Plans to offer telecom, other services

Any thoughts that there will be any fundamental differences between next-generation cable systems and next-generation phone systems should have been put to rest by the announcements and demonstrations of the past few weeks:

CableLabs demonstrated a fully switched ATM-based fiber/coax system at the Western Cable show (see p. 18).

Pacific Bell announced that it will install this (cable) architecture to replace its existing twisted-pair phone wiring (see p. 3).

And, five of the six top cable MSO’s (Multiple System Operators) announced an as-yet-un-named joint venture to develop and support virtually every sort of telephony and interactive data service except (for the time-being) for local residential voice service.

In many ways, the new joint venture is the culmination of a gradual — but profound — shift in thinking and strategy on the part of key cable executives. During the past couple of years, the focus has shifted from movies-on-demand to a broad spectrum of subscriber-based telecommunication services. We suspect that the success of local telephone service over cable in the UK (where cable operators are permitted to compete with the phone company) has had a great deal to do with this shift in thinking. It is clear that cable execs now see as much (or more) gold in telephony over cable as they do in video on demand and home shopping.

TOGETHER AT LAST

The new joint venture is supported by TCI, Time Warner, Cablevision, Comcast and Cox. Together, they serve more than 40 percent of the U.S. cable subscriber base. Three of the five (TCI, Time Warner and Cox) already have ties to one of the seven regional Bell operating companies.

Partially because they are barred in most states from offering standard residential phone service, the cable companies will focus initially on other residential services. These will include wireless Personal Communication Services (PCS), “bypass” access to long-distance telephone service with a lower surcharge than levied by local phone companies, videophone, broadband data communications and on-line energy management. Working in conjunction with Teleport Communications Group (also jointly owned by the same five companies), the new venture will also offer data communication services and “bypass” access to long-distance carriers to business customers.

Most important, the partners will interconnect their local systems to create metropolitan area-wide networks that can more directly compete with regional phone companies. One of the major problems cable operators have faced is the way in which cable franchises are fragmented. Chicago, for example, is served by 12 different — and disconnected — cable franchises. The new consortium (which other cable operators will be invited to invest in) will strive to link regional franchises into a coherent network.

THE TELEPORT LINK

Teleport Communications Group is (along with MFS Communications) one of the two largest business “bypass” service providers. Teleport has installed fiber rings in 11 metropolitan areas, offering business users inexpensive, high-bandwidth communication services between any two connections in the Teleport net, as well as, direct access to the switches of major long-distance carriers — thus bypassing the local phone company and the local phone company access charges for long-distance service.

Last year, TCI and Cox bought Teleport from Merrill Lynch (which had supplied much of the capital for the company). Since that time, Comcast, Continental and now Time Warner have joined the consortium. Cox owns slightly more than 25 percent of the company, TCI slightly less than 25 percent; the other three own 162/3 percent each. The Time Warner investment, announced on Dec. 1, is being made by the parent company, not Time-Warner Entertainment (which is partially owned by US West).

Through Teleport, the five owners and other cable operators have begun to move into the business communications market. So far this year, Teleport has announced joint ventures with cable operators in Detroit, Phoenix, St. Louis, Providence and south Florida.

RESIDENTIAL SERVICES

Cable companies in this group and many others have been quietly conducting experiments with new types of telecommunications services, going well beyond the commercial access services offered by Teleport and other CAPs (competitive access providers), Time Warner, for example, has just completed a technical test of a system to provide residential customers access to long-distance services via the cable network. In addition, Continental Cablevision Systems Corp. and others have been experimenting with a broad range of data services, including work-at-home, institutional connections, broadband access to the Internet and wireless data.

Experimenting with PCS. Cable companies have been experimenting with PCS even longer. Most of the effort has been focused on using existing coax cable as a “backbone” to connect the thousands of PCS transmitters/receivers required to service a metropolitan area. However, PCS could also provide an elegant means of providing residential service to cable customers. A transmitter/receiver attached to the cable coming into the home could turn the home into a micro-cell. The same phone handsets could serve as wireless phones at home and PCS cellular phones away from home.

With the FCC scheduled to begin licensing PCS operators next year, cable companies in and out of the joint venture are now looking at the best approaches to bid for spectrum. “The work with PCS, data communications and other things of this sort has pulled me out of the digital television stuff almost altogether,” says the engineering vice president of one of the top cable companies, who asked not to be identified. “The more we look into the telecom side, the bigger the market we find for the services we can offer over broadband channels. It’s absolutely amazing.”

Standard telephony over cable? The latest test to come to light is also the first to involve delivery of standard telephony to residential customers over cable lines in the U.S. In late November, the commercial telecommunications provider Jones Lightwave and its affiliated cable multiple system operator, Jones Intercable, named Scientific Atlanta as its supplier for the first U.S. market trial of cable-delivered telephony service. This is scheduled to begin in the Chicago area by the middle of next year. The companies, with MCI as the long-distance partner, will also provide a long-distance access service to 50 of their employees in Alexandria, VA.

But not just yet. As for the new joint venture, Robert Thomson, senior vice president for communications and policy planning at TCI, says the group’s focus would not be on standard residential phone service at this point, owing to the legal barriers in most states. (Illinois is an exception.) Instead, it will put together support operations for each of the five service categories listed above, which will allow local cable participants in the venture to offer whichever mix of services makes the most sense to them, from just one to all five.

UTILITY SERVICES MANAGED BY CABLE

While PCS, datacom and long-distance access are fairly well-explored service categories, energy management and videophone are largely unknown possibilities at this point. Venture participants said their networks would support full-motion video telephony, which might be offered as a component of long-distance service at the outset or as part of a work-at-home connection between employees and their companies.

Remote energy management employing wideband or broadband connections is just catching fire in utility circles. Energy and environmental concerns are shifting the emphasis from adding power capacity to cover expanding peak load requirements to curtailing capacity expansion by reducing peak use. As reported in Vol. 3 No. 5, p. 12, TCI has taken a lead among cable operators in this area and is discussing a test of the concept with Pacific Gas & Electric and Microsoft Corp. Sources said several other utilities could become involved in tests at other locations.

John Bringenberg, manager of strategic planning at TCI, while declining to discuss specific negotiations, said the concept involves use of cable lines to provide utilities with a wideband telemetry link. This can be used to monitor energy use on an ongoing basis. Customers can be billed different rates for energy use at different times of the day. Even more interesting, the system could be set up to turn off or cut back heating/air-conditioning, pumps, hot water heaters, etc. automatically. during peak periods.

According to members of the utility industry who are advocates of the idea, the ability for customers to capitalize on off-peak electricity prices could translate into significant reductions in consumption, thereby alleviating pressure to add peak power generating facilities.

$1,200 savings over 20 years. Entergy Corp., the first utility to apply demand-reduction techniques over a broadband cable system, is operating a test outside Little Rock, AR, involving about 100 households. The company estimates it can achieve savings of $1,200 per household over 20 years in households where people are away from the home during peak consumption periods.

Access through utilities. For a cable company, the energy connection has several ramifications extending beyond whatever direct service revenues could be derived. In fact, Bringenberg said, the revenue part of the equation isn’t the primary driver behind TCI’s interest.

Equally or more important, he said, are benefits to cable penetration that might come with a tie-in with a utility. “We are reasonably convinced that the electric utility can help cable get access to homes that don’t subscribe to cable,” he said. “By working together we believe we can find an economic way to put connectivity in all those homes so that those people do have access to the broadband highway.”

In addition, he noted, adding the utility management service to the integrated service equation puts cable in the position of providing a LAN (local area network) capability into the home.

“This is basically a chip which would give the utility the access to various appliances in the home over the power line carrier or possibly some RF (radio frequency) carrier in the home,” Bringenberg said. “Once you have that LAN capacity you also probably need to devote some of the processing power (in the cable service control box) so that the utilities can have access to some of the brain in order to manage things, and they probably need a little bit of the memory as well.”

This sharing of device power, along with use of the network, represents another savings for the utility, he added. “Once we do this, we can probably save the utility several hundred dollars on a device of this type that they would have to put in for their own communications purposes anyway.”

BORN-AGAIN TELCO EXECUTIVES

All in all, the shift in focus is remarkable. In not much more than two years, cable executives have progressed from first talking about “channels” and programming services to talking about movies on demand and interactive television, and now to talking about a wide variety of innovative telephony services.

This does not mean that video on demand, home shopping and the rest are not interesting. Rather, it means that the vision has broadened. People who only recently thought of themselves as being part of the broadcast and entertainment businesses are now sounding increasingly like enlightened telephone company executives.

The new joint venture will add another interesting dimension to the increasingly complex competitive/cooperative relationship between the phone industry and the cable industry. Never a dull moment.

Fred Dawson, Jonathan Seybold