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Dealing With the China Cost Crater

Not to overstate the obvious, but given a choice between two off-the-shelf products with the same reliability and feature set, nine out of 10 times, price will determine which item gets purchased.

People generally do not care where a product is made. Often they are unaware that a local company has imported and relabeled or rebranded the product. The right to do this is called an OEM license in the industry, and it is usually stipulated in the buyer's contract. The manufacturer often receives the buyer's artwork and model numbers, so the rebranding can be done before the product is shipped. In most cases, end users pay a higher price than they would if they purchased directly from the manufacturer with its name and artwork.

Here comes a good consumer tip: When you purchase an electronic product, look very closely at all the labeling. See if you can find a manufacturer's name that may be in contradistinction from the label under which the product was marketed. If you find the OEM label, look up the company and its prices. Software and firmware may be different for your local versions, so you must get as much information as possible before purchasing such products. This is especially true for audiovisual equipment. You might get it home, hook it up, and find foreign text on the display.

Recently, I had an old cable television operator tell me he could buy a set-top box from China for $20 but was being charged $60 for it by a US supplier. I asked him if the products were identical. He said the Chinese box had all the same features and worked on his system. I asked him about warranties, guarantees, and other potential differentiators, and he said they were identical. Understanding that the CATV plant has an initial investment of rack equipment to process and distribute satellite feeds and over-the-air signals, I asked him about compatibility across his entire distribution network. He had already tested it and discovered everything worked.

CATV operators make their money from their subscriber base. The more subcribers they have, the more set tops are required. After the in-plant rack equipment is purchased, the main cost burden is set-top boxes. If China can sell the same product at a third of the price of competitors, who do you think will eventually capture the set-top box market?

There are about 5,000 small CATV operators in the US alone. Each has growth ambitions. Each has to recoup its investment in order to show a profit. If set-top box investment costs were significantly reduced, the operators could get to their profit markers much sooner.

Motorola has had the set-top market basically cornered in the US for the past 30-plus years. In fact, it makes deals with operators to give them all the in-plant equipment they need if they will purchase set-tops only from Motorola. That's a giveaway program amounting to somewhere between $250,000 and $500,000 per operator. That is how important the set-top business is to Motorola.

Enter China. After a certain crossover point, the operators that have been buying Motorola boxes have more than paid for the cost of the free rack equipment, so there is no deal there. But China has also launched programs to give away rack equipment to secure set-top commitments. Now the playing field is no longer level. There is a deep crater right in the middle. We call that crater China.

How much of the US set-top box market China eventually will rule is unknown. We do know that difficult economic times make for very aggressive marketing strategies. No matter how clever the ads from local manufacturers are or how pretty the products are, China is gaining weight in the CATV business around the world. My recent contact was calling me from Guyana. He said he has associates in Trinidad, the Philippines, and Jamaica who are now using Chinese boxes.

The Society of Cable Television Engineers holds annual tradeshows, where boxes from many Chinese manufacturers are on display. The National Cable Television Cooperative resells CATV hardware to its members. Chinese products are in demand, because the operators live and die by their subscriber count. I pay $7 a month to rent my cable box, and I would gladly cover the one-time $20 fee for a Chinese one. The end user creates the demand that drives the supply.

The “no monthly fee” selling point could give some competitors an edge. CATV operators know this, and it could help put a Chinese cable or satellite box in the heart of your entertainment center soon.

23 comments on “Dealing With the China Cost Crater

  1. Barbara Jorgensen
    November 15, 2012

    Douglas: Cable and phone service providers have a special place in Hades as far as I am concerned. As you point out, in the US they have the set-top box market cornered and the markup in huge. That holds true for many of the service packages they provide. My husband has started intercepting our cable bill becuase every time I see how we are being nickel and dimed I go crazy. (No offense, but men like their cable). This is a common complaint: it would cost us more to unbundle our phone from the cable/phone/modem package than it is to keep the phone.

  2. rohscompliant
    November 15, 2012

    Barbara,

    What you say is oh so true…….my father (god rest his soul) told me when I was a young buck in the 70's, that we would be paying for drinking water and television……….of course I thought he was nuts! ……..I also would gladly pay the one time fee for a box……..if I could get rid of the 'rental' fee. What else I find is ironic; got a letter in the mail form Comcast that i can order a new updated modem for my bundled service……went on their web site entered the required info and ……presto……..i'm getting a new moden in 4-6 weeks ….and here is the kicker; i get to install it myself…….oh boy!!!…….and if I dont drive to their local office and return the old modem within 30 days of getting the new one they will charge me a fee………progress & customer do it urself service!!!!!!

    Their is a special place in Hades for them indeed….

     

  3. bolaji ojo
    November 15, 2012

    Barbara, I may not send the companies that far out (to Hades) but they certainly need a rethink. What's clear to me is that I don't like being fleeced and that's all I can say about being forced to pay monthly rental fees for a box that I could own outright.

    Douglas Alexander laid out the reasons why China-based manufacturers could eventually take over the set top box market and increase their own market share. I could pity them. I don't. They should learn to compete — and less greedy!

  4. Barbara Jorgensen
    November 15, 2012

    @Rohs: Isn't that insane? The drive-to-service situation is particularly galling. Our local branch has relocated at least three times in the past five years, probably to keep ahead of the irate customers with burning torches and pitchforks.

  5. dalexander
    November 15, 2012

    @Barbara, this past week, I ventured into our local Comcast center and I was number 52 in line. It looked like an Apple store and was very streamlined and organized. I asked them how much I could save if I unbundled my Triple-Play by going to Vonage. They said my basic service would drop by about $50/month. So yesterday, I signed up with Vonage at $9.99/month forever and they are going to deal directly with Comcast do detach my phone service. I was assured that nothing would go wrong…nothing would go wrong…nothing would go wrong.

  6. Barbara Jorgensen
    November 15, 2012

    @Bolaji: I agree. I'm all for companies making a resonable profit, but gouging is something entirely different.

  7. Barbara Jorgensen
    November 15, 2012

    Douglas: Let us know how it goes. I've heard different things about Vonage, but it is a compelling deal. But you would be one of two people I've ever known that uses the product. I've lost touch with the other person…hmmmmm…

  8. dalexander
    November 15, 2012

    @Barbara, I am crossing my wires and holding my breath.

  9. rohscompliant
    November 15, 2012

    click ur heels, cross ur fingers n keep repeating…….'nothing will go wrong, nothing will go wrong'….

    I am thinking about switching my land line phone (which we never use) to; Magicjack. $450 a year to Comcast for a phone we dont even use………i must be insane…….or old.

  10. dalexander
    November 15, 2012

    @rohs, if Comcast/Infinity is the only game in town, the only way to get out is to go under the CATV witness protection program where you will get a new identity, home, and family. You're not crazy. They are just trying to make you believe you are. It is called “gas lighting” and mix that with the purported temperatures in CATV Hades, and “we have ignition Huston.”

  11. Ariella
    November 15, 2012

    @Barbara I've used Vonage for years. It has various level plans, and I've switched from the unlimited to the cheaper limited one when I foundmyself using my phone less. Of course, the problem is that your phone depends on your router, so if there's a problem with that, you don't have phone service. I have it set to forward to my cell if there's a problem with the number. But it also forwards if someone is calling at the same time as I'm calling out. 

  12. Ariella
    November 15, 2012

    @Barbara I've used Vonage for years. It has various level plans, and I've switched from the unlimited to the cheaper limited one when I foundmyself using my phone less. Of course, the problem is that your phone depends on your router, so if there's a problem with that, you don't have phone service. I have it set to forward to my cell if there's a problem with the number. But it also forwards if someone is calling at the same time as I'm calling out. 

  13. bolaji ojo
    November 15, 2012

    Barbara, That would be me. I use Vonage and I have for about three four years. We use it primarily for international calls (free calls to landlines in 60 countries in Europe and North America for a fixed $10 per month fee) and local calls. I am not going to swear by Vonage but it works fine. It uses my internet line. This makes me think it might be possible for me to make those same calls without paying a dime to any company — that's the same way Skype works, right?

  14. ahdand
    November 16, 2012

    China has become a confusing country suddenly. I simply cant believe why they react like this towards US companies. They are just making things worse for themselves.

  15. Barbara Jorgensen
    November 16, 2012

    Didn't realize there were more Vonage users than I thought! I think it is a compelling value, but I've heard about the issues with Internet lines. But for people like us, who don't use their home phone that much, it makes sense. We've retained our home number becuase that's the ones the schools have and all our rewards cards are associated with. But if it went down for a few hours I don't think we'd notice. 

  16. Taimoor Zubar
    November 16, 2012

    “We've retained our home number becuase that's the ones the schools have and all our rewards cards are associated with. But if it went down for a few hours I don't think we'd notice.”

    @Barbara: I agree. A large number of people have already gotten rid of the fixed phones from their homes. Many experts think fixed landlines will become obsolete in this decade and will be wiped out.

  17. FLYINGSCOT
    November 16, 2012

    A few years back when “free” set top boxes or modems or routers were given out by the telecons to their subscribers one could find a variety of UK, European and USA brands.  Almost universally now they are all Huawei or rebranded Huawei products.  China is taking over the electronics world 😉

  18. Ariella
    November 16, 2012

    @Barbara I believe that with Vonage you can keep your number, though the really cheap services like Magic Jack don't allow for that.

  19. dalexander
    November 16, 2012

    @Ariela, true. That is the route I am taking. They also have call forwarding to your cell phone number at no extra cost. If the power goes out, the call will be forwarded. Also, I have a Microcell to boost my reception up on the mountain. Barbara, you can keep the same home number. Vonage will call your current provider and manage the switch over process entirely.

  20. dalexander
    November 16, 2012

    @Flyingscot, for what it is worth, the processor still used more than any other comes from ST Microelectronics. They have almost monopolized the set top box market. The firmware and software, moving from generation to generation of STBs has to be compatible for the Program Guide (EPG) and CAS, conditional access system.

  21. Ariella
    November 16, 2012

    @Douglas, Yes, as I said, I have the call forwarded to my cell, which was a good thing when the power went out for a few days after Sandy. Of course, some people don't realize the call is being forwarded and just assume that if the regular number goes through that everything is connected. 

  22. Barbara Jorgensen
    November 16, 2012

    I like the idea you can keep your phone number with Vonage. The next time an opportunity comes up to unbundle our phone/cable/internet package, I'll check it out.

  23. Ariella
    November 16, 2012

    @Barbara While I'm okay with what Vonage delivers, I know there are some cheaper options out there (and there may be different deals in different areas — as is the case for Verizon) so you may want to do a bit more research. 

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