Divicom has a lot of RBOCs, but not GTE.............................
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INTER@CTIVE WEEK<Picture>July 21, 1997
Telephone Companies Keeping Video In Play
Some are still moving aggressively into cable TV, while others plot their broadband strategies
By Fred Dawson
Contributing Editor
Having largely abandoned plans to buy cable companies or build cable-like networks, the telephone companies don't appear to be trying aggressively to get into the cable business -- until you take a closer look.
Despite the fits and starts brought about by indecision and strategic distractions, not only are the telephone companies interested in video as part of an overall broadband strategy, but many are forging ahead into today's version of cable TV on the grounds that getting up to speed sooner is better than later. So far, market results appear to suggest they're right.
Many telephone companies have experimented with building new cable TV networks that use the Hybrid Fiber-Coax, or HFC, network architecture used by cable TV companies. The major local exchange carriers that market analog cable services over these networks to more than a quarter-million households in various parts of the country report strong results against incumbent cable companies, with some areas exceeding projections by significant margins.
GTE Corp., for example, has registered "encouraging" early penetration numbers in its Clearwater-St. Petersburg, Fla., cable network, while ringing up much larger than expected take rates at its other newly built cable network in Ventura County, Calif., says Brian Blevins, spokesman for GTE (www.gte.com).
"We've seen nothing that says we're on the wrong track," he says.
U S West Communications (www.uswest.com), one of the few major carriers to report actual penetration rates, has reached the 38 percent mark in Omaha, Neb., where its HFC network now passes 16,500 households, spokesman Jerry Brown says. The figure translates into 54 percent of households subscribing to cable, he adds.
These are fairly mature figures, representing market efforts through a one-year trial and a subsequent period of commercial operations that got under way in August 1996.
Probably more typical of the commercial rollouts with much shorter lifespans are the penetration rates hinted at by Ameritech Corp. (www.ameritech.com), which says "nearly three out of every 10 families watching cable" have signed up for its service where it is offered.
Still Unconvinced
Such numbers are convincing to the convinced, but if a carrier's leadership is not persuaded that HFC cable or wireless networks are a useful starting point for entry into video, apparently no amount of success can sway them. This is a lesson learned the hard way by Henry Kavett, senior vice president of Utilicore Corp., formerly named Advantage Cable TV -- the service provider for Sprint Communications Co.'s cable TV trial in Wake Forest, N.C.
"Market penetration was off the charts, so we were pretty confident Sprint would go forward with building out the market," Kavett says.
But, despite having hit 77 percent penetration of what eventually became 650 homes passed during an 18-month trial, Sprint pulled the plug on the operation May 4 after declining a last-ditch buyout offer from Advantage.
"They're just abandoning the plant," Kavett says, noting that his firm's name change reflects a decision to work with utilities and municipalities to implement its service strategies now that the telephone company route appears closed.
But Sprint (www.sprint.com) isn't abandoning video, spokeswoman Laura Meyer says.
"Our Wake Forest decision was strictly based on the technology and other conditions specific to that trial," she says. "It says nothing about our position on video as a company."
U S West, with its sterling performance in Omaha, has every intention to eventually pursue video services, but it's not ready to commit the money or the attention to the effort, spokesman Brown says.
"Something could come up suddenly on the wireless side and change that," he adds. "But right now we've got our hands full working out the details of interconnection and preparing to get into the long-distance business, so video is a lower priority than it was."
No New Networks
No telephone company has gone further in downplaying the importance of video than SBC Communications Inc. (www.sbc.com), which last month pulled the plug on its own and Pacific Bell's video projects, leaving only the latter's Multichannel Multipoint Distribution System, or MMDS, launch in Los Angeles to operate in a limited rollout mode while the company weighs market responses and its future options. But SBC's decision doesn't reflect lack of interest in the video business, spokesman Larry Solomon says.
"We made the determination [that] we don't have to build or operate a wireline video network in order to be a total service provider," he says. "There are other options, such as partnering with providers of DBS [direct broadcast satellite] or wireless services."
The decision was driven by concerns over the costs of building such networks, not by any doubts about the importance of having video services as part of its package, Solomon says. Costs incurred in the Pacific Telesis Group acquisition are not the problem, he adds.
Rather, the decision to hold back on broadband deployment stems from new calculations attending deregulation, which relate to everything "from price caps to what we're going to have to spend on making number portability possible," Solomon says. The digital MMDS service in Los Angeles -- also known as wireless cable -- has generated "wonderful reviews" since its launch in May, he adds, declining to comment on speculation that the carrier seeks to sell the new system.
Like SBC, Nynex Corp. recently pulled out of trial HFC networks and MMDS-based video start-ups, some with facilities already installed, but the New York-based carrier has articulated new broadband architecture plans, based on fiber-to-the-curb networks to be supplied by Next Level Systems Inc. Those plans include video as a key piece of the eventual service mix.
"We all understand the future is broadband, but timing -- when you sink that investment -- is crucial," says Walter Silvia, vice president of broadband at Nynex (www.nynex.com).
Bell Atlantic Corp., with initial construction of similar facilities supplied by BroadBand Technologies Inc. and Lucent Technologies Inc. already under way in the Philadelphia area, has essentially the same strategy.
"We expect to begin turning up telephony later this year in Philadelphia, but it will probably be another two years before we go to video services," he says.
Some Aggression
The true measure of where the telephone companies are headed can be found in the Americast venture, a partnership including Ameritech, BellSouth Corp., GTE, SBC, Southern New England Telecommunications Corp. and The Walt Disney Co. Apart from SBC, which, Americast spokeswoman Jennifer Noonan says, is not pulling out of the partnership, all the telephone companies involved are moving aggressively ahead with their wireline and wireless cable deployments.
The partners have pledged capital commitments of $500 million to programming and related technology development over a five-year period that began with the formation of the venture in the fall of '95, and they will spend hundreds of millions more on network deployments.
"We're developing original content and a lot of interactive things that we'll be ready to talk about in the fall," Noonan says.
Noonan refuses to discuss any plans the venture might have to marry the interactive high-speed data side with digital TV at the set-top, but she acknowledges the idea is a possibility.
No telephone company is pursuing entry at the cutting edge more aggressively than GTE, the first to move to digital services over wireline -- in this case HFC -- facilities. GTE was set for a late July launch of digital video in its fast-growing Clearwater-St. Petersburg franchise, where 125,000 homes now have access to 79-channel analog cable service, and a smaller portion is also in reach of the telephone company's new WorldWind high-speed data service.
Initially, GTE will offer 35 channels of broadcast digital TV, with movies and other content to be encoded at the local system using Lucent Technologies' new MPEG2 encoders, Blevins says. Another 26 digital channels will be added by year's end, he adds.
GTE also plans to introduce digital in the Ventura County franchise before the year is out, starting in Thousand Oaks, Calif., and surrounding areas, where its network now passes 40,000 households, with another 16,000 under construction. Unlike other Americast partners, which are committed to the Divicom Corp. digital system and the all-digital Zenith Electronics Corp. set-top box, GTE is implementing hybrid analog-digital services over Next Level's DMT-1000 set-top unit.
"We're not operating as a maverick in Americast, but we have different schedules and requirements," Blevins says. The company isn't ready to announce any decisions on additional network deployments or digital architecture, he adds.
The carrier's move to digital TV coincides with the rollout of high-speed data services in Clearwater and in Newbury Park, Calif., near Thousand Oaks, using modems supplied by Bay Networks Inc.'s LANCity Corp. division. These introductions, managed by the carrier's cable services unit, are slated for further expansion as the year progresses, with content support coming from the GTE Intelligent Network Services division, Blevins says.
Next up for a jump into the digital domain is BellSouth (www.bellsouth.com), which plans to launch all-digital video services over its MMDS system in New Orleans in the third quarter, according to Chris Anderson, director of strategic communications at BellSouth Entertainment. The carrier will follow the launch with a digital MMDS rollout in Atlanta in early '98, with conversions to digital wireless in already operating analog markets to follow in several South Florida cities and Louisville, Ky.
Wireless Service
The company now has 17 communities under cable franchise, all but two of which are in fairly small, new residential development. In contrast, BellSouth's wireless holdings now cover a market base representing 4.5 million line-of-sight households. Anderson makes clear that, ultimately, the company's buildout in any given territory is likely to involve a combination of wireless and wireline.
The other carriers in the partnership decline to discuss their plans for digital TV or high-speed data, other than to say they'll act when the time is right on digital TV. There appears to be relatively low interest in cable modems, as reflected by their absence from the Zenith set-top unit.
BellSouth is testing high-speed data services over cable modems in Chamblis, Ga., outside Atlanta and might offer such services over its wireless holdings, Anderson says.
Ameritech is focusing on Digital Subscriber Line, or xDSL, as its preferred deployment mode for data, although sources report the carrier also is looking at cable modems.
SNET spokeswoman Beverly Levy declines to discuss plans for high-speed data over the carrier's rapidly expanding HFC plant, which now passes 29,000 homes in three Connecticut communities. But, she adds: "We think of ourselves as providers of the next generation of home entertainment."
Given the role the rapidly converging realms of television and high-speed data are likely to have in shaping that next-generation package, it seems curious that, unlike cable companies, the Americast venturers rolling out services over HFC plant express so little interest in bringing data to the family room via cable modems.
It could well be that, as one vendor executive suggests, telephone companies using HFC plant to get started may not stick with the technology much longer.
More Serious
No matter what their previous positions, telephone companies, seeing the cable industry coming back into view as a threat on the strength of successes in high-speed data, are more serious than they've been in a long time about expediting broadband entry, says Gordon McKenny, director of technology and planning at Next Level (www.gi.com), which is supplying fiber-to-the-curb technology to Nynex. But the clarity of the need to enter on an integrated digital service platform is quickly drawing attention away from HFC, he adds.
McKenny says that even Ameritech is backing off the idea of building out HFC networks, a point that Ameritech had not confirmed at press time.
"There are obvious advantages in HFC for cable companies, but among telephone companies, there's a realization that HFC is on its last legs," McKenny says.
If Next Level's and other providers' assertions about deployment costs for their fiber-rich systems in '98 and beyond are borne out, fiber-to-the-curb technologies will be at cost parity with the expense of rehabilitating existing copper networks in that time frame.
That cost parity would give telephone companies financial justification for adding broadband capabilities via fiber-rich networks at lower incremental costs than it would take to build HFC networks.
Moreover, McKenny says, those incremental costs will support delivery of services in the end-to-end Asynchronous Transfer Mode, or ATM, format Next Level plans to deliver to Nynex in conjunction with the upgrade to broadband.
If he's right, the divisions that present a picture of scattered agendas and lost purpose among the major carriers could rapidly disappear. As Lee Camp, president and chief executive officer of Pacific Telesis Enhanced Services, says: "Mostly, all of this is about what's going to happen in the next decade, not what's happening now." |
