Cable croons the digital blues Industry prepares to strut its stuff in the Big Easy >BY SHIRA LEVINE, New Media Editor

Too many crawdaddies and Hurricanes can give anyone heartburn, but multiple systems operators are likely to have another cause for indigestion this week at the National Cable Television Association's Cable '97 show in New Orleans: the face of News Corp. head Rupert Murdoch, who invested $1 billion in direct broadcast satellite carrier EchoStar a few weeks ago.

Direct broadcast satellite services have continued to march onto cable's turf, and the recent News Corp./EchoStar merger has had the MSO community guzzling ingesting large quantities of antacids, industry experts say.

"The satellite guys aren't signing up customers who don't already have service," said Bob Luff, chief executive officer at TVCom. "They're targeting cable TV subscribers, and they're hitting the ground with digital quality, 150 plus channels, good customer service and good reliability.

And while the cable industry may have added digital cable to its menu at last year's Western Show, whether it will be able to digest the price tag on digital deployments remains to be seen.

Not only are digital boxes still at a higher price point than the industry had hoped for, but focusing on digital puts the cable industry in the uncomfortable position of being on the defensive. Instead of pursuing their glitzy dreams of cable modem services such as @Home and RoadRunner, the cable industry is forced to roll out digital just to hold its ground against DBS.

And without the funds to deploy both data and digital, the industry is faced with the question of whether to keep existing customers or pick up extra revenues from cable modems.

If MSOs are smart, they'll hold off on data until they've rolled out digital in their major markets, Luff said. "They're not losing customers who want to have higher-speed modems, they're losing customers who want DBS-quality video," he said. "While going out and foraging for new consumers is always nice, keeping the customers you have should be priority number one.

Playing the digital card right could provide MSOs with a much-needed boost on Wall Street, said Zaki Rakib, chief executive officer at Terayon Corp.

"DBS is a lesser evil compared with the telephone industry," Rakib said. "It's easier to protect your own territory than to invade someone else's, and by doing that, cable can show Wall Street that they can be successful in dealing with competition.

When the cable industry has proved itself on the digital front, investors are more likely to loosen their purse strings to finance cable's move into data and telephony, Rakib said.

Cable modems-relegated to the wings at the highly digital Western Show-are likely to resurface this week as major MSOs begin to trumpet their success with high-speed data services.

"Data is definitely one of the most exciting services that's in the cable industry's quiver of arrows," said Peter Shapiro, principal in the cable and telecom division at Arthur D. Little. "It's an attractive offer if [MSOs] can get it out into the market because it's superior to anything else available now-it's just a matter of deploying it effectively.

Telephony products, on the other hand, are likely to keep a low profile, industry experts agree. For one, MSOs simply don't have the money to do both data and telephony, and cable modems represent a better value proposition.

"The industry needs to create more opportunity where there is less resistance," Rakib said.

"Doing data does not put [cable operators] directly in competition with telcos on voice, which would be hard for them to offer given their reputation and given that telephone service is pretty good in this country already," he said.

It's far more likely that MSOs will shelve their cable telephony plans and partner with interexchange carriers to offer local service, said Carol Armitage, senior vice president of technology and strategy for NextLevel Systems' broadband network group.

"I think we'll see more and more business relationships between MSOs and IXCs," Armitage said. "Instead of integrating voice and video over the same medium, they'll be offering bundled services with Sprint or AT&T or MCI, providing customers with a single bill for multiple services."