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US Report: Interactive-TV deals in the works

Is America Online, fresh from its blockbuster deal with Netscape, poised to offer its online services through cable TV? Is AtHome, the broadband Internet service controlled by cable giants, ready to expand through smaller operators?
Written by Emory Thomas, Contributor

Is America Online, fresh from its blockbuster deal with Netscape, poised to offer its online services through cable TV? Is AtHome, the broadband Internet service controlled by cable giants, ready to expand through smaller operators? How aggressively will Time Warner roll out digital services in 1999? These and other pressing questions will be the talk of Anaheim, California this week as the Western Cable Show gets underway.

Last year, TCI Chief John Malone sent the prospects for interactive television soaring by placing a giant order, along with several other major cable operators, for some 15 million digital set-top boxes. The deal sparked a wave of enthusiasm for turning TV sets into providers of e-mail, electronic commerce, video-on-demand and more.

But the last 12 months have made it clear that Malone isn't the only aggressive player in the burgeoning digital-cable arena. On the contrary, the field remains wide open and continues to attract an astounding array of prospectors. As all the interactive-service players converge on Anaheim for one the cable industry's major annual gatherings, following is a status report on some of the most significant:

The biggest shoe yet to drop in the interactive-TV world may be called AOL-TV. The online-service giant, with some 14 million subscribers, earlier this year acquired NetChannel, an ill-fated WebTV rival, with an eye toward spreading AOL s service to platforms other than the personal computer. As a result, many presume AOL is creating a WebTV-like service for online surfing via the TV set. (WebTV is owned by Microsoft, which is a partner in MSNBC.)

Meanwhile, the company's lobbyists have been busy pushing federal regulators to declare cable companies as common carriers, thus forcing them to allow AOL access to their networks for delivery of the popular online service. Then, of course, there's the plan to acquire Netscape Communications, whose software products and expertise could enhance AOL's distribution efforts on multiple platforms.

All that said, however, it remains unclear exactly how AOL plans to attack the non-PC world. Still, some analysts suggest the company might make those plans clearer at the Western Show, possibly by announcing a new "AOL Channel" that could run on cable television and other platforms.

The company's DCT 5000 model set-top box was the talk of last year's show. A robust machine capable of containing Microsoft's Windows CE, Sun Microsystems' PersonalJava and other key software, it's the closest thing to a personal computer that cable operators have ever considered distributing into subscribers' homes. Intriguing product. But it's not available yet. Models are expected to begin shipping in the first half of 1999. Exactly what features they'll contain remains to be seen.

But in light of the prospective merger between TCI and AT&T, General Instrument is expected to emphasise the DCT 5000's potential for Internet-protocol telephony, in which the set-top essentially would become an in-home phone-switching device enabling AT&T-TCI to offer both local and long-distance service.

GI's less-robust digital set-tops, meanwhile, are rolling out into homes across the country. In fact, some 1.4 million digital boxes are now in use, according to Cynthia Brumfield, analyst with Paul Kagan Associates. But the vast majority of those boxes are built to expand video programming options, and aren't yet equipped to handle interactive services such as email and Internet browsing. Still, the additional fees involved -- perhaps $10 extra a month -- are laying the groundwork for even more fee hikes once interactive services are available.

Ma Bell is doing its massive merger with TCI largely so it can use the cable connections to offer local phone service. But to take that service nation-wide, AT&T is trying to hitch up with many more cable operators as well. In recent weeks, Time Warner has appeared close to signing on with AT&T for some sort of phone-service joint venture. The deal hasn't closed, but many industry executives believe it's only a matter of time before AT&T finds more cable partners.

By some measures the largest cable operator in the country, Time Warner has yet to spell out its grand plan for distributing interactive services. But in April, the company ordered 1.1 million advanced digital set-top boxes from Scientific-Atlanta, with an option for many more. The company says its digital services will begin in Austin, Texas, and elsewhere soon.

At first, subscribers can expect new programming tiers, adding some 70 to 80 new channels. Interactive services likely won't crank up until 2000. That's when Time Warner intends to emphasise video-on-demand, in which the set-top becomes a virtual VCR, running movies on demand from remote servers.

The provider of broadband Internet services over cable is expected to announce a new "turnkey" solution for small and mid-size cable operators wishing to offer interactive services. Closely allied with several large cable companies, @Home has been eager to team up with smaller operators as well. According to the company, it has developed a way and will announce it at the show. Any such initiative should help @Home expand beyond its base of 210,000 subscribers today.

One of several privately held concerns trying to entice cable operators to back its interactive services, WorldGate offers e-mail and Web browsing through existing cable boxes. Deployments to date have been minimal but promising. In St. Louis, for instance, of the small number of subscribers who get WorldGate service, 40 percent use it daily and 70 percent use it weekly.

This fledgling firm, offering hundreds of software titles via remote servers, relies on no set-top deployments whatsoever, other than of its own wallet-sized component for the home. For about $9.95 a month, customers get five hours a month to use the e-mail, Web browsing and game-playing functions of the ICTV service (extra usage brings hourly charges).

To date, just one significant supplier has agreed to offer ICTV commercially -- St. Joseph Cablevision in Missouri. Wes Hoffman, ICTV president, suggests more are on the way, and announcements may be forthcoming at the Western show or soon thereafter. "We would like now to have a couple more million subscribers in the field, but I think most everybody is in that boat," Hoffman says.

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