Getting back to cable basics, Telcos scale back on interactivity plans >BY SHIRA McCARTHY, Associate Editor-News

When video-hungry telcos gave birth to the Americast and Tele-TV programming alliances in late 1994 and early 1995, they were driven by a vision of interactive television-a vision that has since been abandoned, at least temporarily, after carriers questioned the financial viability of offering interactive services.

"Telcos had all these great hopes of offering advanced services that would go way beyond what cable operators were able to offer," said John Aronsohn, senior analyst at The Yankee Group, Boston. "In the end, nearly all the telcos learned that the technologies were too expensive to offer interactive services, and instead they cut back to plain old cable TV networks."

Americast's telco partners have recognized that getting into the market with a package of services and a way to deliver them is the first priority, said Stephen Weiswasser, president and chief executive officer of the telco programming alliance.

"Interactive programming isn't just around the corner," he said. "It's going to come, but the cost of building that infrastructure is sufficiently high, and the time it takes to do it is sufficiently long. We have to find ways to get into the business sooner with products that are highly competitive."

But the nuts and bolts of putting together a programming package doesn't differ significantly between interactive and traditional one-way networks, said David Grant, chief operating officer of Tele-TV.

"Whether you're doing interactivity or not, you still have to start off with fundamental programming," Grant said. "Every video subscriber needs to get HBO and ESPN, regardless of what kind of network it's over."

Tele-TV's telco partners have slowed their interactive network buildouts-with the exception of Bell Atlantic's Dover Township, N.J., switched digital video (SDV) system-in favor of rolling out multichannel multipoint distribution service (MMDS) networks. While digital MMDS may yield as many as 120 to 140 channels, its interactive capabilities are limited, Grant admitted.

Tele-TV will differentiate itself by focusing on the programming, not the network, Grant said. "It's kind of like how someone looks at a racecar-how much horsepower is under the hood vs. how good the driver is," he said. "We may have a lesser racecar, but we believe we're very good drivers."

The programming alliance will therefore make the most of what it has, Grant said, taking advantage of MMDS' high channel capacity to offer more premium services such as pay-per-view movies, out-of-market sports programming and packages of programming on a specific topic.

Recent studies have indicated that consumers may not even want full interactivity, said Debra McMahon, vice president of Mercer Management, Washington, D.C. A recent Mercer survey found that consumers prefer more "gadget-oriented" interactive features such as game shows they can participate in, movies in which they can choose the ending or traditional pay-per-view programming.

All of these limited interactive services can be accomplished with simple time shifting or multiple video streams, as software developer ACTV is doing (see story on page 23). Part of the appeal of direct broadcast satellite services is their rich programming packages, which include multiple pay-per-view movies aired at a wide range of times, Aronsohn said. And as telcos begin to make the transition to digital technology, they'll have the channel capacity for niche networks such as specialized sports channels, multiplexed movie channels and more movie variety.

Americast is also counting on original programming developed by Walt Disney Co. and by the telco partners themselves, Weiswasser said.

"I think you will see us creating national templates for content, with our partners filling in the local content," he said. "Eventually, local content will become a very important differentiating factor."

Americast may also take advantage of the Internet frenzy by developing an on-line service with either original or aggregated content, while learning about consumer demand for interactive services, Weiswasser said.

"Studying the Internet is an important way to learn about what kind of interactive interest is out there," he said. "It will help us find out what kinds of goods and services work."

How Americast will make the transition to interactive TV is up in the air, dependent largely on its partners' rollout of more sophisticated infrastructures, Weiswasser said.

A timetable for that is anyone's guess. While Tele-TV is committed to at least one common platform, Americast's partners run the gamut, from SBC Communications' SDV network to Ameritech's analog hybrid fiber/coax system to BellSouth's MMDS plans.

But the first stage of serious telco rollouts will look very much like what incumbent cable operators are offering, Aronsohn predicted, if only because telcos don't yet need to offer more.

"People are so dissatisfied with the level of service that their cable operators are providing that telcos don't necessarily have to have any novel kinds of programming to pull in significant numbers of customers," he said.