trend to alter the core fundamentals of a video CPE business that has been moving to gateway/client architectures that use Lightweight IP devices as well as more powerful boxes with storage and other advanced features. He also sees Arris well-positioned to benefit from “product refreshes” that occur with CPE for video and broadband.

McClelland was also asked about the logic of Arris’s recent warrants agreements with Charter Communications and Comcast.

While noting that such agreements are somewhat unusual, they are beneficial to both sides because they “align our interests” and help to ensure that Arris is investing in the right areas, he said.

RELATED: Charter, Arris Ink Warrant Agreement

“We felt like with acquisition completion of Pace last year that, given the concentration of spend, finding a way to incent our customers to …get comfortable with the level of spend with us was important,” McClelland said.

And they aren’t as unusual as he was letting on, as both Harmonic and Universal Electronics have similar deals in place with Comcast, which also took a small stake in Arris when Arris was pursuing its Motorola Home acquisition.

RELATED: Harmonic, Comcast Strike Warrant Agreement

McClelland also said Arris is ready to pivot as access architectures become more virtualized, disrupt the market, and open the door to new competition.

The challenge for Arris, he said, is to support a graceful migration to new approaches and to be “disruptive to our own business…if the technology takes us in that direction.”

Modem maker Zoom Telephonics has told the FCC that if it decides to close the set-top box docket--as some high-profile Republican legislators have requested -- it needs to resolve one part of that docket elsewhere.

Zoom points out that the FCC declined to deal with navigation device modem billing and marketing practices--as Zoom has asked it to do--in two other proceedings, noting that it was part of the set-top proceeding.

Zoom notes that the letter from House Energy & Commerce Committee Chairman Greg Walden (R-Ore.) is focused on the changes to the "technical requirements relating to the attachment of set-top boxes." The FCC under then Chairman Tom Wheeler proposed allowing those devices to access and disaggregate cable content and data.

"Should the Commission decide to close, or to defer action, on Docket 16-42, the cable modem billing and marketing issues will remain," it said in a letter to the commission. "Prompt resolution of them will contribute to maintaining what it currently a robust retail market for cable modems, and will remove uncertainty for consumers, cable operators and equipment manufacturers."

Following a similar initiative that’s underway in the U.S., a group of Canadian  MVPDs and some of their key suppliers have inked a voluntary agreement that aims to improve the energy efficiency of set-top boxes.

The Canadian Energy Efficiency Voluntary Agreement (CEEVA) aims to reduce total annual energy consumption and avoid more than 100,000 tonnes of CO2 annually, equivalent to more than 44,000 sub-compact new vehicles driving 15,000 kilometers per year.

On board with the voluntary program as signatories are Bell, Cogeco Communications, Rogers Communications, Shaw Communications, and Vidéotron, MVPDs that serve more than 88% of Canada’s pay TV market, along with two set-top makers – Arris and EchoStar Technologies.

Under the program, at least 90% of all new set-tops purchased starting this year are expected to meet the agreement’s energy efficiency standards, while also factoring in complementary measures such as the Energy Star program. That, they estimate, will reduce the total annual energy output of Canadian STBs from 3.4 terawatt hours in 2016 to 2.7 TWh in 2021.

They’ll keep track of the results via annual reporting and audit mechanisms.

Several other organizations and companies are also extending their support, including Natural Resources Canada, the Ontario Ministry of Energy, the BC Ministry of Energy and Mines, Quebec’s Ministère de l'Énergie et des Ressources naturelles, Manitoba’s Department of Growth, Enterprise and Trade, BC Hydro, Independent Electricity System Operator, Manitoba Hydro, SaskPower, and Hydro Québec, the Consumer Technology Association, CableLabs and CSA Group.

Several U.S. MVPDs forged a similar voluntary energy-saving agreement for set-tops in late 2012 and a cross-industry group announced the standards to be applied the following year. That was later followed by an agreement focused on routers, modems and other broadband equipment.

Virgin Media, the largest MSO in the U.K., has issued a teaser to area press that it will present a “first look at something unmissable” on November 30.

The Liberty Global-owned operator didn’t divulge much else, but the speculation is that it will be unveiling the Virgin TV V6, a 4K-capable set-top/gateway powered by TiVo that, like the current-gen TiVo-powered boxes from the MSO, will mix traditional TV with OTT apps from sources like Netflix.

RELATED: Virgin Media Unleashes TiVo Update 

Virgin Media teased the V6 (sources tell us that Arris, which acquired U.K.-based set-top maker Pace Plc in January, is making the hardware) on Twitter in August. So, it could be playing a bit fast and loose with this “first look” talk. We’ve already seen it… we just don’t know yet everything it can do:  

Sneak Preview: Say hello to our new Virgin TV V6 box, powered by TiVo. More to come soon. #VirginV6pic.twitter.com/SBvpkRjvEz

— VirginMediaCorporate (@VirginMediaCorp) August 11, 2016

The new device, which will likely support whole-home capabilities and help Virgin Media offer a response to Sky and its new  Sky Q video platform, is one of the early examples of a  new, more powerful “EOS” platform from parent company Liberty Global that will become the MSO’s video workhorse.

With its integration of U.K.-based set-top maker Pace plc largely behind it, Arris posted Q3 sales of $1.735 billion, near consensus of $1.739 billion, but just slightly below a Raymond James estimate of $1.759 billion.

RELATED: Arris Wraps Pace Acquisition

Earnings of 77 cents per share hit the high end of guidance (72 cents to 77 cents) and beat the 76 cents per share from Raymond James, which maintained its “Strong Buy” on the stock.

Arris said three customers represented 10% or more of revenues in Q3, with that trio responsible for 52% of overall sales. International sales were $482 million, or 28% of total revenue.

“Although there are moving parts, we believe the story remains a good one and the stock offers upside from overblown worries around regulatory changes and cord cutting,” Raymond James analyst Simon Leopold said in a research note issued Thursday.

Arris said it expects Q4 revenues of $1.675 billion to $1.725 billion (excluding any impact of warrants agreements with Comcast and Charter Communications), and earnings of 68 cents to 72 cents.

Speaking on Wednesday’s earnings call, Bruce McClelland, Arris’s new CEO, said he is confident that the company is “on track” to hit full year revenue guidance of $6.6 billion to $6.8 billion, and sees non GAAP earnings per share to be “comfortably above” the $2.60 the company estimated earlier this year.

Despite that outlook, Arris shares were down $2.12 (7.18%) to $27.41 each in late morning trading Thursday.

A bright spot in the quarter was sales of set-tops and other consumer premises equipment (CPE), which were up 5% versus the prior quarter and up 52% year-over-year (thanks to the addition of Pace).  On the broadband end, Arris sales of DSL modems and gateways rose, while there was a small decrease in DOCSIS volumes.

“We began shipping DOCSIS 3.1 data modems to multiple customers to support trial activities, as well as early deployments,” Larry Robinson, president of Arris’s CPE division, said. “There is a growing focus and enthusiasm across the industry regarding DOCSIS 3.1, and we expect the portfolio to migrate in this direction as we go through 2017 and into 2018.”

With respect to D3.1 CPE, “We think there is a broader transition or migration that's going to happen…starting maybe in earnest in 2017, but certainly well into 2018 as well,” Robinson said.

RELATED: Arris Expands DOCSIS 3.1 Gigabit Gateway Family

On the other end, sales in Arris’s Network and Cloud unit dropped 11% year-on-year as the company transitioned to second-gen linecards for the E6000, the company’s flagship converged cable access platform (CCAP), McClelland said. But that drop was offset by a record quarter for Arris’s access technologies business, he said.

McClelland also noted that Arris is in the process of closing call centers it inherited from the Pace deal, and that the sale of its Moxi Whole Home Solution to Espial will result in about $50 million in lower sales annually, “but with minimal impact on operating income.”

RELATED: Espial Swings Deal for Arris’s Whole Home Solution

Looking ahead, McClelland noted that the shift toward distributed access architectures remains a hot topic in the cable industry. Arris demonstrated those capabilities at the recent SCTE/ISBE Cable-Tec Expo in Philadelphia, and expects to start lab and field trials in the first half of 2017.

Arris ended Q3 with $1.11 billion of cash resources, up from $903 million at the end of Q2. 

Rovi has introduced i-Guide HD R32, a high-definition version of its set-top guide with a refreshed user interface.

Rovi said Click! Network, a competitive cable provider run by Tacoma Power in Washington, is the first operator to deploy the new version of i-Guide.

In addition to the HD spruce up, the new guide also adds features such as “HD Auto-Tune (automatically tunes from a channel’s standard-def feed to the HD version) and a refreshed TV listings grid.

Rovi, which is in the process of acquiring TiVo for $1.1 billion, said i-Guide HD R32 is available for MSOs with Arris set-top boxes in North America, and expects that operators with Pace boxes (Arris acquired Pace in January) will have access to it later this year.

“We are dedicated to serving our customers, especially as they develop next-generation guides and introduce advanced entertainment services,” Michael Hawkey, senior vice president and general manager of the discovery business group at Rovi, said in a statement. “i-Guide demonstrates our ongoing commitment to our customers in the face of rapid technology developments and subscriber demands. Our customers are gaining a competitive edge by providing new and user-friendly experiences for entertainment discovery.”

Espial, a Canada-based company that specializes in multiscreen video interfaces and software clients, is deepening its IP video expertise and adding hosted cloud video capabilities via a deal to acquire Arris’s Whole Home Solution (WHS), a multi-room video and apps platform that supports traditional TV services as well as over-the-top content.

Financial terms were not announced, but the deal includes WHS’s infrastructure, client and server software products, a development and operations team primarily located in Kirkland, Wash., and a network operations center and two WHS cloud data center operations.

Update: During a conference call about the deal, Espial execs emphasized that it will enable it to push a strategy centered on a video-as-a-service platform rather than on hardware and set-top boxes. Notably, Arris will continue to provide media gateways, set-top boxes, support and solution deliver for the Whole Home Solution. 

Arris’s WHS was spawned by its $20 million acquisition of the Digeo set-top and software business from Paul Allen in 2009, and later extended a bridge to third party apps through what it called the “Arris Market.”  Examples of MSOs that have deployed Arris’s WHS include Shaw Communications, WideOpenWest, Buckeye CableSystem, EastLink, Comporium, Consolidated Communications and Service Electric Cable TV.

Espial said it will support current roadmaps, and look to accelerate future product roadmaps, for more than 40 service providers that use WHS in the U.S., Canada and Latin America.

They expect to close the deal in Q3 2016. After which, Arris said it will continue to work with Espial to support WHS with join integration and co-marketing activities. They also intend to establish a reseller agreement, noting that they worked together on the development of a 4K-capable platform launched this month by Portugal-based cable operator NOS that relies on the Reference Design Kit (RDK), a preintegrated software stack being managed by Comcast, Liberty Global and Charter Communications (via Charter's acquisition of Time Warner Cable).

Arris’s sale of the WHS product line and associated assets comes more than six months after it acquired U.K.-based set-top maker Pace plc. Arris acquired Motorola Home in April 2013.

“WHS expands our solution portfolio with a cloud-hosted Video-as-a-Service platform that is complimentary to and will leverage Espial’s current solutions for next-generation IP video services,” Jaison Dolvane, Espial’s CEO, said in a statement.

“Combining the WHS technology and ARRIS team with Espial will broaden the capability of the overall organization and accelerate the pace of innovation,” added Bruce McClelland, president of Arris’s Network & Cloud and Global Services unit. “ARRIS will continue to focus our R&D investment on the greater broadband and video ecosystem, dedicated to enabling next-gen entertainment and communication experiences that are connected and personalized.

“We’re excited about the future of the WHS solution and look forward to working with Espial and ARRIS to enhance it further,” Cash Hagen, WOW’s CTO, said. 

Notably, WOW has begun to deploy a new hybrid QAM/IP platform in partnership with Evolution Digital and TiVo for a service called “SW!VEL” that includes the broadcast basic channels and integrated OTT apps. WOW is using that product to target a segment of the market that wants a slimmed down pay TV package, while continuing to market its full-freight HD-DVR offering with the Arris Whole Home Solution, which also supports integrated OTT apps.

TiVo’s days as a maker of hardware products for retail sale and for distribution through MVPD partners could be nearing the end.

"Being in the hardware business isn't something that necessarily excites us," Peter Halt, CFO of Rovi, which is acquiring TiVo for $1.1 billion (and adopting the TiVo brand), said Thursday at the Cowen and Company Annual Technology, Media and Telecom Conference, according to this transcript of the discussion (via ZatzNotFunny).

"There are several box providers out there who have direct-to-retail,” Halt said. “We'll be looking at the possibilities of working with them, having them control the box. And while that would be a partnership and we wouldn't get all the sales as a result, we think that's probably a better way to approach the consumer space."

That Rovi has little interest in being in the hardware business is not anything new. It quickly gave the Fan TV box the heave-ho soon after acquiring Fanhattan for $12 million and instead pursued a plan to integrate Fan TV navigation and discovery software into its other products.

Halt expanded on that decision, noting that Rovi figured it would have to remain “box-agnostic” so it could sell the software to other device makers.

Halt was also clear that Rovi would not be looking to exit the consumer space.

That echoes what was said soon after Rovi and TiVo announced the deal.

“We view this [retail] as a very important channel to be able to maintain focus on,” John Burke, EVP and COO of Rovi, said at the time.  Burke also stressed that TiVo’s experience in the direct-to-consumer side has also helped the company build better products for its MVPD partners.

And TiVo has already begun to distance itself from the business of making hardware as it pushed ahead with a restructuring that placed a bigger focus on MVPD partnerships and more efficient spending on the retail end.  It has also talked about putting resources into products “that go beyond the traditional DVR.” But that was also said before the Rovi deal was announced.

Plus, TiVo’s already been more than eager to port its platform to third-party hardware. Severalset-top makers, including Arris/Pace, Evolution Digital, Technicolor and Kaon, have signed on to use TiVo’s Hardware Porting Kit. It’s also working with box partners on “operator-optimized” products that support 4K and High Dynamic Range.

And TiVo’s reduced reliance on a hardware business has shown up in the numbers. In Q1, TiVo posted total revenues of $107.3 million, down from $114.7 in the year ago quarter, as hardware revenues fell to $7.5 million from $22.3 million.

SeaChange International has paid $8 million in cash to acquire DCC Labs, a Warsaw, Poland-based software developer and integrator for set-tops and multiscreen devices that, SeaChange said, will also strengthen its Reference Design Kit (RDK) product strategy.

SeaChange said it closed the deal on May 6 and expects DCC Labs to contribute “an additional several million dollars of revenue annually,” with an anticipated one-year payback through synergies and cost savings that SeaChange will begin to realize immediately. The transaction also includes a lock-up provision for the SeaChange stock that unwinds over a three-year period, the company said.

It said the deal will also help SeaChange to optimize the operations of its In Home business, which includes the SeaChange Nucleus home video gateway. DCC Labs has also developed a  software stack for Europe’s DVB (Digital Video Broadcasting) community and an HTML5 framework for user interfaces.

In conjunction with the acquisition, SeaChange said it has also started a workforce reduction within its In Home engineering and services organization that aims to achieve $8 million in annualized cost savings. DCC Labs CEO Marek Kielczewski, meanwhile, has joined SeaCahnge as SVP of consumer premises equipment software and will lead the SeaChange In Home division.

Shiva Patibanda, formerly CTO and GM of in-home products at SeaChange, left the company last year and recently joined Ericsson’s TV and media group.

SeaChange said DCC Labs has more than 70 engineers and has won projects supporting millions of set-tops, mobile devices and smart TVs, and has development expertise that includes Android and  Linux operating systems as well as the Reference Design Kit (RDK), the preintegrated software stack for set-tops and broadband devices that’s managed by Comcast, Time Warner Cable and Liberty Global.

SeaChange and DCC Labs have a business history, as SeaChange engaged with the Warsaw-based company last year to support a major set-top development project for a “large European cable operator” that resulted in deployment of a user interface and an RDK 2.1-based home video gateway for field trial tests within four months of the initial engagement. SeaChange said it also tapped DCC Labs to assist with improving quality and providing enhancements for another European cable operator’s deployed home video gateway.

“Through our successful collaboration in the field, SeaChange determined that DCC Labs’ experience and strengths are exceptionally well-aligned with our strategy to operate more efficiently and rapidly roll out high-value, front-end product innovations,” Ed Terino, the company’s recently named CEO, said in a statement. “SeaChange is now better positioned to serve the global RDK licensee community, as well as fulfilling service providers’ growing desire to focus on a select set of vendors to support their video infrastructure from the back-end all the way through to set-tops, mobile devices and the subscriber experience.”

Arris chairman and CEO Robert Stanzione declared that the supplier of video and broadband gear is off to a “good start” as revenues rose 33% in the first quarter, but paired that optimism with concerns about possible pauses on the horizon in the second half of the year amid ongoing consolidation of some of its largest customers.

In its first earnings call since closing its acquisition of U.K.-based set-top maker Pace plc in January, Arris pulled in Q1 revenues of $1.61 billion, up $399.5 million, or 33%, versus the year-ago period. Aided by the addition of Pace, revenues were also up 47% versus the previous quarter. In Q1, Arris has three customers that represented 10% of more of revenue – together, those customers brought in $840 million, or 52% of total sales. Q1 sales beat Wall Street's expectation of $1.58 billion.

“We're off to a good start in 2016 and I can say that we're increasingly confident that we'll meet the 2016 financial goals that we outlined in our,” Stanzione said, referring to full-year guidance of between $6.6 billion to $6.8 billion in sales, and non-GAAP earnings per share of $2.45 to $2.60.

Arris expects second quarter sales of between $1.67 billion to $1.72 billion, and GAAP earnings of $0.09 to $0.14.

As for caution about the second half of the year, consolidation activities, such as  Charter Communications’ pending deal for Time Warner Cable and Bright House Networks, “give me some degree of concern that there might be a pause,” Stanzione said. “I don't think there's any reduction in the end demand for our products, but there could be some shifts.”

However, telco spending, a recent trouble spot for Arris, is starting to recover, Stanzione said, noting that Frontier  Communications is expected to be aggressive with upgrades following its acquisition of some of Verizon’s wireline properties in California, Texas and Florida. He also expects to see “more uplift” as the year goes along from AT&T/DirecTV now that they are starting to ramp up new programs.

Among individual product areas, Arris’s flagship cable access platform, the E6000, hit record revenues as well as total downstream and upstream channels shipped and downstream software licenses, according to Bruce McClelland, president of Arris’s Network & Cloud and Global Services unit.

Arris, which is already involved in most of Comcast’s initial DOCSIS 3.1 deployments, also inked a commercial agreement with a tier 1 international operator to deploy the vendor’s D3.1 products later this year, but didn’t identify the MSO.

McClelland said Arris in Q1 made its software release for D3.1 generally available. Arris is also working on second-gen line cards for the E6000 that will supportdirect fiber, passive optical network interfaces, and support for the new distributed access architectures. “The first of these new cards will begin field trials in the third quarter,” he said.

Stanzione was also asked to weigh in again on the FCC’s proposed set-top rules, which could impact Arris, the world’s largest supplier of set-tops.

“In the worst case, if it were to be enacted exactly the way the FCC is proposing, that would open up a retail market, one which we're pretty excited about anyway,” Stanzione said, pointing to a new retail home networking products launched by Arris last month that uses a combo of WiFi and G.hn-based powerline technologies.  “We're building up our retail channel and I think even if it goes in a direction that we don't like, we would still be okay and I think the effect is couple years away.”

Update: Raymond James analyst Simon Leopold maintained his "Strong Buy" rating and a $33 price target on Arris following Q1 results. Arris shares were up 96 cents (4.15%) to $24.09 each in mid-day trading Thursday. 

Rep. Marsha Blackburn (R-Tenn.) says that she does not take issue with the fact that the FCC has chosen to tackle some tough issues--those include privacy, and broadband regulation, and set-tops--but that it has "embraced controversial solutions" seemingly at every turn, including potentially allowing theft by third-party navigation device and radical federal overreach via municipal broadband state law preemption.

Blackburn raised those issues at an FCC oversight hearing Tuesday (March 22), then drilled down on them in a keynote speech at a Free State Foundation policy conference in Washington Wednesday (March 23).

Blackburn is no fan of FCC Chairman Tom Wheelers proposed new framework for regulating broadband customer privacy, authority the FCC gave itself when it reclassified ISPs as Title II telecom services, a move Blackburn also did not like.

The Federal Trade Commission had historically overseen broadband privacy, but only through its ability to pursue companies for violating their own stated policies or otherwise deceptive or unfair conduct. The FCC has more muscular rulemaking authority, and Wheeler sees a need to use it. Among other things, he has proposed requiring broadband customers to opt in to third party marketing uses for their data unless it is being used to market IPS or affiliate services, say seeking to add voice to a video customers' service.

Blackburn points out that the regime only applies to ISPs, calling that one-sided and focusing on the "one part of the Internet ecosystem that doesn't have broad visibility into consumers' online information."

Wheeler has made it clear that the new rules would not apply to edge providers like Web sites and search engines, saying they remain covered by the FTC.

Blackburn referenced a study by Peter Swire, a former Clinton Administration official, that "clearly showed that ISPs – the target of Chairman Wheeler’s new privacy rules – do not have the level of visibility into consumers’ online activities that most edge providers have," a point Swire outlined to Multichannel News/B&C earlier this month.

Blackburn is also no fan of the FCC's preemption of Tennessee state laws limiting municipal broadband buildouts.

She says the logic behind the FCC's preemption is "fundamentally flawed."

"Private companies can’t be expected to compete with taxpayer backed entities," she says. Cable operators who have pushed back on those municipal buildouts agree, arguing that they can be a way to cross-subsidize overbuilds, sometimes with taxpayers left holding the bag for efforts that don't pan out.

Blackburn says that Wheeler's decision to preempt laws in her state and North Carolina "is so radical, so overreaching – that even the Department of Justice could not file a brief in support of the FCC’s position – an almost unprecedented move." She made the same point in her opening statement at the oversight hearing.

Blackburn is also concerned about the FCC's proposal to open up MVPD programming data to third parties, which she branded "AllVid" at the hearing, a reference to the 2010 universal set-top proposal that Wheeler says is not analogous to his current effort. 

"I'm concerned by ideas being pushed by some that would let third parties use content for their own services in ways that violate the licensing terms and without consent of the content creator," she told the Free State audience. "In a TV marketplace that is producing more video content that ever before, why would the government support that kind of intervention and theft?"

Wheeler has said before, and did so again at the hearing this week, that copyrights will be protected, that if they are not MVPDs will have the option of not giving those third parties access to their programming data, and that his proposal was meant to generate this kind of feedback, which the commission will take into account before voting on a final order.

Wheeler has also made the point that competitive navigation devices already in the market have not resulted in copyright violations or license term violations.

Set-top and video software specialist Alticast has hired Nara Won to the post of vice president, business development and strategy for the company’s operations in the Americas region.

Won  most recently was VP of business development for Humax Americas, responsible for the company’s cable industry business activities, including the rollout of set-tops, gateways, media hub and Internet of Things products.  He’s also late of Texas Instruments, and earned Bachelor’s and Master’s degrees in Computer Science from the Korea Advanced Institute of Science and Technology (KAIST).

“Nara Won will play an integral role in addressing our work with operators in the North American and LATAM markets,” said John Carlucci, president and CTO of Alticast US.  “His strong engineering background, his proven ability to understand industry trends, and his focus on addressing customer needs all will help us capitalize on next-generation video opportunities.”

Alticast’s Americas unit also promoted  Jae Park to vice president, business development, and Mike Fallon to vice president, technical service.

The sledding for Arris was a bit tough in Q4 as sales declined due in part to weak telco TV subscriber gains and slower sales of set-tops and other consumer premises equipment (CPE) to its wider range of service provider customers, including cable operators.

Arris also announced softer-than-expected Q1 2016 guidance, which caused shares to drop more than 10% in after-hours trading Wednesday.

Arris, which wrapped its acquisition of Pace plc on January 4, posted Q4 2015 sales of $1.1 billion, down 12.8% year-over-year, hitting the lower end of its guidance.  Arris earned 62 cents per share, down from 78 cents per share a year earlier.

International sales represented 32.4% of total sales. Comcast and Time Warner Cable were Arris’s 10% or greater customers in the period, representing $379 million, or 34% of total sales.

“Sales to U.S. telcos continued down due to the very weak video subscriber additions and AT&T's move away from U-verse video delivery,” Arris chairman and CEO Bob Stanzione said on Wednesday’s earnings call.

As AT&T shifts from U-verse TV deliver and toward DirecTV-based video delivery, “our sales of U-verse video equipment have bottomed out,” Stanzione said later.

And though the ramp up to a new video business has gone slower than AT&T expected, “We predict success there, and we think that business will pick up as the year goes on," he said. 

Stanzione also expects Frontier Communications to increase investment in the FiOS footprint it’s buying from Verizon Communications.

On the cable side, “things look fairly good,” Stanzione said, noting that MSOs announced solid revenue forecasts and capital expenditures for 2016.

Among individual product areas, CPE sales dropped 20% year-over-year, though interest in higher-capacity DOCSIS modems and gateways remains strong. Set-tops and other video CPE unit volumes dropped 13% on both a sequential and year-over-year basis.

A bright spot was Arris’s Network and Cloud business, which posted its strongest quarter of the year, led by record shipments of its flagship converged cable access platform (CCAP), the E6000, as investments by MSOs shifted from CPE to the network. Arris set new records for shipments in chassis, downstream channels and software licenses in the CCAP/CMTS category.

Arris said DOCSIS 3.1 field trials got underway in Q4, noting that Comcast expects to start commercial deployments in some markets in the first half of this year.

DOCSIS 3.1, cable’s new multi-gigabit platform for HFC  networks, is a “major priority for the majority of our customers in 2016 and beyond,” Bruce McClelland, president of Network and Cloud at Arris, said.

As for the Pace integration, Arris is now addressing overlaps of product roadmaps and corporate functions, with the goal of having opex reductions “substantially completed” by the first half of 2016, Stanzione said, adding that the supply chain team is working on cost-of-sales synergies.

He also acknowledged that there could be some “revenue dissynergies” in the Pace merger, but didn’t have any specific visibility on that to report.  “We remain enthusiastic about the benefits of the combination and are committed to getting this integration done quickly." 

Arris was also asked about the FCC’s set-top plan and how it might respond if there’s a greater shift toward retail distribution of set-tops and other video devices.

Though Arris sees little consumer benefit to new tech-focused mandates from the government, it believes it already has a strong retail business for cable modems that it could apply to the set-top side.

Arris used to sell “Moxi” boxes at retail (Arris acquired Digeo in 2009). Arris is already looking to expand its retail portfolio to include WiFi routers and other devices that are “adjacent” to its broadband products, Larry Robinson, president of Arris’s CPE unit, said.  Expanding that retail portfolio even further would be a “very easy step,” he added.

Arris said it expects Q1 2016 revenues in the range of $1.56 billion to $1.61 billion, and earnings non-GAAP earnings of 37 cents to 42 cents per share (not counting purchase accounting and restructuring). Those were both below consensus of $1.68 billion and 58 cents.

Arris shares were down 10.93% ($2.65) to $21.59 each in after-hours trading Wednesday.

Get complete coverage of the FCC's set-top proposal.

WASHINGTON — National Cable & Telecommunications Association president and CEO Michael Powell joined with TV One president Alfred Liggins to tell reporters just what was wrong with Federal Communications Commission chairman Tom Wheeler's proposal to "unlock" set-top box programming and data for access by third parties.

Liggins is co-chair, and NCTA a member, of the Future of Television coalition, which was launched to push back on the proposal.

In a lengthy conference call with reporters. Powell said the proposal was, at its base, government assistance to one set of big tech interests to get access to the intellectual property of others and monetize it without the obligation to negotiate terms, share in data collection or generate revenue from the content created by others.

"I think it very easy to abstractly describe how somehow going to provide an enormous among of either innovative access to consumers or dramatically decrease costs," he said. "We believe that that customer promise is pretty illusory and certainly not on solid ground."

Powell said that stories citing rising cable set-top costs -- often citing "selective or misdirected data," he said -- fail to take into account the cost of using that "other" cable box, compared with leasing equipment. He said to check out the cost of a TiVo box (TiVo backs the set-top proposal), which he said includes $299 for a first box, $150 for a second or third box, a $14.95 subscription for the life of the box. He said that means it is not a big cost improvement over a leased box, and may even cost more. 

Wheeler has said copyrights will continue to be protected, but Powell said the cable operators' and studios' recourse should not have to be to the courts.

Powell said the FCC's proposal will take six to seven years to come to fruition, by which time the world could a look a lot different. He also said it was focused on boxes, and could create the need for one or even two boxes to accommodate the disaggregation of cable content and info, as well as network reingineering costs that will be passed on to all consumers to accommodate the subset that opts for a third party device.

While backers of the FCC proposal say it will benefit diverse programmers by providing an additional platform, Liggins said that making content available to a Google device would allow that company to monetize content without compensation, threatening the business models of diverse nets including Revolt and El Rey, and Aspire and TV One.

On the issue of privacy, Multichannel News reported this week that the FCC is considering requiring third parties to self-certify that they will comply with privacy protections as a quid pro quo for getting access to cable set-top content.

Powell said that is of questionable legality and raised the issue of enforcement, citing Federal Trade Commission actions against Google and others over privacy promises apparently not kept.

Asked what the biggest threat to the cable business model the FCC proposal represented, Powell said that, for the operators, it is the cost in time and money to build, produce, and distribute boxes when the industry is moving away from them, and for the programmers, it will devalue their existing product.

He also pointed to the collection of Big Data that is the gold of digital commerce, which would be turned over toe Google and others, who would not be required to share in the economics of that data.

He said there is another issue, which is measuring viewership and the potential for Nielsen not be able to capture, and credit, viewing on the new devices. He called that a "thorny" problem.

WASHINGTON — The Federal Communications Commission's planned Twitter town hall on the upcoming set-top box proposal, featuring Gigi Sohn, counselor to FCC chairman Tom Wheeler, was abruptly cancelled five minutes before its 3 p.m. start time Tuesday (Feb. 16).

Turns out there were issues with the sunshine rules, which prevent discussion of items up for vote in a public meeting for seven days prior. The FCC is voting Feb. 18 on the set-top proposal.

"Due to FCC Sunshine Rule implications, we regret that we must postpone today’s Twitter Town Hall with Gigi Sohn and Alex Nogales," an FCC spokesperson said. "We will reschedule for a later date..."

Sohn was to have been joined by National Hispanic Media Coalition President Alex Nogales to talk about, among other things, the purported benefits to diverse programming of the proposal.

The hashtag associated with the town hall, #unlockthebox, featured a series of tweets by Wheeler in advance of the cancelled event (the hashtag was created at the time the proposal was announced), so at least he got to weigh in.

Wheeler's web stream of set-top consciousness, all retweeted by Sohn, went as follows:

"Big week as the Commission votes on my proposal to create more competition in the set-top box and app market.

"Today, there is limited competition in set-top boxes. When competition exists, prices go down and innovation goes up.

"Congress mandated that consumers should have options. But for 20 yrs since that mandate, they haven’t. I want to fix that.

"We want to obey the law that says consumers must have choices to access programming & create opportunity for competition.

"What happens after that? That’s for the market and good old, all-American competition to decide."

For those still keeping score, the nine largest U.S. incumbent cable operators have deployed 55 million operator-supplied set-tops with CableCARD modules, compared to just 589,000 CableCARDs for deployment in retail products such as TiVo boxes, according to a National Cable & Telecommunications Association report filed with the FCC late last week.

For operator-supplied set-tops with CableCARDs, it’s a small increase from the 54 million reported by the NCTA in November 2015, and, for retail devices with CableCARD slots, a decrease from 618,000.

The NCTA has been issuing these reports since the FCC’s ban on integrated security set-tops took effect in July 2007. That ban ended on Dec. 4, 2015, per a Congressional mandate tied to the passing of the STELAR Act, which became law on Dec. 4, 2014.

The cable industry has long held that the integration ban was costly and unnecessary, but is now faced with the possibility of new set-top rules that would apply not just to cable operators, but to telco TV and satellite TV providers as well.

FCC Chairman Tom Wheeler proposed those new rules last week, claiming they will drive “choice and competition” in the set-top market. The FCC is expected to vote on the proposal at its February 18 public meeting. The proposal will need to garner three votes to pass.

Please go here for a roundup of stories about the proposal and the reactions to it.

Click here for more FCC set-top box news.

In Comcast’s turn to blast the FCC’s proposal to create new rules aimed at spurring a retail market for set-top boxes, the MSO said that, if enacted, such rules threaten to “stifle TV innovation.”

The proposal, led by FCC chairman Tom Wheeler, “would require satellite and cable TV providers to disaggregate or separate their services so that a few companies could repackage them as their own without negotiation for content rights like everybody else in the market does today,” Mark Hess Comcast’s SVP, office of the CTO, wrote Thursday in this blog post.

Hess had a front seat on FCC-appointed technical advisory committee formed a year ago to pursue potential downloadable successors to the CableCARD, and came up with multiple paths – an apps-based model favored by the cable industry, and another AllVid-style approach that discusses the idea of a "virtual headend." 

Earlier today, Wheeler said assertions that the proposal is akin to an earlier proposed AllVid regime are incorrect, and that it would not create the need for a second box and did not affect MVPD programming deals or how operators tier, bundle or price video services.

Hess argued that Wheeler’s “proposal, like prior federal government technology mandates, would impose costs on consumers, adversely impact the creation of high-quality content, and chill innovation.  It also flies in the face of the rapid changes that are occurring in the marketplace and benefitting consumers.”

Hess also echoed the arguments already laid out by the cable industry, holding that the market for competitive video devices is proliferating without government meddling, citing the rise of OTT services from Netflix and Amazon, multichannel alternatives such as Sony’s PlayStation Vue and Dish Network’s Sling TV.

As proof of the impact of the current state of competition, Hess pointed to X1, Comcast’s next-gen, IP-capable video platform, noting that it supports apps for retail mobile devices.

“Given these exciting, pro-consumer marketplace developments, it is perplexing that the FCC is now considering a proposal that would impose new government technology mandates on satellite and cable TV providers with the purported goal of promoting device options for consumers,” he wrote.

Hess also argued that the FCC’s track record on tech mandates is “has been less than stellar,” citing examples such as the CableCARD, which failed to create a vibrant retail market for set-tops and cable-ready TVs, and a mandate for 1394 outputs in set-tops “even after it was clear that other outputs had won out in the marketplace.” The FCC scuttled 1394 "FireWire" interface requirements in cable HD set-tops in 2010, as long as the boxes provided alternative access to content over IP home networks.

Arris and Pace wrapped up their $2.1 billion merger yesterday. The deal encountered some bumps during the vetting process, but now comes the hard (or harder) part – integrating the two companies and achieving the merger’s anticipated financial synergies.

However, Bob Stanzione, Arris’s chairman and CEO, believes that integration will be easier to achieve than the one Arris went through after it acquired Motorola Home in April 2014 for $2.35 billion.

“I think we’ll be able to move faster on this one than we did with Motorola Home,” Stanzione said in an interview. In the case of Motorola Home, Arris was not assuming the IT or the financial infrastructure, and had to build it all from scratch. Plus, there were some complicated transition service agreements in the Motorola deal that are not needed with the Pace merger.

Stanzione isn’t predicting when the Pace integration will be completed, but he does expect the “big milestones” to occur in the first half of 2016.

One area of early focus will be the combination of the sales teams. That’s already happening under the establishment of the company’s new executive team, with former Pace exec Tim O’Loughlin now in charge of North American sales, and Ron Coppock now running a new dedicated international sales organization.

“The first thing we’ll do…is combine the sales organizations,” Stanzione said. “We don't want there to be any confusion in front of the customers; we'll move most quickly on that." 

The longer-term focus will include backoffice integrations and the merging of product roadmaps where there are overlaps. Comcast, for example, sources X1 boxes from both Arris and Pace. Arris and Pace have also been supplying similar set-top products to AT&T.

“We will combine [set-top product lines,” Stanzione said. “But it will take time because we have to collaborate with customers…If they want us to manufacture two products for the next year, we'll manufacture two products for the next year." 

Those conversations just recently got underway due to gun-jumping restrictions that were preventing them before the deal was consummated.

Stanzione also acknowledged that overlaps in other areas will also force Arris to make some moves with respect to its employee base, which is now at about 8,000.

 “We have nothing to announce at this point,” Stanzione said in regard to that, but said Arris will update the market on those activities in February during its normal quarterly earnings call while also keeping employees up to speed.

“There are some overlaps and we're going to work through them as quickly as we can and keep everyone in the loop as to what our thinking is,” he said.

Though the mergers with Motorola Home and Pace aren’t apples-to-apples comparisons, Arris reduced its workforce by about 500 employees about two months after closing the Motorola Home deal.

As for the grander strategy behind the deal, Stanzione still believe it “gives us an incredible boost in scale” and the opportunity to grow internationally, particularly in markets like Australia, where Arris and Pace were working with different customers and can now combine those efforts.

“We’ll want to see both [the U.S. and international markets] grow,” he said. “But I think the opportunities for us to grow internationally are greater." 

And even though Arris has its hands full integrating Pace, don’t count out more M&A moves.

“We want to be prepared for that, we need to be prepared for that,” Stanzione said, noting that Arris closed the Pace deal with a strong balance sheet intact. “Any company that kinds of gets itself painted into a corner in this world and this environment that is fast moving will regret it." 

Arris took to the company blog Tuesday to announce the exec team that will lead the company following the completion of its $2.1 billion merger with U.K.-based Pace plc.

Arris confirmed that Bob Stanzione will continue as chairman and CEO of the combined company, along with executive vice president and CFO Dave Potts.

Larry Margolis has been tapped to lead the integeration of Arris and Pace as EVP of corporate and strategy and administration. Larry Robinson and Bruce McClelland, meanwhile, will remain as presidents of their respective business units (McClelland runs the company's networking and cloud unit, and Robinson heads up customer premises equipment). 

Here’s a rundown of other execs and their roles at the newly merged tech giant:

-Ron Coppock will head up a new, dedicated international sales organization and continue to lead marketing, as president of International Sales and Global Marketing.

-Tim O’Loughlin, an exec late of Pace, has been named president, North American sales.

-Jim Brennan will continue as SVP of Supply Chain and Quality; Patrick Macken as SVP, General Counsel and Secretary; and Vicki Brewster as SVP of Human Resources.

-Former Pace exec Phil Baldockwill serve as Arris’s new SVP, chief information officer.

Arris said it expects “many members of the Pace senior management team to take on leadership positions” at the new company, calling it a “testament to Pace CEO Mike Pulli’s work in creating one of the industry’s leading talent organizations and one that matches ARRIS’s culture of success.”

Arris confirmed that Pull is leaving to pursue other opportunities.

“The people of ARRIS represent the future of our company,” Stanzione said in a statement. “Today, we have the industry’s leading talent under one roof. And in the coming months, we’ll begin to leverage the full potential of our combined expertise—broadening our global footprint, tapping into new markets, catalyzing innovation, and transforming entertainment and communications for millions of people around the world.”

Following the closure of the deal, Raymond James analyst Simon Leopold maintained his “Strong Buy” rating on Arris and a $38 price target (Arris shares closed at $30.40 Monday), noting that the company assumed an additional $700 million in debt via the transaction, and issued an additional 48.2 million shares.

“Even with the lower growth outlook provided by Pace, and conservative assumptions for Pace's top-line growth in 2016, our updated model continues to reflect material accretion, and we envision combined EPS reaching $3.13 in 2016, up from $2.45 previously for stand-alone ARRIS,” Leopold wrote in research note issued Tuesday. “We also model a combined adjusted 2016 EBITDA of $1.04 billion, up from $675 million previously for stand-alone ARRIS.”

Citing data from Infonetics, Leopold noted that Arris will lead the worldwide set-top market with a 27% share, and that STBs will now make up about 60% of the combined company’s total sales. 

Arris said Tuesday that the U.S. Department of Justice has closed its investigation into the vendor’s proposed $2.1 billion acquisition of U.K.-based set-top and access network supplier Pace plc. “without condition,” under the Hart-Scott Rodino Antitrust Improvement Act of 1976.

In June, Arris and Pace said they had each received requests for additional info from the DoJ in connection with the proposed deal. There were concerns that the DoJ could pin conditions on the deal that would call on Arris to divest part of the optical transmission business of the combined company.

Arris and Pace shareholders have already approved the deal, which was announced April and has also been cleared by regulators in Colombia, Germany, Portugal and South Africa. The transaction remains subject to approval in Brazil and other “customary closing conditions,” Arris noted.

Arris has been steadfast in its expectation that it will close the Pace deal in late December or the first quarter of 2016.

Once completed, the deal will result in the formation of  “New Arris,”  a holding company that will be incorporated in the U.K., and have its operational and worldwide headquarters based in Suwanee, Ga. Arris shareholders are to hold about 76% of New Arris, compared to 24% of Pace shareholders.

Arris shares were down more than 10% in after-hours trading Wednesday after the tech giant said Q3 revenues dropped 13.1% due in part to sluggish set-top and gateway sales to Verizon Communications and AT&T, which just combined with  DirecTV.

Arris chairman and CEO Bob Stanzione cited “shifting” strategies at those telcos. AT&T, for example, saw a decline in U-verse TV subs in Q3 as it applied more focus on selling DirecTV service.

That shift in focus “hurt our business pretty dramatically,” Stanzione said.

Arris, which is also dealing with declines outside the U.S., posted Q3 revenues of $1.22 billion, off from the $1.24 billion expected by analysts, and posted earnings of 56 cents per share, down from 81 cents in the prior year- period. Looking ahead, Arris anticipates revenues to decline to $1.1 billion to $1.15 billion, alongside adjusted net income per diluted share of 40 cents to 45 cents, citing lower expected U.S. revenue, near-term M&A uncertainty and international growth tempered by the strong U.S. dollar.

Driven by the aforementioned telco issues, CPE segment sales dropped 14% versus the year-ago quarter, despite improved cable CPE sales and a record sales of broadband gateways and modems via retail channels.

Arris also talked up its role in supplying an advanced DOCSIS gateway to Comcast – the DOCSIS 3.0-powred XB3 will bond up to 24 downstream channels and integrate MoCA 2.0 and 802.11ac WiFi.

On the video CPE end, unit volumes dropped 11% year-on-year. A bright spot was the launch of a next-gen video gateway (the DCX3635) for Canada’s Shaw Communications that supports both Arris’s own Moxi platform and Comcast’s X1 platform. Shaw is trialing X1 after ditching its original IPTV migration strategy. 

On its fiscal Q4 call earlier this month, Shaw CEO Bradley Shaw said the MSO had launched the whole-home DVR platform with the Moxi UI, noting that it’s “forward compatible with the X1 service.” He said Shaw’s anticipates that the commercial launch of X1, which will be powered directly by Comcast infrastructure, will occur during Shaw’s 2016 fiscal year.

On the network side of the business, Arris saw sales of its flagship E6000  CCAP drop from the first half of the year (Shaw is a new customer for it), but remains on track for Q4 customer field trials of DOCSIS 3.1, according to Bruce McClelland, president of the company’s’ network and cloud unit. Arris also expects formal CableLabs D3.1 testing to start during the current quarter.

Regarding Arris’s pending $2.1 billion acquisition of U.K.-based Pace, Stanzione said he’s still enthusiastic about the benefits of the merger, and remains committed to getting the deal done. Amid additional requests from the U.S. Department of Justice and other regulatory entities, Arris now believes it will wrap up the merger by late December or the first quarter of 2016. Arris has also indicated that regulators might apply a condition to the deal that Arris divest part of its optical transmission business.

Arris and Pace shareholders have approved the deal.

Technicolor  said it has appointed Luis Martinez Amago as president of its Connected Home division for the North American market.

That division, which support cable, telecom, satellite and OTT operators in the region, will also include  the set-top and CPE division of Cisco Systems that Technicolor is in the process of acquiring for $600 million. That deal is expected to close by the end of 2015.

Martinez Amago joins Technicolor after 27 years with Alcatel-Lucent, where he served in roles including CEO of the Alcatel-Lucent Shanghai Bell joint venture, and president of its Europe, CIS, Middle East and Africa regions. As president of the Alcatel-Lucent’s Fixed Broadband Access Networks Business Division, which included IPTV and consumer premises equipment, he was responsible for major deals with US customers such as AT&T and Verizon, Technicolor said.

“Luis Martinez Amago is a highly skilled international executive with an impressive track record in key roles from Sales to General Management, in different technological areas and in several challenging markets,”  Frederic Rose, CEO of Technicolor, said in a statement. “Luis will be tasked with growing our Connected Home market position in NA and his decades of valuable experience in CPE and network will serve him well in his exciting new role.”

Martinez Amago holds a technical degree in telecommunications engineering from the University La Salle, Barcelona.

The proposed $2.1 billion merger of Arris and Pace plc took another step forward following unconditional clearance from the Portuguese Competition Authority, Arris announced Tuesday. 

That follows earlier pre-conditional clearance in Germany and South Africa. Arris said it has obtained clearance in response to three of its six antitrust-related filings in connection with the proposed combination.

Of recent note, Arris and Pace each received requests for additional info from the U.S. Department of Justice in connection to the deal, which aims to create a larger scale provider of set-tops and gateways, broadband access network gear and software products.

Pace and Arris hope to close the deal by year-end.

Upcoming milestones include an Arris vote on October 21 and a Pace vote on October 22, Raymond James analyst Simon Leopold said in a recent research note.

Earlier this month, Leopold maintained his “Strong Buy” rating on shares of Arris even as Pace provided 2015 revenue guidance of $2.55 billion, down from an earlier forecast of $2.65 billion to $2.72 billion due to spending delays driven in part by cable operator consolidation.

“Despite the lower sales forecast from Pace, we believe the acquisition still holds significant upside, highlighted by ARRIS' recent update that raised the guidance for EPS accretion to $0.65-0.75, an increase of $0.20 from its initial forecast ,” he wrote. 

Sens. Ed Markey (D-Mass.) and Richard Blumenthal (D-Conn.) say information they collected from the top 10 pay TV providers indicates a continuing lack of choice and competition in the Pay TV video set-top box market.

That comes as the FCC works on a downloadable set-top security successor to the CableCARD after its integration ban was legislated away in the STELAR satellite reauthorization legislation.

Markey and Blumenthal decried that lack of competition (the ban was scrapped in part because it had failed to prompt a robust competitive box market) and said their info showed that households were spending north of $231 per year on set-top rental fees.

The senators asked for the info last November.

“Consumers should have the same range of choices for their video set-top boxes as they have for their mobile phones,” said Markey, who had opposed shelving the integration ban, in a joint statement outlining some of the findings. "When Congress last year regrettably removed the requirement that cable company services be compatible with set-top boxes purchased in the marketplace rather than rented directly from the provider, we doomed consumers to being captive to cable company rental fees forever."

“Consumers deserve protection against hidden, hideously vexing fees for set-top boxes,” added Blumenthal.

Answering the survey were Comcast, DirecTV, Dish Network, Time Warner Cable, Charter Communications, AT&T U-Verse, Verizon FiOS Video, Cox Communications, Cablevision Systems and Bright House Networks.

The senators pointed out that that was a 10 out of 10 response rate, but added that Dish, DirecTV and Time Warner Cable declined to answer many questions on proprietary grounds while others answered those same questions.

Among the other findings:

"1)    "American MVPD subscribers spend, on average, $89.16 a year renting a single set-top box. The average set-top box rental fee for each company was used to calculate an overall set-top box rental cost average across companies: $7.43 a month, or $89.16 per year.

2)    "The average household spends $231.82 a year on set-top box rental fees. The responses to Senators’ letters indicate that the average number of set top boxes leased to a household is approximately 2.6. That number, multiplied by the average cost of a set-top box, totals $231.82.

3)    "The set-top box rental market may be worth more than $19.5 billion per year. According to publicly available information, there are approximately 221 million installed set-top boxes that are leased from MVPDs (including cable, satellite and telecom operators). Using this data, the average yearly fee for a single set-top box was multiplied by the total number of set-top boxes leased from MVPDs to determine that the industry generates $19.5 billion in revenue."

The National Cable & Telecommunications Association countered that the senators were misreprenting the issue and the STELAR Act.

“In today’s competitive video marketplace, American consumers have a growing number of choices of video providers and ways to access video content on multiple devices in and out of the home," said the NCTA in response. "Retail devices including TiVo, Roku and Apple TV have been purchased by tens of millions of consumers. Pay TV and content providers have embraced the mobile marketplace and offer robust apps that have been downloaded 52 million times on Apple and Android devices.   

"In 2014, an overwhelmingly bipartisan Congress wisely enacted legislation that sunset an unnecessary and expensive mandate that saddles consumers of cable leased set-top boxes with high costs and higher energy bills. And as even TiVo has acknowledged, elimination of the integration ban will not affect the market for retail devices and CableCARDs will continue to be available. It’s unfortunate Senators Markey and Blumenthal continue to misrepresent the text and impact of the STELAR Act.”

Arris revenues and earnings took an expected hit in the second quarter as the supplier announced results Wednesday a few weeks after lowering guidance for the period amid “headwinds” caused by ongoing industry consolidation and the strengthening U.S. dollar.

Arris posted non-GAAP  earnings of 53 cents per share, down 24.3% year-over-year, on revenues of $1.26 billion, down 11.8% -- all in-line with analyst expectations.

Arris said three customers represented 10% or more of revenues in Q2. That trio represented $561 million, or 45% of total sales, in Q2. 

On the CPE side, sales and direct operating profit dropped by 18% and 33%, respectively.

Telco-based video CPE unit volumes dropped 9% versus the year-ago quarter, and cable units dropped 17% from last year’s record levels. Arris noted that it successfully qualified the XG1v3 (for Comcast) and initiated volume shipments.

Broadband CPE volumes were also down 10%, though 80% of those shipped are now WiFi enabled. Arris has also entered field trials with devices based on G.fast, a standard that aims to bring gigabit capabilities to DSL networks.

On the network, shipments of Arris’s flagship CCAP chassis, the E6000, hit a new record as more than 750 units were shipped, and downstream shipments exceeded Q2 levels. Arris said Suddenlink Communications tapped the E6000 for its 1-Gig residential rollout, which is initially being powered by DOCSIS 3.0.

Arris said development and interop testing for DOCSIS 3.1, the emerging multi-gigabit platform for HFC networks are moving forward in anticipation of initial field trials slated for Q4 2015.

Arris still expects to close its proposed $2.1 billion merger with U.K.-based Pace plc in Q4, noting that it has applied for regulatory approval in six jurisdictions, and has received approval in Germany and South Africa. Arris received a second request from the U.S. Department of Justice on June 29.

Looking ahead, Arris expects Q3 revenues of $1,210 million to $1,260 million, with adjusted net income per diluted share in the range of $0.52 to $0.58 and GAAP net income per diluted share in the range of $0.17 to $0.23. That's down from analyst expectations of $0.64 per share on revenues of $1.30 billion.

"Sales, margins, and Non-GAAP earnings were all up quarter over quarter, although not as much as we originally thought,” Arris chairman and CEO Bob Stanzione said in a statement summing up the period. “These results, as expected, are down compared with the second quarter of last year when we were launching an unprecedented number of new products.  As we have highlighted, we are encountering headwinds which we expect to continue through 2015, in particular those related to industry consolidations and the strong US dollar.”

Comcast has begun to test the XG2, a new gateway for its cloud-based X1 platform that lacks a local DVR.

Comcast isn’t commenting on XG2, where it’s being tested, nor supplying any info on what specific features and capabilities that will grace it, but the device is referenced here in a customer forum that compares and contrasts devices for X1.  The section on the XG2, labeled as a “non-DVR” for X1, cites two suppliers – Samsung and Pace, the U.K.-based set-top maker that’s being acquired by Arris – and mentions that the model is “currently limited to select trial markets.”

Some customers are also posting that they have received emails from Comcast about receiving the XG2.

Speculation about the XG2 has been swirling for months as the mysterious model passed through the FCC, and a rendering of it from Cisco Systems (Technicolor is buying Cisco’s set-top unit) also appeared on the Web (see image above).

Though Comcast is keeping a lid on XG2, a person familiar with it said it’s a “headed” gateway, meaning it will have video rendering capabilities and connect directly to a TV (versus coming “headless” gateways that will route video to other set-top clients and devices on the home network). Previous FCC documents have also shown the XG2 to be a hybrid QAM/IP device equipped with a CableCARD, along with integrated WiFi, Bluetooth and ZigBee radios.

Though the XG2 doesn’t have a local DVR, an SD card that carries the “Xfinity Instant Replay” label will likely be used to buffer video so viewers can pause, rewind and fast-forward through recently-viewed TV programming. There’s also speculation that the XG2 would be a perfect candidate for Comcast’s new Cloud DVR service. The Comcast X1 feature comparison chart also points out that the XG2 will allow for the pausing and rewinding of live TV (up to 60 minutes), will support RF-based remote controls and the new X1 voice remote, as well as all the X1 apps.

The message boards are also filled with other info and speculation on the device.

One user, “ComcastAndrew” who is listed as an “official employee,” points out that the XG2 “looks close to an Xi3 but with composite and  HDMI outputs and digital audio output.” The Xi3 is a tunerless, IP-only HD client device designed to work in tandem with the XG1 HD-DVR.

While the XG2 might be considered as another companion device, it appears to be a higher-powered gateway-class unit that has its own tuners (perhaps four, according to a comment on this DSL Reports message board), with some suggesting that it could likewise be a suitable replacement for the RGN150, an IP-capable, non-DVR set-top that does not support all of X1’s features.  It’s also possible that the XG2 could work  in tandem with Xi3 clients in a multi-room set-ups for customers who do not want a DVR.

Comcast hasn’t announced how many customers on X1, but it has been accelerating the rollout – the MSO is now deploying about 30,000 X1 boxes per day, up from previous daily run-rates of between15,000 to 20,000. Nearly one-third of Comcast’s triple-play customers are now on X1.

Technicolor’s $600 million play for Cisco Systems’ consumer premises equipment business represents quite the bargain, as it will help Technicolor shore up share in a shrinking yet still-substantial set-top box market, reckons Futuresource Consulting.

“At $600 million, Technicolor seems to be getting a good deal – an incremental $1.2 billion in STB sales and access to key North American cable and IPTV accounts, bringing its worldwide share up to 13% (15% of Pay-TV),” Jack Wetherill, Futuresource’s senior market analyst, home electronics, said in a statement. “It also gets Cisco’s Cable Modem business to complement its own Broadband CPE unit, lifting its worldwide share up to about 15%.”

Cisco got into the set-top game almost a decade ago when it put up $6.9 billion for Scientific-Atlanta.

Futuresource said the global set-top market today is worth about $20 billion, and the deal will enable Technicolor to grab at least a 13% claim of it, along with a combined share of about 30% in the North American market.

Cisco’s total connected device sales are expected to total $1.6 billion for fiscal 2015, effectively doubling Technicolor’s Connected Home business in a full year.

That will help Technicolor achieve more scale as it braces for the pending Arris-Pace deal, which will potentially create a company with a 23% of the set-top market and apply more pressure on the smaller players, Futuresource pointed out.

On Tuesday, Pace posted first-half 2015  EBITA of $118 million, up 11% on revenues of $1.07 billion, down 5.3%. Non-CPE equipment revenues rose 34%, to $225 million. It expects full-year revenues to be in the range of $2.65 billion to $2.72 billion. Arris posts Q2 results later today.

Scale is clearly the name of the game in the eroding set-top box market. Per Futuresource, global STB shipments dropped 2%, to 274 million units in 2014, due in part to cut backs in emerging markets like Russia, Brazil, China and India.

But Futuresource’s Wetherill  does not see the bottom falling out of the set-top market, predicting that it will continue to pump out 250 million-plus units per year until 2019, and will still be worth more than $17 million by then. 

Signaling more vendor consolidation in the sluggish set-top box market, U.K.-based Amino Technologies has inked a deal to acquire Entone Inc. for $73 million ($65 million in cash).

Both suppliers make and sell IP-only and hybrid set-tops and gateways.

Cupertino, Calif.-based Entone, which also sells WiFi adapters and other types of accessories, has been particularly successful in the independent tier 2/3 service provider market using a platform that mixes traditional pay TV and over-the-top video, but has also secured footholds with majors.  Entone, which has also promoting an “legal” Aereo-alternative under which its FusionTV service combines over-the-air and over-the-top video services, has notched recent wins with Vodafone Netherlands, Three River Communications, mobile operator TIM Brasil, and Volia, a Ukrainian cable operator. In 2013, Entone and TiVo announced an agreement to jointly pursue IPTV deals that would also clear the way for Entone to combine TiVo with boxes with or without local DVR storage and focus on the delivery of cloud-based apps and services. 

Privately-held Entone, which has more than 150 customers globally, pulled in revenues of $43.4 million in the fiscal year ended June 30, 2014, and EBITDA of $3.9 million. In the 11 month period from May 31, 2015, Entone generated revenues of $46.7 million and EBITDA of $5.1 million. Entone had net cash of $12 million and net assets of $15.9 million as of May 31, 2015.

Amino said the deal will help it boost its global footprint and scale while also removing a direct competitor from the market. It expects financial synergies of about £1.0 million (US$1.5 billion) in the full year after the deal is closed. They expect to close the deal in the third quarter.

Scale is also a driving reason behind Arris’s proposed $2.1 billion acquisition of Pace Plc, the U.K.-based maker of set-tops, video software and broadband access gear.

"The proposed acquisition of Entone has the potential to transform our business and broaden our capabilities and market reach globally across IPTV, hybrid broadcast and a range of connected home solutions,” Amino CEO Donald McGarva said in a statement, claiming the deal also aligns with Amino’s recent buy of cloud-TV platform provider Booxmedia.

"Bringing together Amino and Entone would create a significant new presence in the pay-TV market with solutions and skillsets that are highly complementary,” added Entone CEO Steve McKay. “We share a very similar vision as to how our industry is changing and the kinds of solutions that are required to address both existing and new customers."

Canaccord Genuity has been appointed as financial adviser and joint bookrunner in connection with the acquisition.

In case you haven’t heard, scale is now the name of the game.

In a deal that puts it squarely in the cable tech sector, Avago Technologies said will acquire Broadcom for $37 billion, including $17 billion in cash and the economic equivalent of 140 million Avago ordinary shares valued at $20 million.

Under the deal, Broadcom shareholders are poised to own about 32% of the combined company, which will be named Broadcom Limited.  

In addition to adding Broadcom’s wireless technology and expertise, Avago, which is incorporated in Singapore, also stands to become a major player in cable, as Broadcom is a top supplier of set-top box chips, including those based on the Reference Design Kit and that integrate Multimedia over Coax Alliance (MoCA) capabilities, and silicon that powers DOCSIS-based cable modems and gateways, as well as DSL and fiber-to-the-home equipment.  

With respect to DOCSIS, Broadcom is one of three chipmakers known to be developing modem chips for DOCSIS 3.1, the emerging CableLabs-specified platform that will bring multi-gigabit speeds to HFC networks. Intel, which acquired Texas Instruments’ cable modem business in 2010, and STMicroelectronics are the other two that are working on D3.1-based chips. Broadcom unveiled at D3.1-based reference design, the BCM93390, in January.

Avago estimates that the deal, which will build on its wireless, enterprise storage and wired infrastructure chip business, will create a behemoth with a combined $77 billion enterprise value and combined annual revenues of about $15 billion. Avago estimates that the merger will also generate $750 million in annual cost synergies that can be achieved within 18 months. The deal is posed to be immediately accretive to non-GAAP earnings and free cash flow.

When the deal closes, Hock Tan, president and CEO of Avago, will serve in the same role at the combined company, which will be renamed Broadcom Limited. Dr. Henry Samueli, co-fonder and CTO and chairman of Broadcom, will join the board of and serve as CTO of the combined company. Dr. Henry T. Nicholas, co-Founder and past CEO of Broadcom, will serve in a strategic advisory role, reporting to Tan. They did not identify a post-closing role for Scott McGregor, Broadcom’s current president and CEO.

Avago and Broadcom said the deal has been unanimously approved by their respective boards and a special committee of the independent directors of Broadcom. They expect to deal to close before the end of Q1 2016.

"Today's announcement marks the combination of the unparalleled engineering prowess of Broadcom with Avago's heritage of technology from HP, AT&T, and LSI Logic, in a landmark transaction for the semiconductor industry," Tan said in a statement. "The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors. Avago has established a strong track record of successfully integrating companies onto its platform. Together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago's long-term target model."

"When Henry Nicholas and I founded Broadcom, we had a vision of creating the world leader in communications semiconductors. Today's announcement is a continuation of that vision and we could not think of a better partner for the future than Avago," added Samueli

"The culture that Henry and I created when we founded Broadcom was demanding, execution-oriented, and certainly not guaranteed to mesh with the average technology company," Nicholas said. "It was, however, a culture that enabled Broadcom to grow exponentially and emerge as the market leader in every major market segment involving broadband communications. In Avago, we have found a culture and a management team that embody the best of the philosophies on which Broadcom was founded, together with a fast-paced, no-nonsense, process-driven business culture that we need to take our combined company to the next level. I am confident that, under the visionary leadership of Hock Tan, the combined company will realize its potential to be the world's greatest semiconductor company."

Zoom Telephonics is a small company that will soon gain access to a big name brand – Motorola.

Zoom, under an exclusive five-year licensing agreement announced earlier this week, will use the Moto brand in cable modems/routers and set-tops (as well as cable modems inside set-tops) sold at retail in the U.S. and Canada.

The deal, Zoom CEO Frank Manning said Tuesday on a conference call, carries “significant upside with some risk.”

The upside is obvious – Zoom, which sells cable modems and gateways at outlets such as Best Buy, Micro Center, Staples and Walmart, believes it stands to sell more products at retail using a better-known consumer brand.

“We’ll be doing the same for the Motorola brand and we should be able to expand the number of retailers and service providers who buy from us,” Manning said. “This won’t be easy. Zoom will… compete with powerful companies, including Arris and Netgear for shelf space and sales." 

Now, the risks. Zoom has not announced the specific terms of the licensing agreement other than to say it has agreed to pay Motorola Mobility a one-time set-up fee and a royalty based on net sales, but Manning acknowledged that his company has “made significant financial commitments” in doing the deal.

Zoom will be also paying to use Motorola’s brand on products that are already affixed with notoriously thin margins (even with the retail markup), but Manning believes the Motorola label will help it overcome that challenge.

“Even with those [financial] commitments, we believe that Zoom’s cable modem margins after licensing fees should stay the same or increase given Motorola brand's power,” he said.

Zoom, he added, also plans to raise additional funds to provide working capital to finance the growth it hopes to generate with the new branding strategy, but said it was too early to provide those details.

Manning also believes that Arris, which has rights to the Motorola brand through the end of this year, is taking on some risk by leaving the Motorola brand behind.

Arris seems to agrees that it could face some challenges at retail without Motorola on its banner.

“Shelf space in retail outlets can also be impacted by how recognizable a brand is by customers,” Arris said in this recent 10-Q filing. “If we are unable to successfully rebrand those products, our sales in those regions and channels may decrease. Further, the loss of the use of the ‘Motorola’ brand may result in a lower amount of shelf space, or space in less desirable areas, which may impact our sales.”

Arris has been trying to build consumer awareness of its brand through initiatives such as its sponsorship of Carl Edwards in the No. 19 Toyota Camry. But how much Arris truly has at stake at retail is not easy to determine, since the company does not break out how much cable CPE revenues comes in from that channel. On Tuesday’s call, Manning helpfully estimated that Arris’s Motorola brand sales are presently in the range of $50 million to $100 million per year.

Zoom would do well if it’s able to grab just a portion of that, as the Boston-based company generates annual sales of about $12 million. In the first quarter of this year, Zoom posted revenues of $3.06 million, down slightly from the year-ago quarter primarily to reduced sales of dial-up modems.

Arris, meanwhile, is in the cat bird’s seat of cable broadband CPE. According to Infonetics Research, Arris ended 2014 with 36% share of global revenue in the category, followed by Cisco Systems (19%) and Technicolor (13%).

Jeff Heynen, the research director for broadband Access and pay TV at Infonetics, said Zoom and other cable modem makers could see greater opportunity at retail as more consumers cut the pay TV cord and go broadband only, paired with the trend toward rising equipment lease fees.

Manning also discussed Zoom’s plans to use the Moto brand on products other than modems and routers, noting that the roadmap includes CPE that can support cable VoIP services as well.

The branding license also covers set-tops should Zoom decide to branch off in that direction.But don't hold your breath. 

“We're not even sure that we will enter the [set-top] area, but we wanted to have that right to [use] the Motorola brand,” Manning said. “As hard as the cable modem business is to enter, I think the set-top box business is even harder." 

When it comes to cable modems and set-tops, the Motorola brand will endure, at least for a few more years.

Zoom Telephonics announced Monday that it had struck an exclusive five-year license agreement with Motorola Mobility to use the Motorola brand in connection with Zoom’s consumer cable modem products, including cable modem bridges, cable modem/routers and cable set-tops that are manufactured, marketed and sold in the U.S. and Canada.

Zoom said the agreement begins on Jan. 1, 2016, and runs through the end of 2020. Financial terms were not disclosed, but Zoom has agreed to pay Motorola Mobility a one-time set-up fee and a royalty based on net sales during the term of the license deal, according to an 8-K filing.

Arris has been using the Motorola brand as part of an agreement negotiated with Google, which sold the Motorola Home division to Arris in April 2013 for $2.35 billion. Following the closing of that deal, Arris had one year to phase out use of the Motorola brand, but ended up signing a two-year extension. Arris has stressed that it intends to continue selling cable products through retail channels.

Zoom will be taking that brand forward with respect to cable modems and set-tops starting next year, and has plans to develop an “extensive line” of Moto-branded cable modems, Frank Manning, Zoom’s president and CEO, said in a statement.

"Motorola is a leading brand of cable modems at retail, and we're honored and thrilled to be licensing this powerful brand," Manning added. "This license has the potential to grow Zoom's sales dramatically. We are committed to the hard work necessary to take advantage of this significant opportunity to grow Zoom's business, and we are looking forward to working with Motorola Mobility and Motorola cable modem retailers, distributors, and service providers to make this transition smooth and successful for them.”

Zoom has set a conference call for Tuesday at 10 a.m. ET to discuss the agreement in more detail.

Zoom, which already sells a variety of cable modems at retail under its own brand (this DOCSIS 3.0 modem, for example, sells for $69.99 via BestBuy.com), has had some run-ins with cable operators over their respective policies for cable modems sold at retail. 

Of recent note, the FCC, at the request of Zoom, had been vetting Charter Communications’ third-party cable modem certification practices (subscription required). Zoom had filed a petition to deny the now-defunct Comcast-Time Warner Cable merger, but had also asked the FCC to apply a condition that Charter state unsubsidizied pricing for leasing cable modems and not “unreasonably” refuse to allow “nonharmful” modems to attach to its network.

In 2011, Comcast and Zoom jointly filed a request the FCC to dismiss Zoom's complaint about Comcast’s certification testing requirements for modems sold at retail, after the two companies reached a settlement on the issue. Terms of the settlement were not disclosed.

MaxLinear said it has completed its acquisition of Entropic Communications, a company that specializes in set-top chipsets and Multimedia over Coax Alliance (MoCA) silicon.

The deal, whose original implied value was $287 million when it was announced in February, has existing holders of MaxLinear capital stock with approximately 65% and former Entropic stockholders will hold approximately 35% of MaxLinear's outstanding capital stock.

In addition to broadening MaxLinear's presence in its existing markets, MaxLinear said the acquisition will also add scale and deepen customer relationships in areas such as the satellite pay TV market.

"We are very excited about the opportunity to bring together two talented and largely complementary teams, as we increase our capabilities to solve the most difficult analog and mixed-signal RF challenges in Broadband markets," said Dr. Kishore Seendripu, CEO of MaxLinear, in a statement.

MaxLinear also announced first quarter results Thursday, posting revenues of $35.4 million, up 9% year-over-year, citing demand across its cable and satellite platform solutions, more than offsetting expected seasonal softness in its terrestrial set-top box business. That was paired with a net loss of $4.7 million (12 cents per share), a number that included $2.5 million in fees and expenses tied to the Entropic acquisition, and $600,000 in severance costs related to eliminating engineering ops in Shanghai.

“We are particularly encouraged that the demand for our DOCSIS 3.0 data modem and gateway front end solutions, one of our primary cable growth drivers, experienced a strong shift towards higher-channel-count DOCSIS 3.0 modems and gateways,” the company noted. 

Almost two years after sealing up $2.35 billion acquisition of Motorola Home, Arris is diving deeply into the M&A pool  again via a $2.1 billion deal for U.K.-based Pace plc, a deal that will give Arris a dominant share of the set-top box market.

Arris said the deal will accelerate its growth strategy and generate more scale, creating a behemoth with $8 billion in pro forma revenues (Pace had fiscal year 2014 revenues of $2.6 billion), 8,500 combined employees (Arris has about 6,500), and an enhanced international presence. Both Arris and Pace are positioned well at Comcast, as they both supply devices for the MSO’s next-gen X1 platform. The acquisition is expected to be accretive to Arris non-GAAP earnings per share in the first 12 months after the deal is wrapped. 

With respect to set-tops, Arris will gain ground particularly in the area of satellite, as the combined company will tout a customer base there that includes DirecTV, Astor, Foxtel, Canal+, MultiChoice and Sky. 

Arris said the deal, involving a mixture of cash and stock, will result in the formation of “New Arris,”  a new holding company that will be incorporated in the U.K., and have its operational and worldwide headquarters based in Suwanee, Ga. New Arris will continue to trade on the NASDAQ under the “ARRS” ticker, they said. In connection with the formation of New Arris, each current share of Arris will be exchanged for one share in New Arris. 

According to an 8-K filing with the SEC, Arris is subject to a break-up fee of up to $20 million. 

Pace shareholders will receive approximately 48.2 million shares of New Arris in aggregate. On a pro forma basis, current Arris shareholders will hold about 76% of New Arris and Pace shareholders will hold roughly 24% of New Arris. The transaction is expected to be taxable, for U.S. federal income tax purposes, to the shareholders of Arris, they said. 

Arris shares were soaring in after-hours trading Wednesday, up $7.56 (24.75%) to $38.10 each as of about 5:45 p.m. ET. 

Arris chairman and CEO Bob Stanzione will serve under the same title at New Arris, and the then-current Arris board of directors will serve as the New Arris board of directors.

The companies said the proposed transaction has been approved by their respective boards and expect the deal to close in “late 2015." 

"This transaction is another example of ARRIS's ongoing strategy of investing in the right opportunities to position our company for growth,” Stanzione said. “Adding Pace's talent, products and diverse customer base will provide ARRIS with a large scale entry into the satellite segment, broaden our portfolio and expand our global presence. We expect this merger will enable ARRIS to increase its speed of innovation.”

“While we believe that Pace is strongly positioned to continue to execute its strategy in the medium and long term, we believe that the combination of the complementary ARRIS and Pace businesses will create a platform for future growth above and beyond our standalone potential,” added Pace chairman Allan Leighton. “We believe this is a great fit for both companies, our employees, customers and trading partners.” 

Pace, primarily known as an international set-top box supplier, expanded into the access network technology business in the fall of 2013 via a $310 million deal for Aurora Networks, a company that has been operating as a strategic business unit of Pace. At the time of the Pace/Aurora deal, it was viewed as one that could help Pace counteract the competitive effects of the Arris/Motorola Home merger and ongoing competition with Cisco Systems, as both Arris and Cisco are strong in the set-top and access network side of the telecom and cable tech business. In December 2012, Pace put in a bid to buy Motorola Home from Google, but ultimately lost out to Arris. 

Under the terms of the deal announced Wednesday, Pace shareholders will receive £1.325 of cash and a fixed exchange ratio of 0.1455 New ARRIS shares for each Pace share, reflecting aggregate consideration as of April 21, 2015 of £4.265 per share, representing a 28% premium to the Pace closing share price as of April 21, 2015, the companies said.  The cash portion will be funded through a combination of cash and debt. 

Arris said it has secured a fully committed facility from Bank of America Merrill Lynch to meet the funding requirements. 

Developing…

Entropic Communications, a maker of silicon for set-tops and high-speed coax-based networking, announced Monday (November 10) that president and CEO Patrick Henry is leaving the company and stepping down from the company’s board of directors, and that Dr. Ted Tewskbury (pictured) has been appointed Entropic’s interim president and CEO.

Entropic also announced a new product strategy that will involve a refocusing on its core “connectivity” business, which includes Multimedia over Coax Alliance (MoCA) technology, and a halt on all new set-top box systems-on-chip product development (see further below for more detail).

Henry’s departure comes about two months after the chipmaker announced a major restructuring that included authorization for the board to pursue “strategic options.” It also comes almost five months after a Utah court found Henry guilty of assaultingBeverly Hills Nanniesstart Ariane Bellamar, but reduced the charge from a misdemeanor to an infraction, while also dropping two other charges -- interruption of a communication device, and criminal mischief.

Henry, Entropic’s president and CEO since 2003, has led the company through an initial public offering and a string of acquisitions, including its $65 million purchase of Trident Semiconductor in 2012. That deal helped Entropic, once a company that specialized in MoCA technology, into a more diverse supplier of set-top silicon that included a focus on products based on the Reference Design Kit, a pre-integrated set-top software stack that’s now being managed by Comcast, Time Warner Cable and Liberty Global.

"On behalf of the Board of Directors, I want to thank Patrick for his many contributions to Entropic over the past decade," said Umesh Padval, Entropic's chairman of the Board, in a statement. "Under Patrick's leadership, the Company completed its initial public offering and developed a number of market leading technologies. With the change in strategy and business restructuring that Entropic is also announcing today, the Board believes it is the right time for a leadership transition. We are fortunate to have Ted available to serve as interim President and CEO. Ted has successfully led and developed executive management teams and possesses a proven track record as a semiconductor industry executive. We are confident that he will provide strong leadership for the Company."

Tewksbury, the former president and CEO of Integrated Device Technology, joined the Entropic board in September of 2010. 

As interim President and CEO, Dr. Tewksbury will work closely with Entropic's executive team and Board of Directors to oversee the Company's ongoing operations and strategic initiatives, including the ongoing review of strategic alternatives, the company said. Tewksbury will stay on the Entropic board, but will no longer serve on its compensation committee.

"I look forward to working alongside Entropic's talented team and contributing to the Company's future success," Tewksbury said in a statement. "With our refocused strategy and restructuring plan, we are targeting to reach non-GAAP profitability next quarter. We are continuing to explore strategic alternatives, and remain focused on product innovation, operational excellence, and enhancing shareholder value."

On Monday, Entropic also posted third quarter results – a net loss of $27.6 million (31 cents per share) on revenues of $43.2 million, down from $56.4 million in the year-ago period.

Entropic also shed more light on its product plan, announcing that it will refocus on its core Connectivity businesses, which include MoCA, direct broadcast satellite outdoor unit (DBS ODU) and broadband access. Entropic said it will continue to pursue design wins for all set-top box system-on-a-chip (SoC) products in production or already commercialized and will continue to invest to support those programs, but the company will discontinue all new set-top box SoC product development. 

The company’s set-top box SoC business “will contribute meaningful revenue for the next three years or more” based on design wins currently in the pipeline and on products already brought to market, Entropic said. 

MaxLinear’s lowered outlook for the third quarter announced Monday caused its stock to drop more than 17% and that apparently applied pressure on Arris shares, which dipped almost 7%.

MaxLinear, a maker of silicon for cable modems and set-top boxes, cut its third quarter revenue forecast to $32 million to $33 million, down from previous guidance of $36.5 million to $38 million.

The reason: a 25% decline in cable revenues related to a push-out of requests for top-of-the-line  DOCSIS 3.0 cable modems that can bond 24 downstream channels, apparently caused by a build-up in the first quarter of 2014. MaxLinear was expecting a sequential decline in cable revenues in the range of 2% to 5%.

MaxLinear’s reduced forecast was “likely the largest factor pressuring Arris stock today,” Raymond  James analyst Simon Leopold wrote in a research note Tuesday, pointing out that Arris, at 28% of revenue, is MaxLinear’s largest customer.

Arris also presented at Raymond James’ North American Equities Conference in London Tuesday morning, and Leopold said he did not attribute the sell-off of Arris shares to anything management said there, which included a reiteration of recent concerns about a possible spending pause tied to further carrier consolidation – notably the pending Comcast/Time Warner Cable and AT&T/DirecTV mergers.

Leopold said Arris maintained third quarter guidance of $1.37 billion to $1.41 billion in sales with pro-forma EPS in the range of $0.69 to $0.74, as it has already built possible market softness into its guidance “along with some share shifts from ARRIS in favor of Pace at Comcast.”

Leopold, who kept his "strong buy" rating on Arris shares, also pointed out  that MaxLinear only represents about $9 million, or less than 1% of Arris’s cost of goods sold.

MaxLinear said it’s also seeing preliminary indications of a slower product ramp for some satellite gateway platforms, too.

“We are continuing to review these trends, which could also affect our upcoming fourth quarter 2014 revenue guidance," said Dr. Kishore Seendripu, president and CEO of MaxLinear, in a statement. “Despite the near term challenges in our business, we remain enthusiastic about our long-term growth prospects and design win traction across our Cable and Satellite markets.”

MaxLinear shares closed down $1.51 (17.22%) to $29.44 each Tuesday. Arris closed down $2.09 (6.63%) to $29.44, but was up 1.94% in after-hours trading.

A voluntary set-top box energy conservation agreement announced in 2012 and now supported by the pay-TV industry, consumer electronics manufactures and other efficiency advocates have saved American consumers about $168 million in energy bills, they said, citing details outlined in a new annual report.

The report (PDF) found that the improved efficiency of set-tops also saved nearly 842,000 metric tons of carbon dioxide per year, or roughly the output of one-half of a large (500MW) power plant.

According to the report, 85% of set-top boxes purchased by pay-TV providers in 2013 met the U.S. Environmental Protection Agency (EPA) ENERGY STAR 3.0 efficiency levels, noting that new set-top boxes use approximately 14% less energy than those previously issued by the service providers.

Other 2013 milestones cited by the report include:

-The Voluntary Agreement led to a 4.4% reduction in national energy consumption by set-top boxes even as deployed stock increased in 2013.

-They also claim that these energy savings are larger when compared to national energy use projections without the Voluntary Agreement. Against those projections, the improved energy efficiency of the set-top boxes procured in 2013 saved American consumers almost $350 million in energy bills and saved nearly 1,750,000 metric tons of carbon dioxide, or the output of one large (500MW) power plant.

-Set-top box purchases indicate early adoption of 2017 goals – 90% of purchased set-top boxes must meet a more stringent set of energy efficiency levels called Tier 2. Approximately 47% of set-top boxes purchased in 2013 meet the more efficient Tier 2 levels.

-Cable operators have deployed software updates enabling “light sleep” for set-top boxes already in homes and new set-top boxes. Telco providers deployed “light sleep” capabilities, and satellite providers have included an “automatic power down” feature in more than 90% of set-top boxes purchased and deployed.

In 2012, the pay-TV industry initiated a Voluntary Agreement, aiming for annual electricity savings of $1 billion or more, as the energy efficiency of set-top boxes is increased by up to 45%. Agreement signatories include 11 cable, satellite, and telco video companies and all major equipment vendors serving 91.9 million U.S. video subscribers, accounting for 91.3% of the total market in 2013. The agreement went into effect Jan. 1, 2013.

“The Voluntary agreement to reduce national energy use of set-top boxes is off to a great start.  With these improvements the national energy used to power these devices is now going down,” said Noah Horowitz, Senior Scientist at the Natural Resources Defense Council, in a statement.

“These collective efforts of the cable, satellite, and telephone industries demonstrate a commitment to delivering innovative video services while at the same time saving energy in our customers’ homes,” added Michael Powell, president & CEO, National Cable & Telecommunications Association. “A big part of innovation is making sure we are good stewards of the environment, so these providers and device manufacturers will continue to look for new ways to conserve energy in delivering services.”

“The Annual Report is an important obligation of the Voluntary Agreement,” said Gary Shapiro, president and CEO of the Consumer Electronics Association. “It provides transparency, public accountability and a progress check on this non-regulatory initiative designed to deliver comprehensive energy and related cost savings for consumers and the country, while also protecting innovation and competition within our industry."