Set Top box makers were burned(Check out Divi's statement about Americast).......................
multichannel.com
Set-Top Vendors Burned, But Say They've Learned
By KENT GIBBONS & LESLIE ELLIS
It should have been a great deal for Panasonic Video Communication Co.
As Richard Strabel, vice president of the Matsushita Electric Industrial Co. subsidiary, recalled it, Tele-TV, the telco video consortium, had been shopping for a vendor to supply multiplatform digital set-top converters. Last September, Tele-TV made its selection. "And we were, quote unquote, the winner," Strabel said.
Many months and undisclosed amounts of development spending later, Panasonic and Tele-TV partner Bell Atlantic Corp. broke off talks in late June without having reached a contract, according to Strabel. Tele-TV never named Panasonic as a supplier, and Bell Atlantic spokesman Larry Plumb would only confirm that it never "papered" a contract with anyone for that box. However, two other executives familiar with the situation confirmed Strabel's account.
Panasonic was caught up in the priority shift away from video deployment by Bell Atlantic, recent merger partner Nynex Corp., fellow Tele-TV member Pacific Telesis Group and PacTel acquirer SBC Communications Inc.
Panasonic was not alone, of course. CAI Wireless Systems Inc. -- which was to develop wireless cable systems for Bell Atlantic and Nynex, but which was later abandoned -- also paid a heavy price: Its stock, at around $13 a share a year ago, now trades for around $1.
But the telco business was supposed to be a huge boon for Panasonic and for other telco set-top suppliers -- notably Thomson Consumer Electronics Inc., which won the first Tele-TV set-top deal, and Zenith Electronics Corp., which was chosen to supply digital boxes to the Americast consortium (Ameritech Corp., BellSouth Corp., GTE Corp., SBC, Southern New England Telecommunications Corp. and The Walt Disney Co. [owner of Multichannel News]).
Thomson and Zenith each wrung orders for 3 million units, at a total estimated cost of $1 billion, from the respective groups. At this point, neither goal seems achievable, although Zenith claims that it could still hit the mark.
Since its April 1995 award, Thomson, which makes digital converters for the DirecTv Inc. satellite system and which once hoped to dominate the U.S. market for digital boxes, has seen the project's scope dwindle considerably.
Although Thomson won't confirm the numbers, former Tele-TV executives said last week that the consortium took delivery of about 100,000 units in 1996 and 1997. Tele-TV is barely alive, and the partners' wireless cable plans have shrunk to a single, limited-market launch in Los Angeles by SBC.
Tele-TV's contract contained what have been described as "substantial" penalties for buying fewer than 3 million units from Thomson. Sources familiar with the situation said Thomson is trying to negotiate payment, but it has not yet been successful.
Al Baker, general manager of digital-product management at Thomson, would not comment on any Tele-TV negotiations. But he frankly conceded that the Tele-TV arrangement hasn't worked out.
"It absolutely has not been worth it, just from a pure financial viewpoint," Baker said last week. "We invested many more millions [of dollars] than we will ever get returned, even taking into account penalties. The only thing that would change that would be if SBC decided to go forward aggressively, or if they were to sell the [Los Angeles] network to someone that would go forward aggressively."
Otherwise, given the sad state of the U.S. wireless cable industry, Thomson's best prospects for the system are in Canada, which is in the process of awarding multichannel multipoint distribution system licenses, Baker said.
Thomson did learn a lot about the technology, and about integrating components, such as conditional-access and billing systems, and those lessons could carry over to other customers, he added.
Zenith's billion-dollar order was for a range of wireless, hybrid fiber-coaxial cable and switched-digital-video set-tops. The boxes were to be provided in a "DET/NIM" (digital entertainment terminal/network-interface module) configuration, meaning that a common chassis and motherboard housed a series of removable cards, according to the specific network topologies of the participating telcos.
SBC has said that it is negotiating its way out of Americast. Ameritech and GTE have been fairly aggressive in their HFC network builds, but neither uses the Zenith box. GTE plans to introduce digital service soon, in the Tampa, Fla., area, but it will be doing so with NextLevel Systems Inc.'s DCT-1000 boxes.
The first Zenith deployment is expected to be in New Orleans, for BellSouth's planned digital MMDS operation. GTE has said that it will use Zenith boxes when it kicks off digital MMDS service in Oahu, Hawaii. Ameritech and SNET said they will use Zenith when they launch digital systems, but neither has specific plans yet for digital launches.
Furthermore, NextLevel and Thomson said they, and probably other set-top vendors, have been approached recently by Americast about the possibility of supplying set-tops. Baker confirmed such an approach, but he said it was his impression that Americast was shopping around for "emergency" backup suppliers.
Bill Luehrs, president of Zenith Network Systems, refused to say how many boxes Zenith has shipped to any Americast partners so far. "We will probably never tell" how many boxes were shipped to Americast, he said. "That information is internal to the company."
Luehrs added, "Everything is still on track," starting with deliveries of MMDS boxes to BellSouth, and followed by set-tops with an HFC NIM. As for SDV, "SBC's plans have changed, and the SDV portion is no longer in the plans, but that was never expected to be a substantial amount of the volume."
Luehrs acknowledged that digital TV is rolling out slower than expected, but he added that Zenith never expected huge volumes in 1997. "In the context of the 3 million-box order, '97 was never going to be a big shipping year, because it is a start-up year."
Luehrs also said he knows that rival vendors are "rumoring" that Americast is shopping for other vendors for next-generation boxes. But he dismissed that talk as typical backbiting by competitors.
Tom Lookabaugh, senior vice president for DiviCom Inc., Zenith's design subcontractor, said last week, "The kind of wholesale slowdown that you've seen with Tele-TV does not seem to be happening with Americast."
As for Panasonic, Strabel said the Tele-TV project "was a tremendous learning experience for us. We certainly have gained an awful lot of knowledge from it. And that knowledge has led into other projects."
Panasonic -- which, sources said, is a leading contender to supply PrimeStar Partners L.P. with digital converters as a secondary supplier behind NextLevel -- will provide boxes to DirecTv Japan. (Matsushita owns 10 percent of that venture.) Strabel said the Tele-TV technology didn't transfer to that, or to other projects, but supplier relationships and other knowledge were helpful.
So, was it worth the effort and expense? "We think so," Strabel said.
Time will tell whether Thomson and Zenith can say the same.
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