From tomorrow's IBD, an article on cable:
investors.com
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Phone, Internet The Buzzwords In Cable Today
Date: 12/14/98
Author: Reinhardt Krause
MediaOne Group is spending big bucks to be more than just a cable TV firm.
To evolve into a ''broadband company'' that sells voice and data services as well as plain old video, MediaOne will have spent about $850 million this year to improve its cable system. It spent nearly $700 million last year. More upgrades are planned through 2000.
US West Inc., which bought Continental Cablevision Inc. in '96, spun off MediaOne in midyear. MediaOne has 5.1 million cable customers in 17 states.
The broadband unit is expanding into new areas like phone, high-speed data and digital video services.
Broadband sales rose 10.5% to $1.8 billion the first nine months of '98 from $1.63 billion for the year-ago period. Operating cash flow rose 4.1% to $709 million from $681 million.
Janice Peters, chief of the broadband division, recently spoke with IBD about big changes in the cable industry.
IBD:
How much of MediaOne's cable system has been upgraded?
Peters:
By the end of '98, about 50% will be upgraded to two-way, 750-megahertz technology (from 450 MHz). That makes us a broadband company. There's more spectrum, more capacity for enhanced services like digital video, more pay-per- view, Internet access and telephony channels. It's also two way, meaning we don't need to rely on the phone company's lines as a return line for, say, an interactive program guide.
IBD:
Phone companies are rolling out faster Internet services using digital subscriber line technology. Will cable modems beat out DSL?
Peters:
The data available today support the view that cable modems have been much more successful. There are about 10 times as many cable modem subscribers as DSL users. In some of the markets where we're offering cable modems, consumer (order) rates are in excess of 10%. I don't see demand leveling off.
With cable modems, the value is there for consumers. For the price (about $40 monthly), the speed of the product outstrips anything else. From an operational point of view, it's easier for a cable firm than a regional Bell to make (high-speed) service available to customers.
IBD:
MediaOne and Time Warner Inc. jointly operate a cable modem service called Road Runner. Is Road Runner a potential partner or rival of AtHome Corp., another cable modem service?
Peters:
We don't consider Road Runner a competitor to AtHome. They serve different franchises. On a stand-alone basis, Road Runner is a very large business that passes (by) roughly 27 million homes. I don't know if there's a need to merge them; they're both big businesses serving large markets.
IBD:
Companies like America Online Inc. want regulators to force cable firms, as they are phone companies, to share their high-speed networks. Do you agree?
Peters:
The penetration rate for this kind of product is still very low compared to telephone services. We're talking 350,000 cable modem subscribers in the U.S. with high-speed data access. There are large private dollars being used to build these high-speed networks. More regulation could actually curtail growth as opposed to stimulate the industry. Consumers that sign on to cable high-speed services can still get AOL (though they'd pay two fees). We're not precluding them. There's no bottleneck there.
IBD:
Government controls over subscriber rate hikes for basic service are set to end in March. But there's concern Congress may put back controls if prices rise too fast. What do you think will happen?
Peters:
I don't think it's Congress' first choice to step back in. Given that there's some (cable industry) restraint in the level of price increases, we're hopeful that we won't see new legislation to re-regulate.
IBD:
MediaOne launched digital cable services in Detroit in June. What has demand been like?
Peters:
It's still early. We're seeing strong take rates for the product, but we haven't disclosed subscriber numbers yet. It's being offered in a very competitive market - where Ameritech Corp. offers video. The service is available to about 100,000 homes. Consumers receive more premium channels, more pay-per-view. In '99, we're looking at rolling out digital video more broadly. We're assessing how many markets.
IBD:
How do you see competition vs. direct broadcast satellite services?
Peters:
We have found that where we have ystems with) advanced analog capabilities and, in Detroit, where we have digital, that those are very competitive offerings against DBS. Obviously, where we're not upgraded or rebuilt yet, we're in not as strong a position in number of channels (offered). But we'll be 50% upgraded by the end of '98.
IBD:
Cox Communications Inc. has done the most among cable firms rolling out phone services. How active is MediaOne?
Peters:
We're in six markets right now, including Richmond, Va.; Jacksonville, Fla.; Los Angeles; Atlanta; and parts of Massachusetts. We're confident telephony is economically justifiable. In '99, we'll be focused on going deeper into those markets, getting interfaces with the networks of incumbent carriers, and installing a billing system that will help us operationally.
IBD:
AT&T Corp. plans to deliver local phone services over Tele-Communications Inc.'s cable wiring by 2000 or so. Cox already offers phone service via upgraded cable. What's MediaOne's strategy?
Peters:
We are deploying fundamentally the same technology as Cox, which is referred to as circuit-switched telephony. It's very comparable and competitive to what phone companies offer. It has life-line support for 911-type services. All of us (cable firms) agree that at some point Internet telephony will be real. It may be two or three years from now. The issues are time- to-market and establishing brand. I wouldn't be surprised to see AT&T- TCI do some circuit-switched telephony, as well.
IBD:
Do you plan, as do other cable firms, to sell gear in retail stores that has been leased to customers, like set-top boxes and fast computer modems?
Peters:
We have a trial with Circuit City Stores in the Boston area. We're providing a kiosk that's set up in about 17 stores that gives customers both a hands-on experience with products and information on availability of broadband services. The issue is similar to coverage area in the cellular phone industry. It distributes through retail channels as well.
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