Keeping the course, TCI hangs on to cable telephony plans

To look at Tele-Communications Inc.'s rollout of its People Link service in Arlington Heights, Ill., one would question those pesky rumors that the multiple systems operator is pulling back on its telephony-over-cable plans.

"We're really focusing on offering telephony," said Terri Bryan, director of market management at TCI Telephony Services. "In the past, TCI has not been dedicated to a broadband strategy, but that's changed particularly over the last three or four months.

TCI reorganized its cable systems into three groups late last year (Telephony, Nov. 4, 1996, page 9), stirring speculation that the company's interest in offering telephony service beyond Arlington Heights and two other initial target markets-Hartford, Conn., and Fremont/Sunnyvale, Calif.-had waned.

But Bryan insists that TCI's commitment to telephony is as strong as ever. "We've been delivering the same message over the last 18 months. We've always said that we would introduce this service to consumers on a limited basis, step by step. We're dedicated to offering a new service on a facilities basis, but we want to do it right," she said.

At least one analyst believes that TCI doesn't have much of a choice. "TCI has a real problem in the capital market," said Gary Kim, principal at Itibiti Ventures, Littleton, Colo. "Its debt rating has gone to pieces, and in the short term, it doesn't have any other way than going into telephony to get the company's financial position back to where Wall Street wants to see it. It's a matter of survival.

Time Warner's decision last week to postpone its residential telephony plans in favor of the business market was motivated by similar drivers, Kim said. Universal service fund rules and interconnection issues make residential service a riskier proposition than business service in terms of making money, he said, and Time Warner is "saddled in a fairly big way" with debt.

But of the three advanced services that the cable industry has up its sleeve-digital video, data and telephony-telephony is proving to be the hardest to implement at the highest price, Kim said.

"The digital video play has a defense angle to it," he said. "[Direct broadcast satellite service] has changed customer perception of what a state-of-the-art video provider should be offering.

Data services are also a defensive move, Kim said, calling cable modems "a window of opportunity that will start slamming shut when telcos begin rolling out [digital subscriber line] service.

But the turmoil surrounding the opening of local markets makes cable telephony a risk, he said.

"Cable operators may need to go into the telephony business for other reasons, but nobody thinks that telephony-over-cable is a pure money maker anymore," he said. "With the Telecommunications [Reform] Act of 1996, they can go out and unbundle local loop elements and resell service that way, so what's the point of doing it over their own facilities?" Other industry members agree that regulatory issues have wreaked havoc on the cable telephony market.

"Domestically, the regulatory environment invites some uncertainty," said Doug Robertson, director of business development at Motorola Multimedia Group, pointing out that cable telephony has exploded in Europe and Asia.

But Robertson attributes the slower pace of cable telephony in the United States to more than just regulatory roadblocks.

"It's a question of priorities," he said. "It's not a zero sum game between [cable operators]. They're all looking to have incremental revenue. Some may say that data is an easier business case, while others that are putting packaging together think that telephony is a better value."

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