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The miracle box

The future of a world where television and the Internet become fully integrated rests upon the once-humble, no-frills cable TV set-top box.

The future of a world where television and the Internet become fully integrated rests upon the once-humble, no-frills cable TV set-top box.

Formerly relegated to just switching channels, it will be endowed with the potential to control an entire network of devices in the home ranging from PCs to VCRs, as well as serve as a communications device for phone and videoconferencing service.

"As we move forward, we're going to see less and less distinction between a set-top box and a PC," noted Bill Wal, chief scientist and technical director for Scientific-Atlanta, which manufactures many of the cable set-top boxes in use today. "There are a number of PC manufacturers looking towards low-end PCs that are TV-centric, but we see a blurring of those distinctions."

It is significant that much of this blurring is taking place within a device oriented toward television, not the personal computer. Only a few years ago, many computer companies were hoping to expand their businesses by incorporating TV features within their devices, not the other way around.

As many had predicted, however, the mass consumer market is far more aware of television-based technologies than PCs and other Internet devices, according to research by International Data Corporation. People are apparently willing to expand their surfing from TV channels to the Web, but they don't want to move from the living-room couch to the den to do it.

The trend is most evident in plans by cable companies to offer advanced digital services such as email, telephony, Web access, digital television, and video on demand. Already cable companies are seeing that set-top boxes are a hotly contested battleground for the deployment of powerful software and chips once formerly reserved for personal computers.

"The set-top box is an interesting product to [cable operators]," --Bill Wal, technical director for Scientific-Atlanta said Steve Guggenheimer, product manager for Microsoft's digital television group. "They are the gateway to the rest of the world and other potential forms of revenue for them."

Microsoft has invested in the last two years about $1 billion in cable operator Comcast, purchased Internet set-top device company WebTV, and partnered with numerous consumer electronics companies such as Sony, Sega, and Thomson Electronics--which owns the RCA brand name--to ensure that its operating system software has a toehold in the emerging information appliance market.

What the set-tops will do and what they will look like are still topics of hot debate among the cable operators, who are deciding what balance of features users are most likely to use against the cost of including those features in next-generation designs.

At the very least, industry executives with cable companies, cable equipment manufacturers, and high-tech companies all agree that the devices will become increasingly sophisticated over the next five or six years. What follows is a distillation of their expectations for what new technologies will appear in set-top boxes and what they will be able to do.

Microsoft's varied strategies for convergence
Supply stand-alone Internet set-top boxes through WebTV branded devices from Sony, Philips, others
Supply Windows CE operating system, WebTV Internet browser, and graphics chip technology for use in next generation cable set-top boxes such as General Instrument's DCT-5000
Windows-based PCs use "WebTV for Windows" which is essentially an electronic programming guide for PCs with TV cards. Enables hyperlinking to Web sites where special data broadcasts are available
Supply Windows CE operating system and WebTV Internet browser for use in game machines such as Sega's upcoming Dreamcast system
Supply Windows CE operating system for handheld and palm-sized PIMs (personal information managers) and "AutoPCs."
Supply content for a wide range of devices through its portal site (which offers Microsoft's own travel services, financial services, auto purchasing service, etc.), and MSNBC cable channel and Web site
Next year, the feature most commonly added to the set-top box will be enhanced electronic programming guides that let users sort through viewing choices more quickly and with interactivity. Viewers will be able to surf to a Web site with more information about a show or see snippets of programs embedded in the program guide. Some will be able to control the programming of a VCR or set-top device with storage capability through the use of infrared wireless connections--the same technology used in a remote control.

The more advanced cable set-tops available will offer USB (universal serial bus) connections to hook up cameras for videoconferencing or downloading pictures, and possibly even printers, though relatively few people may take advantage of these capabilities at first.

Many of the devices will be WebTV boxes outfitted for a 56-kbps Internet connection, twice the speed of most dial-up computer lines today. And a growing number of cable operators will be rolling out boxes such as Scientific-Atlanta's Explorer 2000 or General Instrument's DCT-5000, which offer two-way communications capabilities over a coaxial cable, allowing download speeds at the multimegabit level, many times faster than modems used in WebTV or most desktop PCs.

"In the last year, I have never seen anything happen so fast in North American cable as I have seen in my 20 years in the industry," General Instruments chief executive Edward Breen said at a recent conference in Manhattan. "We shipped 2 million digital set-top units to go into the home in the last year, and that number is exponentially growing. Most customers are not even acquired through marketing--it's just word of mouth."

By July 2000, things will get even more interesting as the sale of cable set-top boxes at retail stores becomes mandatory, as set forth by the Federal Communications Commission.

Scientific-Atlanta and General Instrument are the largest set-top box makers but provide most of their wares indirectly to consumers, through cable systems operated by such companies as Comcast, Time Warner, and Telecommunications Incorporated. Consumer electronics and PC companies such as Compaq Computer, may start competing against them in 2000, resulting in a proliferation of potential features, though Scientific-Atlanta and GI are still likely be the dominant players. Manufacturers are targeting devices priced in the $300-to-$600 range, depending on features.

By 2001, more cable companies will offer true video-on-demand services, starting shows for the customer when they are ordered online, not at hours determined earlier by the system. "Pause" and "rewind" capabilities may be offered as well, with the addition of enough local storage in the form of a hard drive or enough server capacity at the cable plant. Well beyond a digital VCR, the set-top box will also allow viewers to videoconference and will be the entry point for a broad range of Internet services into a consumer's home.

Top-of-the-line models might also include what is expected to become a critical technology for bridging the gap between consumer electronics devices and computers: high-speed digital 1394-Firewire connectors. This technology can be used to hook up a television set, audio-video components such as a stereo or DVD player, and even a standalone PC so that all the devices can share data and be controlled through a central "hub."

"With that architecture, you can simultaneously watch video, simultaneoulsy surf the Internet, simultaneously receive a phone call, with four lines into your house all over this one device," Breen said. "If there's not a lot of marketing opportunity there, I don't know what is."

In addition, multiplayer gaming is expected to become more common as set-tops add more memory and advanced graphics processors, with some manufacturers looking at devices that integrate a DVD player for both loading games and playing back movies. Japanese manufacturers such as Sony, Sega, and Panasonic should do well here.

By 2005, the FCC has stated that consumers will no longer be able to lease set-top boxes and will instead have to buy them at retail stores. At this point, devices purchased in one part of the country will be interoperable with those bought in another--unlike today, where the devices have proprietary security technology specific to a particular cable network.

In conjunction with the FCC-mandated broadcast of only digital TV signals in the year 2006, more consumers are expected to upgrade old analog TV sets to high-definition digital TVs (HDTV), at which time they might be open to upgrading to new digital set-top boxes as well. By 2006, most set-top boxes will be able to decode high-definition digital TV signals, replacing the standalone decoders needed for today's first-generation digital TV sets.

American cable companies aren't the only ones planning these souped-up boxes. Worldwide, the move to digital platforms has already begun, and DTV is expected to help spur the market for advanced services such as Internet telephony and Web browsing.

From the operator's point of view, "the cost of deploying an integrated People are apparently willing to expand their surfing from TV channels to the Web, but they don't want to move from the living-room couch to the den to do it. communications box that carries digital television, telephony, and interactive services makes the upgrade more attractive," said Ian Mecklanburgh of British-based Cable & Wireless.

One of the biggest costs is just sending someone out to install equipment. By offering a highly integrated device to begin with, Cable & Wireless can justify deploying these integrated devices, Mecklanburgh said.

"We felt we would lose a big opportunity by not doing both DTV and these other functions," he noted.

Industry executives expect voice recognition to be a prevalent feature of future set-top boxes, allowing for control of a wide range of household functions such as alarms, lights, and other devices through voice-activated programming.

In fact, for an extra fee, cable companies might even manage the home network through preferences and other information stored on central servers. Software programs for these boxes will be smart enough to "learn" customer preferences for TV and Web-based programming.

In reality, though, economic and regulatory conditions could potentially act as a brake on the movement toward technological convergence.

"Once the boxes go retail, it isn't clear how quickly they're going to sell," said Cynthia Brumfield, an analyst with Paul Kagan Associates. "We are expecting a slow build-up over time."

Future boxes
What digital set-top boxes might do in the future

hardware applications
1999 Net Access via 56k dial-up modem. Some offer cable modem connections for faster access email, Web access, electronic program guide for "browsing" TV content
• Wider array of devices connecting via cable and digital subscriber line modems. Some boxes are purchased at retail, but most are leased from cable companies.
• DVD drive and advanced 3D graphics
• video-on-demand
• video email
• teleconferencing
• online banking
• multi-player gaming on some models
2005 Cameras, VCRs, other A/V devices and home PCs and appliances attach to box through Firewire high-speed digital connection
• voice recognition
• home network management
• face recognition technology automatically calls up user preferences

In 1999, Brumfield estimates that there will be 3.95 million digital cable boxes shipped to customers, the majority based on an industry standard design called Open Cable. By 2006, there will be an estimated 35.2 million homes with digital set-top boxes and another 16.9 million users of set-tops that are receiving digital satellite signals.

Availability of services in the United States will be highly dependent on geography, as not all cable operators have upgraded their networks to be capable of sending and receiving data from set-top boxes.

But the area where most obstacles may arise is within the Beltway of Washington.

"All the applications of software, the Internet, computers, and television play to various regulatory and legislative goals," said Paul Fadelli, director of public relations for the California Cable Television Association. "Things used to be much more segmented."'s Sandeep Junnarkar in New York and Mike Yamamoto in San Francisco contributed to this report.

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