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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: John F. Dowd who wrote (21977)	5/3/1999 6:57:00 PM
From: DiViT	Read Replies (1) \| Respond to of 74651

Liberty ponders cable box deal Diane Mermigas, Financial Editor 03/29/1999 Electronic Media Page 30 Copyright (C) 1999 Crain Communications, Inc. All rights reserved. John Malone's New Liberty Media Group is considering a plan to accept equity in smaller cable operators in exchange for leases on fully interactive advanced digital set-top boxes that would bring America Online content to TV. An alliance between Liberty and AOL would give the leading online service provider a much needed foothold in broadband. Neither Liberty nor AOL will comment on the plan to make high-speed cable boxes available to as many as an estimated 30 million cable households not dominated by major cable players. Mr. Malone has mentioned his interest in using Liberty's $16 billion in cash and other financial resources to create a capital arm for small cable operators. "With nearly half the current online households subscribing to AOL, the potential conversion of some of those AOL households into high-speed data subscribers would become an incentive for the smaller operators to cut deals with Liberty and for Liberty to do a deal upfront with AOL," said Tom Wolzien, analyst for Sanford C. Bernstein. Inclusion of proprietary AOL software in an advanced Liberty box due out later this year would give AOL a head start cutting deals with second- and third-tier cable operators, few of whom have existing arrangements with either AT&T Corp.'s @Home or Time Warner's Road Runner. It would assure AOL high-speed availability through much of the country, Mr. Wolzien said. It also would set the stage for more friendly negotiations with big cable operators like Time Warner and AT&T Corp. The open access AOL is seeking through regulatory efforts isn't enough, analysts said. AOL ultimately must gain access to television screen display processing of its proprietary software. In a new report, Mr. Wolzien estimates that without broad cable distribution deals, AOL would lose one-third of its valuation. Cable's ability to deliver bundled services over a single wire into the home through an interactive, digital box gives it an advantage over satellite companies and regional telephone companies with which AOL has been making high-speed delivery arrangements. General Instrument, the primary supplier of the DCT5000 advanced digital set-top boxes, says it remains on track to deliver 100,000 such units to the nation's top cable operators in the third quarter and an additional 400,000 DCT5000 units in the fourth quarter. Although widespread rollout of about 1.5 million DCT5000 boxes is not expected until next year, GI Chairman Ed Breen said its distribution will be more gradual because it represents a leap to more expensive and sophisticated bundled services, including IP telephone and high-speed data. General Instruments is contracted to deliver 15 million boxes to major cable operators over the next 5 years. GI's broad distribution of the DCT2000 early interactive box has been a more automatic migration from earlier boxes for subscribers, Mr. Breen said. AT&T's newly acquired TCI will begin full-scale Beta testing of the DCT5000 boxes in August, rather than June as originally planned, TCI officials said. One of the primary challenges has been to interface and test operating systems and software into the new boxes that will facilitate IP telephony, high-speed data and network game playing applications such as Sony Aperios. GI plans to ship 100,000 DCT5000 units in the third quarter and 400,000 units in the fourth quarter. Cable operators have been mum about their software selections for the new boxes. TCI has said only it will include @Home and Microsoft Windows CE operating system needed for high-speed data services to the television. The lack of details could be, in part, because rollout of the early interactive DCT2000 box is going so well, sources say. # Photo/Graphic: John Malone: Aligning with AOL?