Cable Telephony Rebounds: MediaOne selects vendors, prepares for large-scale deployment of residential service.

The domestic cable telephony market, which just one year ago appeared on the verge of extinction, got a big shot in the arm last week when MediaOne, the nation's third-largest cable operator, signed two separate deals worth an estimated $200 million for the technology.

In one deal, the cable operator said it would use ADC's Homeworx hybrid fiber/coax-based platform in Atlanta and other select markets to provide residential voice service early in 1998. Under terms of the second contract, MediaOne will deploy Tellabs' Cablespan 2300 HFC platform in as yet unnamed markets. Both deals are valued at up to $100 million.

The two agreements mark MediaOne's first major commitment to cable telephony since it began experimenting with the technology two years ago. In a broader sense, however, the company is giving the market a significantly brighter future by becoming the third major cable operator-after Cox Communications and Cablevision Systems-to commit to residential telephony.

"The technology is now stabilizing, and the market is starting to develop," said Bill Cadogan, president, chairman and CEO of ADC.

MediaOne initially will deploy ADC's platform, which is based on a different modulation technology than most other vendors' systems, in Atlanta and market to both single-line and multiple-dwelling-unit subscribers. At its highest density, Homeworx can serve up to 96 lines in a single subscriber unit, said Cadogan.

Under terms of the Tellabs contract, the cable operator will deploy Cablespan systems, element management systems and various Tellabs Select professional services over a three-year period. For Tellabs, the contract is the second major deal in two months. In November, the company announced that A2000, a U S West International/United & Philips Communications joint venture in the Netherlands, had committed more than $100 million for Cablespan systems.

"The industry definitely is moving beyond the tentativeness phase," said Wayne Partington, group manager of product marketing and customer management for Tellabs' Broadband Media Group. "When we first started this, a lot of the vendors were looking at how to do this and picking out target markets. From the operator's perspective, they were waiting for the maturity of cable telephony products."

For some operators, notably Cox, the intent has remained the same. It's just taken longer than some had predicted. In fact, the addition of telephony service to an upgraded two-way HFC network makes economic sense more than ever, said Chuck McElroy, vice president of residential broadband services for Cox, which has had its greatest success thus far in Orange County, Calif.

"Cox is very bullish about telephony," he said. "When you activate the reverse path for data and interactive TV, the ability to provide voice, which takes up very narrow bandwidth, is really quite simple."

Even among those vendors who didn't win the MediaOne contract, the announcement was welcomed as an indication that the market is ready for takeoff.

"The discussions have been subdued for a while, but there's a lot of activity below the surface now," said Bob Stanzione, president of Antec.

And while MediaOne has yet to announce its marketing strategy for voice service, the two other current cable telephony operators, Cox and Cablevision, have focused on undercutting incumbent Bell companies and packaging the service with video and Internet access. Cable operators should be able to get away with that strategy for some time before they begin showing up on the competitive radar of the Bell company, added McElroy.