Frank, I missed this article,its from the Chicago Tribune,about why 21st Century is stringing twisted pair along with HFC. They are only targetting a small number of business clusters for telephony,and do not believe IP telephony is ready yet.
Calls and cable: No clear connection
By Jon Van, Tribune Staff Writer.
Published: Sunday, July 12, 1998
On its surface, the notion of delivering phone calls and cable TV programs on one network just makes too much sense to question. Why not boost revenues by making those lines do double duty?
That logic certainly helped Congress pass the telecommunications law in 1996 when lawmakers predicted that once they were de-regulated, cable TV operators and phone companies would plunge into each other's business, improving service and lowering prices.
The same logic is central to AT&T Corp.'s move to buy Tele-Communications Inc., the giant cable TV outfit, so that it will have lines into neighborhoods on which to provide its long-distance customers with local phone service.
But enticing as it may seem to put voice and video on a single system, it hasn't worked well in the real world. And it isn't likely to work in the near term, says Chicago-based entrepreneur Glenn Milligan, who's been trying to launch a competitive cable TV and phone service along Chicago's lakefront for more than a decade.
Milligan has raised $300 million and is building a TV and telephone network, but it isn't the single-line voice and video system touted for so long as the key to boosting competition. Instead, Milligan's network is really two systems bundled together--one for telephone service and another for cable TV.
The experience of Milligan and his company, 21st Century Telecom Group Inc., might explain why investors have been skeptical that AT&T's acquisition of TCI will enable the long-distance giant to compete effectively with Ameritech Corp. and other local phone providers.
It also suggests why even though competing video and voice services are springing up in parts of the Chicago region, widespread national competition in local phone service and cable television hasn't happened yet and probably won't anytime soon.
Milligan, whose company plans to launch telephone service to selected parts of Chicago, including the Loop, this fall, said he was gratified to learn that AT&T wants to buy TCI, "because that validates our own business concept," but he shares market skepticism.
"For AT&T to take TCI's cable TV systems and make them deliver phone service is like trying to take an apple and make it into an orange," Milligan said.
On the surface, cable TV and telephone networks may look quite similar. Both use optical fiber to carry high volumes of information from their main offices, for instance. But when they travel the last mile or so to connect to customers' premises, things change.
Television shows travel to customer homes on high-capacity information pipes called coaxial cable, while phone calls flow on low-capacity, plain copper wire. Coaxial cable uses a core of copper in a specially insulated configuration that radically boosts its ability to carry information.
It is possible to put phone calls on coaxial and TV shows on copper, but quality and reliability suffer.
The problem, said Jay Carlson, 21st Century's chief technology officer, is that the cable phone technology available today is too failure-prone for it to serve as a customer's only phone.
Because poor picture quality irritates customers, technicians often must interrupt video delivery service briefly to improve it, he said. Shutting down TV service for a few hours in the wee hours of the morning won't bother many customers, but if phone service travels on the same network, it's a big problem because people want their phones available all the time.
"There's been a lot of emphasis on cable phone products and turmoil in the industry for the past 18 months," said Carlson, "but the technology just isn't there yet."
So 21st Century has decided against putting telephone service on the coaxial lines that deliver TV shows. Instead, its phone network is designed pretty much like that of Ameritech and other traditional phone companies. In this regard, 21st Century's approach mirrors Ameritech's foray into cable TV. At first, Ameritech executives proposed using their firm's ubiquitous telephone network to supply video to customers, but technology limitations soon caused them to rethink their plan. They decided instead to build separate fiber-coax systems to deliver video and leave their phone system alone.
"We concluded that to deliver reliable, high quality video, we needed a hybrid fiber-coax system," said Geoff Potter, an Ameritech spokesman.
Ameritech has concentrated its cable TV efforts in the metropolitan areas of Chicago, Detroit, Cleveland and Columbus, Ohio. After nearly three years, it has won franchises to build cable systems in 10 Chicago suburbs. However, so far it is offering service in seven of those suburbs, a much slower pace than was contemplated in the original plan to upgrade the phone system to deliver video.
21st Century's decision to keep voice and video separate also brings some marketing limitations. Because it's more expensive to keep phone calls separate from TV shows, the company will only offer phone service to people in large buildings where economies of scale prevail. These concentrated clusters of customers might be offices in a Loop building or residents of a Lake Shore Drive high rise.
Eventually, said 21st Century's Carlson, he hopes to offer phone service to people in small buildings and single-family homes, but that won't happen until a new technology for delivering voice conversations, called Internet protocol, is widely available.
This technology wraps voice calls into packets of data that look just like everything else on the Internet and sends them on data lines instead of through traditional circuit switches.
Sending Internet data at high speeds seems to work well on coaxial lines, and even on copper phone lines when the phone network has been properly upgraded.
But Internet protocol telephony requires specialized equipment to work, equipment that just isn't available with sufficient quality at low enough prices right now, said Carlson.
"We think that Internet protocol is the future of telephony," said Carlson, "but it'll be at least two years until the technology will support it. And you want to remember that this industry has a history of being 24 months late on everything it predicts, so it may well be four years away."
Such pessimism from 21st Century, a company that has staked its future on bundling phone, Internet and cable TV, is not good news for AT&T. After AT&T's stock plunged on news of the $48 billion stock-swap and debt-assumption deal to buy TCI, David Nagel, AT&T's chief technology officer, assured analysts that his firm has the needed technology well in hand.
Nagel's estimates that it will cost AT&T about $5 billion and take 30 months to upgrade TCI's systems to carry Internet protocol voice calls failed to boost AT&T's stock price, and 21st Century's executives say Nagel's view was probably overly optimistic.
Milligan, who is 21st Century's chief executive and chairman, said building a video, voice and data network from scratch as he is doing is much easier than retrofitting an existing network as AT&T hopes to do.
But even though Milligan, a former executive with Walt Disney Co., is optimistic about his own firm's future, he faces a considerable challenge in competing for cable customers now served by TCI and phone customers connected to Ameritech's network.
Only 5,000 customers now subscribe to 21st Century's cable service. The firm expects to add many more subscribers this fall, but it had similar expectations a year ago and was thwarted by construction delays.
If things go as Milligan hopes, he will win customers by offering more useful, innovative products and better customer service than his competitors. His firm's rates will be comparable to what TCI now charges, but 21st Century will offer more channels and some interactive video information services tailored to the city, such as airline arrival and departure times straight from O'Hare International Airport.
Because his target market is among the richest, most densely packed patches of urban real estate in the country, Milligan believes he can make money even if he only lures a fraction of potential customers away from his large and powerful rivals.
But even if Milligan and 21st Century do succeed, and the portion of Chicago nearest Lake Michigan gets a new choice in telephones and cable TV, it will become a notable exception in a nation where monopoly communications remain the rule.
Hiram |
