Cable 2001
By Amanda Rogos
(June 11)

WAVE Issue #0129

Robert Sachs Opens Cable 2001

The year 2001 marks the NCTA's (National Cable Television Association) 50th annual convention - the first taking place in Pottsville, Pennsylvania in 1952. Since that time, the industry has grown to a $48 billion industry and encompasses more than just television - offering 80 channels of analog video, growing digital options, movies on demand, and high-speed Internet service. Recently the networks have also begun to offer interactive services and telephony.

Robert Sachs, the NCTA's CEO and President estimated that over the past five years the industry has invested nearly $50 billion to upgrade more than three-quarters of a million miles of plant with fiber optics. Sachs claims that this has resulted in more than 12 million consumer subscriptions to digital cable services. This is more than 135,000 digital customer installations every week.

Other initiatives mentioned include Cable in the Classroom, a service that provides free high-speed Internet to schools and libraries as well as child, parent and teacher education. And the industry's cable modem service, which is available to almost 60 million U.S. households. The service has over five million subscribers and 70,000 more are signing up each week. Lastly cable's phone services provide one million residential phone customers with telephony.

The result of these service deployments? According to Sachs it is, "Fierce competition and rapid growth in this critical sector of our economy." And citing the success of the 1996 Telecommunications Act, Sachs boasted that rate deregulation has enabled the industry to invest billions in technology, programming and customer care, bringing competitive choices to consumers.

In light of the fact that the NCTA show features a host of public policy sessions and is attended by many government representatives, he finished on a hopeful note, saying that in his view, "Public policy makers understand that cable is very different than it was a decade ago. And most understand that we face strong competition in every facet of our business. As importantly, there is a growing recognition that our industry is the leader in making broadband happen."

WAVE Comments
By John Latta

Put in another way - we invested a lot of money in an uncertain business, please help us protect it. And as the FCC Commissioner stated (A Short Warning by FCC Commissioner Powell), put in another way - do not expect to get any help from me and there are areas where you need to clean up you act. These are the dynamics of regulated telecommunications. Each side jockeying for favor with the other in a continually changing technology and political landscape. In the end the cable industry cannot rely on politics and it must deliver value to consumers. Hard lesson for them to learn.

A Short Warning by FCC Commissioner Powell

Yesterday, FCC Chairman Michael Powell spoke briefly (very briefly) at Cable 2001's keynote session. During his presentation he seemed to have two goals - one to issue a warning to the cable industry about possible regulatory retaliation if they did not preserve choice, partner with, not fight programmers and service partner initiatives, and keep prices reasonable. And two, to disguise the fact that his presentation held a warning.

To this effect he compared the history of the cable industry to a fairy tale. Early in its history the industry was widely perceived as the toad of the communications sector - regulatory policy was hostile due to its view that cable was a dangerous upstart that threatened the broadcast industry, Wall street was not enamored by the heavy debt funding, and consumers were less than satisfied due to rising prices and decreasing quality.

Recently though, a "digital kiss" was placed on this toad - IP networks and digitization began to move cable to center stage. Powell claimed that due to technological advances video has risen to new levels; offering expanded programming channels, increased choice, VOD, and interactive television. In addition advanced broadband services are being rolled as we speak. Powell even stated that some industry observers believe these broadband services may be as significant to the economy as were electricity and the telephone system.

To back up these claims Powell gave the following statistics:

Spending on Infrastructure
1992 and 2000
$2.2billion and $12.4bil

Growth of national cable networks
1992 and 2000
87 and 281

The Commissioner then moved on to the task at hand stating, "Sadly with the history of this industry we must ask. Will it last?"

In his eyes, the answer will depend on the industry's "ability to manage change and address the anxieties that arise when a market has a clear competitive edge." Clearly a warning, especially when followed with a numbered list of items "to watch for."

Digital television transition
Powell urged the cable industry to become a productive partner not an obstacle to the broadcasters' transition. (Editorial comment: A hint at the recent must carry debate?)

Program access/vertical market power
Cable should be a digital gateway and not misuse their power to prevent programmers from getting to consumers. (Editorial comment: This is the same old common carriage argument put in a different way - Powell is using it to support customers, very interesting).

Broadband/interactive TV
Preserving variety and choice will be essential to this market success.

Consumer value
Powell suggested that consumer value must remain high, warning that price, the amount of choice and quality are problems that call for government action. (Editorial comment: A not very veiled threat about rising prices?)

Powell ended by claiming that for the industry to succeed without government "help," choice in telephone service, diversity of information, news and entertainment are needed. And reverting back to his fairy tale beginning, he concluded by saying, "It is a challenge worthy of a prince." Nice cover.

The Path of Big Returns: We're Making Broadband Happen

During a panel session at the Cable show, representatives from the cable, network and enterprise markets discussed investments, the future of interactive television, VOD and the fate of advertising in this new market. Since the discussion was so wide- ranging we have organized this article by topic.

Panelists
CEO Lifetime Entertainment Services - Carole Black
President A&E Television Networks - Nickolas Davatzes
President & CEO AT&T Broadband - Dan Somers
Senior VP Microsoft TV Division - Jon DeVaan
President & CEO Wink Communication - Maggie Wilderotter
President Insight Communications - Michael Willner

Topics

Microsoft Investment in AT&T and Broadband
According to Jon DeVaan, Microsoft is a software company and does not want to own wires or content. Instead, the company will use their investment ability to help foster this part of the economy due to the fact that as broadband networks expand, software will be needed to drive the services. Toward this goal, the company is a strategic partner with several companies providing interactive TV and set-top box products - AT&T being one of them.

When asked about AT&T's recent announcement about downsizing to a simpler version of the interactive-television service it has been developing with Microsoft, DeVaan claimed that although progress has been slow the company is not rethinking their investment decisions. On the other hand, the company believes that because these initiatives are on the forefront of the industry, some things go right and some go wrong - and that is normal.

As background, AT&T and Microsoft had reached a deal under which Microsoft invested $5 billion to provide software for TV set-top boxes that would deliver high-speed Internet access, digital TV and telephone service. AT&T market research recently indicated, though, that consumers weren't ready for many of the planned advanced features. Analysts believe that the move could also be a cost-saving measure to prepare for the company's restructuring effort (to split AT&T Broadband into a stand-alone company).

Interactive Services
Wink Communication's Maggie Wilderotter stated that she believes the technology is often too far ahead of the consumer, which has slowed the industry down. Today set-top boxes offer 200-300 channels, an electronic program guide, some interactive television, and modem/Internet access, and she believes that consumers may need to get comfortable with those services before more are introduced.

Another panelist mentioned that behavior modification will take some time - the mouse and touch screen were invented over 25 years ago and although the mouse has become an integral part of computer use, the touch screen still has not been readily adopted. The industry's big hope lies in the changing demographic of the country, the panelist said, the younger generation, which is more adaptable.

Nick Davatzes said the A&E Network is moderately invested in interactive services. Specifically, their History IQ show offers an interactive version in which viewers can play along. Davatzes estimates that 50,000 viewers have participated at any one time by logging onto their computers to watch/play along with the show online. At this point the game is free and A&E has not plans for a service fee at this time.

Video-on-Demand or Video-on-Delay
Michael Willner, President of Insight Communications believes (contrary to the moderator) that Hollywood has concerns about their business model, but are still very interested in VOD. He claims that there are negotiations in progress due to the fact that at the end of the day if a customer has the choice between buying a movie on cable vs. driving to Blockbuster they will choose television - and Hollywood will benefit.

AT&T Broadband's President & CEO, Dan Somers claimed that they have a very big PPV business yet they lag video stores by 3-6 months for releases. Therefore in his mind VOD will be a huge success because it will not only give more control to the viewer with movies, it will also allow them to purchase missed episodes and tournaments from regular television. He also suggests that when the cable industry has 12-15 million homes connected it will only be a matter of time until Hollywood studios are negotiating with the industry.

According to Davatzes, A&E is in negotiations with several MSOs (Multiple System Operator) to make their biography programs (a library of about 900) available for specialized products/services. He predicts that the network will release these services in second half of 2001 with at least one MSO.

PVRs (Personal Video Recorders) and Advertising
Carole Black, CEO of Lifetime Entertainment Services believes that advertisers are going to have to be more creative to succeed with the advent of PVRs. For example, Coke has placed cans of Diet Coke in scenes of the cable show "The Sopranos" - on a noncommercial network - to get viewers. Lifetime has pledged to work more closely with their advertisers to give them the environment they need to sell their products creatively - to increase product revenues and to sustain advertising support.

@Home - Trouble?
Dan Somers claimed that although the site has gone through a difficult time, it is due to the explosion of the dot come arena and the reduction is capital that has resulted. @Home has secured $100 million in financing, and AT&T has been discussing outsourcing or backbone agreements with the company to help it along.

Recently their leadership has changed (8 weeks old) and since then they have begun to strategically look at their focus to see if a change is needed. Somers estimated that AtHome currently has 1.3 million customers of high-speed service.