cable operator admits that its greatest asset is its high capacity network...
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I suspect we'll see more of this...
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Operator hopes to use BIB set - top box for digital cable General Cable considers leasing bandwidth to BT
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10/29/97
Cable Europe
(c) 1997 Phillips Business Information, Inc.
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As part of the retreat from its loss-making television business, UK cable operator General Cable is planning to begin leasing capacity on its cable networks to other parties, including BSkyB and Flextech instead of managing the TV programming business. Further, it plans to offer to lease capacity for interactive services to the likes of BT and BIB.
David Miller, General Cable's finance director, revealed that his firm has requested to use the same digital set - top box that is to be used by British Interactive Broadcasting, the joint venture of BSkyB, BT, Matsushita and Midland Bank/HSBC that will bring interactive digital services by satellite next year.
"We want a BSkyB/BDB/DTT/DTH compatible box," he said, General Cable is also considering using the Eurobox, the common European digital platform based on France Telecom's Viaccess technology, mooted by several European cable operators, including Telia and Casema, earlier in the year.
But in any case, he said "you want your customers to have a box that they're going to be able to use whether they're taking your service or not, because [instead of renting] you're asking them to buy it in digital."
He said his company is even hoping that BIB will provide it with boxes "subsidy intact", at the heavily subsidised price which brings it down from about Pounds 500 to about Pounds 200. While he is uncertain that BIB will agree, he quipped: "if you don't ask, you don't get."
Presumably, BIB will acquiesce more readily if it gets assurances that it, and the service providers footing the subsidy, will get the same access to the digital cable subscriber that they will in DTH homes.
Indeed, General Cable is considering making BIB's services available to its subscribers. "If BIB will only be available if the subscriber takes [an all-premium channels] Sky contract, I don't see why that* Sky contract should not be cable connected as well as DTH connected."
But General's preference for the BIB box may have more business advantages than just video services. "Taking the BIB box from our perspective may be a good thing, because we may get a telephone line out of it," says Miller.
BIB has already ordered a total one million digital set-tops in unspecified proportions from Pace Micro Technology, Matsushita, Grundig and Amstrad. General Cable was not part of the CWC/Telewest grouping that earlier in the year committed to General Instrument (Next Level) digital set-tops. So far, only a few of these are being trialled in systems.
Scaling back
General Cable will no longer market cable television services as a stand-alone option and new customers wanting television as well as telecoms services will have to pay substantially more for the TV option - a price at which General Cable would make a profit. It is also looking to move out of the geographic confines of its franchise areas, becoming a national telecoms operator for the UK.
According to the company the changes are necessary to rebalance the business to a more economically viable position - pre-tax losses doubled to Pounds 25 million at the interim stage in August, following a sharp increase in the number of customers dropping the television service. General Cable is to make a Pounds 35 million provision this year to cover write-downs and costs arising from the decision to refocus.
Miller explains: "What we've said is that if we can't sell cable TV properly, we won't sell it at all, or we'll price it in a fashion where we know we won't sell very much - that's precisely what we've done."
"General Cable simply cannot [make money] unless we adopt the position we've adopted," he concluded.
General Cable has around 198,000 telephony customers and 161,000 subscribers to its cable television services. Churn rates for television services are currently 22 per cent and expected to get much higher with the price increases being introduced as part of the re- structuring.
Under the new regime existing customers will continue to pay around Pounds 38 per month for the complete TV package including premium channels, while new customers will be expected to pay Pounds 45 per month.
"Bandwidth leasing is an issue that is on the cards for the entire industry"
"For interactive bandwidth leasing, we're talking about BT, BIB," and for broadcast bandwidth leasing, "it's Sky, Flextech, Viacom, Turner, whoever," he said.
Bandwidth leasing makes sense because, says Miller, "the content is an enormous component of the difference between gross revenue and net loss as it is today on cable TV. Out of that difference, roughly half is content."
When asked if the new decisions nullify the years of programming efforts by General Cable's outspoken programming boss Christine Mitchell, Miller counters that, "she's been building a relationship with a series of programmers which is not necessarily inconsistent with running bandwidth leasing as well - we can also lease out bandwidth to ourselves if that makes sense."
The cable operator retains an advantage in any case he says. "The only people who can bundle TV, telephone and other interactive products together for the benefit of customers, and be secure in the economics of that, is us." The only other party who will be able to do it, he says, is BT.
General Cable has asked Oftel for a three year extension, to 2004, to complete its network. At the ECC conference, DG Don Cruickshank hinted that General's new build plans will be looked at "sympathetically." There are, however, concerns that the marketing plan could be in breach of General Cable's telecommunication licence. This is being reviewed by Oftel.
Cruickshank said as he addressed the ECC that he is dismayed by the prospect of the market being so skewed by a dominant player, like Sky, that a cable operator feels driven to give away control of or give up one of the services it provides. Oftel is concerned that if a cable operator did an exclusive bandwidth leasing deal with Sky - instead of running the TV business itself - it would remove one competitor from the market, and Sky would tie up digital CATV as well as DTH and DTT.
But the reality is, says Miller, that under the current market conditions, "being competitive in service provision as well as in the network may not be possible."
Meanwhile, General Cable is to combine its current three regional debt facilities worth Pounds 503 million, and replace them with a global facility for Pounds 500 million. "We need to recognise that the change in tack here will lead to lower penetrations compared to what we've previously seen. Lower capital expenditure means higher profitability which has different financing requirements."
Miller takes a rather unusual stance in that he doesn't put the blame for the industry's woes only at the feet of Sky. "This industry has been characterised by a lot of farting around, living in cloud- cuckoo land, and dealing with the world the way people wish it were rather then the way it is."
He defends the cold business decisions General Cable has made: "Right now, we're heading directly at high speed towards a wall. If we don't do something about it we're going to hit the wall - it may be three years away, but we can see it."
Miller backs the increasingly rare view that Sky will deliver its digital package, as it most recently promised, in April. "They won't have volume boxes, but they'll have a digital service - it will be serious egg on face if they don't deliver."
General Cable will follow with digital cable in September, he vows. He supposes that the model will follow the rollout in France, with a relatively low number of channels, and increasing rapidly thereafter.
General Cable also announced last week at the ECC - which was an otherwise completely lacklustre affair - that it had signed with Scientific Atlanta and Worldgate for a trial of the TV Online product which enables the World Wide Web to be delivered to the TV screen via the cable network. The Worldgate card will be installed on all future SA boxes installed in subscribers' homes, and the existing set-tops will be upgraded accordingly. It has not been determined whether General will send out an installer or whether the viewer can do the upgrade himself, but Miller estimates that the cost per home to upgrade for the service will be under Pounds 100. He makes no bones about why this particular service was chosen over competitors such as NetChannel and Web TV. Web TV's proprietary technology was a disadvantage, but moreover, in Worldgate's favour, "it's cheap, it's a nice little product," he said.
The way ahead
Admitting that the companies find themselves in different financial positions, these moves by General go further than those by fellow operator Cable and Wireless Communications, which has been known for some time to be in talks with BSkyB over contracting out its CATV business. Last week, CWC and Sky were close to finalising a deal to jointly market pay-per-view services.
Earlier in the month, both Sky and the grouping of General Cable, NTL and Telewest - led by the On Demand Management venture headed by Andy Birchall - signed non-exclusive deals with Warner Brothers for pay-per-view films. This was seen as significant for the cable industry as it would mean that for the first time, it could set terms for PPV without involving Sky as margin-squeezing middleman. And unlike Sky, the cable operator will be able to make PPV available to telephone customers who don't want to 'buy through' multichannel TV.
The four to five channel analogue PPV service will launch in January, said Miller. "The ODM group now must turn their attention more fully to implementation."
For the consumer, there will be little to notice. Due to Sky's ratecard to cable operators being tied with retail DTH prices, in CATV prices to subscribers have been uncompetitive. The new PPV deals will mean that when cable viewers and DTH viewers are first offered a particular film - and the windows will likely co-incide - cable subscribers won't necessarily have to pay more than their DTH counterparts.
The City has been slow to react to the news of General Cable's build-slowing news - its share price moved little after the announcement, but at press time had fallen to 117p.
The move toward recognising the value of its network, acknowledging its own inability to maximise it, and instead selling access to others has to be seen as the only way forward for General and possibly the entire cable industry. The litany of UK cable's disastrous efforts at being programmers is notoriously long. And the near-monopoly of Sky in this arena, despite recent cable efforts at mini pay bouquets - initiatives operators inexplicably consider to be touchstones of innovation and ingenious marketing - means that real CATV profits are a very long way off.
Most other telcos in the world have scaled back or cancelled their plans to become TV companies. It appears that General Cable is the first UK cable operator to admit that its greatest asset is its high capacity network, and that it is in the interest of its shareholders to make the most of it that it can. |
