Cable operators, like many companies, are facing the prospect of steep increases in the cost of energy in the coming years. In response, they are looking at alternative energy sources. However, navigating the transition to this new world contains hidden dangers, so an evidence-based modeling approach can make a big difference.
Energy in the United States is changing: the cost of on-grid, coal- and petroleum-generated energy is expected to rise rapidly, while the availability of renewable and distributed power sources such as solar, wind, and hydrodynamic energy is decreasing. These changes are altering the landscape for energy-intensive industries across the world. Amongst them: U.S. cable operators, who face a sea change in the profile of energy costs, as subscribers grow more hungry for video and bandwidth at the same time that the cost of power to support a typical cable operators’ plant is expected to grow steeply.
Says Bloomberg BNA’s McElgunn, "Within the next five years, the cost of energy to power the U.S. cable industry will become the single largest network cost component.” As shown in the accompanying video and as we’ll discuss below, operators who make good decisions stand to benefit substantially.
Background – The Energy Cost of Success for Broadband Providers
As explained by Zangari and McElgunn, in recent years, U.S. cable operators have steadily expanded their service offerings to both consumers and businesses in such a way that energy demand and associated costs will continue to increase. Bloomberg BNA research shows, for example, that over three quarters of U.S. internet service customers subscribe to “bundles” of two or more services, which may include pay TV, home phone, and wireless service in addition to high-speed data.
Cable operators are responding to this increasing demand by building new data centers and expanding existing ones. These data centers contain equipment with increasingly lower energy footprints – to as low as 3 watts per server blade. However, the total growth in energy demand exceeds the benefit from these technology improvements.
For these reasons, cable operators face difficult decisions in a complex environment. Where should facilities be located? How should existing local and/or regional infrastructure be leveraged? How should cooling and heating be planned? Should operators consider alternative energy sources to utility-delivered power?
Says McElgunn, “The U.S. cable industry has effectively transitioned to an all-digital video plant, and is preparing for an eventual transition to an all-IP network.” A digital network is less costly to operate than an analog one, however, HDTV impacts this trend in important ways. Says McElgunn, “By the end of 2014, essentially all new television sales in the U.S. will be HDTV-compatible, increasing the number of HD-fed sets per home. Bloomberg BNA estimates that approximately 40 million U.S. cable households will subscribe to HD tiers in 2017, with 1.5 HDTVs connected per home. “A large number of these HDTV sets will be displaying HD linear channels, as well as video-on-demand (VOD). A single HD video stream consumes approximately 8 Mbps, and there are multiple simultaneous such streams delivered to essentially every video household for some portion of each day. “This leads to massive demands on the network,” says McElgunn, “This will impact both distribution and access plant and the resources required for content generation and formatting.”
In addition, U.S. cable operators offer services to businesses, which place additional demands on networks, and the energy required to operate them. However, McElgunn and Zangari write that “Current architectures and software designs require that generation and transmission resources that are preparing and delivering all of that video operate at full power virtually 24 hours a day every day.” This applies to multiple parts of the cable plant: headends, data centers, and outside plant facilities, which together will require substantial growth in energy to power them.
Modeling a Solution
Quantellia’s Mark Zangari worked with Bloomberg BNA to prepare a model that integrates forecasting data with a systems model to allow cable operators to quickly and precisely determine if a proposed energy usage strategy exposes the operator to unacceptable financial and/or technical risks, and to visualize how adjusting specific decision parameters impacts desired outcomes.
Among the variables included in the model are expansion of Network DVR, balancing increasing server efficiency versus equipment replacement costs, evolutionary network and facilities design changes, and energy price changes over time.
Some findings were as follows:
- Capital costs are a substantial component: Each additional watt of power consumption adds incremental costs due to the increased quantity of energy the operator needs to supply. However, each additional watt also increases infrastructure needs, and the annualized capital costs resulting from higher power consumption can be significantly greater than the effect on power supply charges.
- Moore’s Law effects are mitigated by power issues: As illustrated below, although the cost of delivering a given unit of computing performance has been dropping rapidly over the years, the cost of power required to deliver that performance has not been dropping at the same rate.
- Timing is everything: Operators who take too long to change their energy contracts face steep competition through decreasing margins as costs increase.
- Sleep mode versus peak shaving: Policies that invoke "sleep mode" for idle equipment can reduce energy usage, but it's important to keep in mind that capital-intensive infrastructure must be built to support the "peaks" of usage, so "peak shaving" is also an important cost containment strategy.
Organizational Challenges
Despite the cost benefits from making good decisions about energy usage, says Quantellia’s Zangari, “most U.S. cable operators have separate organizations with independent budgets for the establishment and operation of facilities, and the operation of the network equipment housed in those facilities. While power and its supply and assurance is managed as a facilities function, network equipment and its performance falls under the operational and financial responsibility of the Network organization.” Therefore, there is no single department within a typical cable operator with a holistic view of energy management.
A model like the one discussed here, provides this kind of cross-organizational view and equips decision-makers with access to all the factors relevant to measuring, understanding, forecasting, and minimizing the cost of energy.
About Bloomberg BNA's Broadband Advisory Services (BAS)
The task of transforming energy supply and consumption is complex and is dependent on a huge number of known and unknown variables. These complexities create significant financial and operational risk for MSOs.
Beginning with our May 2013 report, "Cable Industry Energy Management Strategies", Bloomberg BNA’s Broadband Advisory Service is adding service provider energy strategy to our areas of focus. We will provide ongoing analysis of developments in this space and deliver recommendations based on our research and incorporating data and insight from other divisions within Bloomberg.
In future reports, we will investigate activities spearheaded by the cable industry’s CableLabs research and standards-setting consortium in the areas of energy efficiency for set-top boxes, DVRs, cable modems/EMTAs, and other CPE. We will also assess advances in fleet management and technology and assess the state of the industry’s efforts to approach zero-landfill equipment sourcing and replacement.
Broadband Advisory Services subscribers have full access to these reports, along with our extensive portfolio of reports and databases covering the U.S. broadband services market.