Interactive television: How soon?

THE BALTIMORE SUN

Raymond W. Smith says the age of interactive television is nearly upon us.

Before you know it, according to the chief executive of Bell Atlantic Corp., viewers will be able to change camera angles on the Super Bowl, play "Wheel of Fortune" along with Vanna White or call up movies on demand through a "full-service network" brought to them by their reliable local phone company.

"It will be here faster than any of us can imagine . . ." Mr. Smith told the Advertising Women of New York in February. "It will gain momentum and gain customers in 1995. It will really pick up steam and become a mass-market phenomenon in 1996-1997."

But Mr. Smith's vision of 21st century technology might just have to wait for the 21st century.

In the wake of Bell Atlantic's decision last month to withdraw its application with the Federal Communications Commission to build an extensive video network, doubts about the company's timetable are increasing.

The Philadelphia-based telephone company continues to insist it will begin a large-scale commercial rollout of interactive services by 1997, but many telecommunications professionals say the company's schedule is based on wildly optimistic assumptions.

"It ain't going to happen," said Thomas M. Oser, director of the Advanced Telecommunications Institute at the Stevens Institute of Technology in Hoboken, N.J. "With all the money in the world, the way the technology develops doesn't lend credence to that idea."

According to Dr. Oser, a professor of electronic engineering and computer science, a more realistic target date for a broad rollout in large metropolitan areas is 2000 to 2005.

Few experts doubt that someday, somehow the regional Bell operating companies will find a way to deliver interactive video services in competition with a vulnerable cable TV industry. When they do, the aggressive and technologically sophisticated Bell Atlantic is expected to be in the vanguard.

Nevertheless, telecommunications analysts say Bell Atlantic's credibility has suffered as a result of a series of optimistic projections that have since had to be pushed back.

There was the December 1993 statement by Mr. Smith that "by the end of 1998, we will have wired the top 20 markets in our mid-Atlantic service region." That goal is now unattainable.

There was the May 1994 press conference at which jubilant company executives announced they hoped to begin deploying a video network to Baltimore and five other major markets by mid-1995. That was already being pushed back into 1996 when the company withdrew its application to build that network.

That withdrawal was particularly damaging because it came after months of criticism by Bell Atlantic executives of FCC delays. Then, just as the FCC was apparently on the verge of approving the application, Bell Atlantic said, in effect, "Never mind."

The company's explanation was that the original technology it proposed, a hybrid of fiber-optic and coaxial cable similar to cable television, had increased in price while a more advanced rival technology called "switched digital video" had become cheaper. It said any delay caused by the switch would be "nominal" -- no more than six to eight months.

Bell Atlantic is hardly alone in its technological fits and starts. Another regional Bell company, U S West, put its video network construction application on hold last month.

But several stock market analysts who follow telecommunications said that investors who believed such statements two years ago have become skeptical.

"Nobody takes these deadlines seriously," said Craig Ellis of securities brokerage Wheat First Butcher Singer in Richmond, Va. "Are we frustrated? Are we tired of it? Yes. Do we care? No."

Tedd Alexander, telecommunications analyst at Legg Mason, said investors are reluctant to put their money into Bell Atlantic, whose stock has lost more than $12 since the heady days after it announced its later-aborted merger with Tele-Communications Inc. Its stock fell 37.5 cents Friday to close at $53.50.

"There seems to be a lack of strategic direction," he said.

Like Mr. Ellis, Mr. Alexander said he doesn't expect a significant rollout of an interactive network until after 2000.

The deployment timetable for a video network is no small matter.

"The longer Bell Atlantic delays, the longer the cable companies have to improve their service," said Mark Heckendorn, managing director of Versus Strategy Group in Washington.

Bell Atlantic's critics in the cable industry were quick to respond to Bell Atlantic's withdrawn application with I-told-you-so's.

"They're blowing so much smoke it's ridiculous," said Steve Effros, president of the Cable Telecommunications Association in Fairfax, Va.

In Mr. Effros' view, Bell Atlantic's turnabout has less to do with technology than with economics. He maintains that the costs of building video networks far outstrip what Bell Atlantic can reasonably expect to earn unless it is allowed to finance them with ratepayers' dollars.

"The numbers don't work. That's the bottom line," he said.

Mr. Effros said phone companies will find that video is a lot harder and much more expensive to deliver than simple telephone service. He predicted that the main competition to cable will come from wireless providers and that in the end the telephone companies will realize that there is no economic justification for a second video line into the home.

"They can't do it better and they can't do it cheaper," he said. "Technology is technology and it costs the same for both of us."

Mark Wegleitner, Bell Atlantic's vice president for broadband multimedia network implementation, is confident his company can deliver a fully interactive video network -- on time.

He said the company will file a new construction application for a switched digital network in late 1995 or early 1996 covering substantially the same area as the original plan: selected parts of Baltimore, Washington, Pittsburgh, Philadelphia, Norfolk, Va., and northern New Jersey.

After some trials in 1996-1997, he expects to start the commercial rollout in 1997 and to pass 700,000-800,000 homes a year for the next three to four years.

Realistic timetables

Mr. Wegleitner admitted that some of the schedules Bell Atlantic set in the past were "pretty aggressive." He said the company did so largely to pressure vendors to move quickly in bringing needed products to the market.

This time, he said, the timetables are realistic.

"We've allowed for some perturbation in the process and still could make a commercial rollout in 1997," said Mr. Wegleitner. "I won't deny that a lot of things have to go right."

Many of the things that have to go right are in the hands of the government. Bell Atlantic's new application will have to be quickly processed by the same FCC it criticized for taking too long on the last one. And the company is betting that the commission will make favorable rulings as it considers the ground rules for "video dial tone," the common-carrier regulatory model it has adopted for the local telephone companies' entry into television.

Technology advances

The company will also have to catch some breaks in the area of technology.

Set-top boxes, the electronic devices that will take the incoming streams of digital code and turn them into audio, video or data, will have to be perfected and drop in price from four figures to Bell Atlantic's target price of about $350.

Bell Atlantic is taking aggressive steps to bring those costs down, Mr. Wegleitner said. He noted that the company recently joined together with Pacific Telesis Group and Nynex Corp. to issue a joint request for bids on 4 million set-top boxes over five years.

That's only one part of the system, however.

Simultaneous viewing

Giant computerized storage and retrieval units will have to be developed and debugged. Switching systems need to be honed to the point where they can satisfy thousands of customers who all want to see the "Forrest Gump" of 1997 at the same time on Saturday night.

Standards for those parts of the network will need to be agreed upon so that entertainment providers don't have to encode a different version of each video clip for every carrier.

Mr. Wegleitner said those efforts are on course.

"The technology is there. The economic cost of that technology is still the primary issue," he said.

Michael Glover, a Bell Atlantic regulatory attorney, said the company has already tested a switched-digital system in a trial involving several hundred homes in Northern Virginia. By early fall, it expects to begin video dial tone service in Dover Township, N.J., where it plans to offer service to about 36,000 homes over three years as part of its first commercial launch of a switched digital network.

But Dr. Oser, the Stevens Institute engineer, said Bell Atlantic can't assume that what works in a small-scale trial will work in a large network.

No piece of cake

"Scaling up is not a piece of cake. What you can do in the thousands is not necessarily extendable to the hundreds of thousands," Dr. Oser said.

"The first group that successfully delivers video services to several thousand customers will learn a lot and go back to the board and design a whole new system."

Researchers did endorse Bell Atlantic's timetable for an alternate technology it is betting on as an interim method of delivering video to the home -- the incongruously named "wireless cable."

Earlier this year the company announced it had invested in a wireless cable company and that it planned to offer programs over its system in Baltimore and other major markets within the next two years.

Virginia Stonick, assistant professor of electrical and computer engineering at Carnegie-Mellon University in Pittsburgh, said a digital version of wireless cable, with a rich offering of channels and excellent quality, is highly likely to be ready for deployment within that time frame.

Success predictions

Even if interactive network technology works perfectly right out of the box, success is no slam dunk. Bell Atlantic will then face the toughest question: If it builds a video network, will the viewers come?

Bell Atlantic says its research shows the cable industry is ripe for the plucking.

A company-sponsored study last year showed that 38 percent of cable TV customers would be very likely to subscribe to a competitively priced video service if it were offered by Bell Atlantic. It said that number rises to 48 percent when movies on demand are added to the package.

The same survey found that 79 percent of Bell Atlantic customers were "very satisfied" with its performance, compared with 37 percent for their cable providers.

But Marvin Sirbu, professor of engineering and public policy at Carnegie-Mellon University, said there's a lot of uncertainty about whether there is enough demand for the services a fully interactive network would provide.

'Near video on demand'

"Three years ago people thought video on demand was going to pay for all that technology," he said. "They did some trials. People didn't order up a lot of movies."

Dr. Sirbu also said Bell Atlantic has to be concerned that cable companies will be able to upgrade their networks to provide "near video on demand" -- the most popular new movies running at intervals of 15-30 minutes -- long before the phone company can deliver a fully interactive system. Such an upgrade could limit the market for video on demand, he said.

Bell Atlantic's Mr. Glover said he believes consumers will be willing to pay more for the added services an interactive network will bring.

"The notion that consumers are going to pay what they pay for cable today and not a dime more is, I think, as bit strained," he said.

With all the ferment over regulation, demand and technology, Dr. Sirbu sympathizes with Bell Atlantic's predicament. But he said that if the company is looking for answers, he couldn't help them. "I consider myself pretty expert and the answers still are not obvious," he said.

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