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To: Duane L. Olson who wrote (8913)	1/12/1998 4:47:00 PM
From: Moonray	Read Replies (1) \| Respond to of 25814

TCI's Malone Getting What He Wants to Develop New Cable Boxes Englewood, Colorado, Jan. 12 (Bloomberg) -- Tele-Communications Inc. Chairman John Malone's push to develop the next generation of cable television boxes is coming out just like he wanted. Agreements reached last week with Microsoft Corp. to supply the operating system and Sun Microsystems Inc. to develop some software ensure no one Silicon Valley company will control the boxes. Even better for TCI, technology companies seem ready to pay some of the billions it will cost to make the set-top boxes. Next on Malone's list are the computer chips, servers and software that will allow consumers to order TV shows when they want or surf the Internet. He's pitting browser maker Netscape Communications Corp. against Microsoft and chipmaker Intel Corp. against Advanced Micro Devices and Motorola Inc. -- among others. ''They need a chip; they need a browser,'' said Dave Folger, an analyst at Meta Group. ''There will not be just one chip. There will be a range of these boxes.'' For Malone and other cable executives like Time Warner Inc.'s Gerald Levin, the fragmentation is following the script they wrote last year when they warned that no one company -- especially Microsoft -- would be allowed to control the set-top boxes. And there's sure to be even more competition since Time Warner and other cable providers such as Cablevision Systems Inc., Cox Communications Inc. and U S West Media Group are negotiating their own arrangements with computer and software companies. Those high-technology companies are all working from the same set of open standards created by an industry group that will allow the systems to work together. ''This is happening exactly the way the cable industry had hoped,'' said Mike Luftman, a spokesman for Time Warner Cable, the second-largest cable operator after TCI. Financing Even better, Malone said this weekend that companies such as Microsoft may help finance making the boxes and get them into people's homes. About 65 million U.S. homes have cable. Such a financing pool could reach $5 billion, with TCI and Microsoft each putting up $1 billion and other companies providing the rest, said Rob Enderle, an analyst with Giga Information Group. ''It provides the money needed to buy the software Microsoft wants to sell, and it gives them a return on their money'' of perhaps 20 percent on each $300 box that's sold, he said. Separately, Microsoft will receive about $100 million, or $20 a box, for licensing fees from the initial order of about 5 million boxes, he said. Sales of related software could add another $400 million, and the total could climb to about $1 billion if Microsoft supplies another 5 million boxes with its Windows CE software. Demand? Of course, it isn't clear yet just how much demand there is for the boxes, which Malone said will allow people to surf the Internet while watching television and ultimately perform financial transactions such as banking. Past attempts at interactive television -- most notably an experiment by Time Warner in Orlando, Florida -- failed because the systems were difficult to use. The difference, this time, though may be the growth in the popularity of the Internet. The idea is to move people from their desks to their couches, analysts said. ''This will be transforming, beyond even the VCR,'' said Jay Nelson, an analyst at Brown Bros. Harriman & Co. ''The world is going digital and here are these guys in the cable industry with fat pipes into people's homes.'' The cable industry has staked its future to the development of digital boxes -- and so far investors are believing. TCI's share price, for example, has nearly doubled in the past 12 months to 28 from 14 7/8. Demand for low-level digital boxes, which provide more capacity for TV channels but little in two-way interactivity has been strong in TCI's test markets, company officials say. The next-generation boxes are expected to reach customers next year. TCI and eight other companies already ordered about 15 million boxes for $4.5 billion from NextLevel Systems Inc. Time Warner and Cox said today they continue to negotiate their own agreements for operating systems, chips and software. They declined to be more specific. ''If this takes off, they would need a large infrastructure of machines with databases and web servers,'' said Folger of Meta Group. ''They would need a very powerful collection of servers and devices.'' o~~~ O