News

Forum: Cable Must Use Its Bandwidth Advantage

8/30/1998 8:00 PM Eastern

Recently, Information Network announced that cable-modem
sales are expect to outpace digital-subscriber-line-modem sales by more than 800,000 units
during the next two years. Why? In one word: bandwidth.

Greater bandwidth provides more impressive services. More
impressive services attract more customers.

In addition to the bandwidth advantage that cable provides
over other terrestrial formats, as more services are developed, cable companies will enjoy
another significant advantage: direct access to television sets.

Given its core competencies in providing entertaining
content to consumers, the cable industry is well-positioned to deliver low-cost, highly
compelling interactive-content access to every television of every cable subscriber.

TV: THE INTERNET FRONTIER

In the early 1990s, the industry was preoccupied with
providing interactive content. Video-on-demand was the service of the future, and cable
operators initiated several trials in an attempt to find the right flavor of interactivity
that consumers would enjoy. Concurrently, Marc Andressen invented HyperText Markup
Language (HTML), which, in turn, led to the creation and rapid expansion of the World Wide
Web.

Over the past four years, the Internet has grown from a
computer geek's play toy to a commercially viable, popular new-media offering. Its
growth is credited with expanding the installed base of personal computers, and it has led
to the creation of the Internet "appliance" market.

Now, however, PC-penetration levels are plateauing. PCs
have been wavering at about 40 percent-penetration of U.S. households, with an even lower
Internet-service-penetration level.

There are many reasons for the slowdown in U.S.
Internet-connect rates -- limited bandwidth and concerns focusing on additional
telephone-line costs -- that are addressed with the deployment of cable modems.

But cable modems, while effective at addressing the
requirements of PC owners, do not provide a current benefit to cable subscribers who are
not interested in buying and maintaining PCs.

Relatively high initial and recurring costs and fear of
technology obsolescence are impacting the PC and Internet-appliance purchase decisions of
many consumers.

While interactive content -- both online and via CD-ROMs --
represents the kind of content that consumers want, the current price of maintaining this
technology platform in the home is simply above many Americans' budgets.

Consumers are coming to understand how quickly technology
products become obsolete, and they are less willing to buy technology that needs to be
upgraded every year.

Television provides an ideal medium to access interactive
content. Consider that more American households have TV sets than telephones. Currently,
the television market has close to 300 million units installed across the United States.

That's about one TV for every man, woman and child in
the United States. The total number of cable-connected TV sets is slightly lower, but
it's more than 200 million, and it's quickly approaching 250 million. Most
households have three or more cable-connected TV sets.

By providing households with access to interactive content
via the television set, cable operators literally bypass the entire PC-stagnation factor.
Consumers win because they receive the content that they want, at a reasonable price, on a
device that they already own and use every day.

KEYS TO PROVIDING

SUCCESSFUL SERVICES

In order for interactive-TV applications to be successful,
several factors contribute to providing a successful Internet-over-television service.

The first is an intuitive, easy-to-use interface. Accessing
the Internet has to become as easy to use as television.

The second is delivering an entertaining, compelling
experience. This requires full-screen motion, sound, lights and action.

Third, the solution must be long-term. Consumers have
demonstrated that they won't buy a platform that becomes obsolete in 12 months.
Instead, they want a service that will grow while Internet content, CD-ROM games and
entertainment experiences continue to expand.

Finally, the price has to be reasonable.

Stan Davis and Christopher Myer, in their introspective
article for TheNew York Times titled "A Cure for Instant
Obsolescence," observe that "all of this ... newness is turning us into hesitant
buyers ... Those of us who do not buy the latest and greatest are quickly finding
ourselves short-of-the art." They conclude, "When upgradability becomes the norm
in our economy, wholesale replacement of products will become rare, generally driven by
styling ... In other words, you won't own a product -- you'll subscribe to a
platform."

This platform is an effective solution for the dilemma of
providing access to, and use of, rapidly evolving content. So, what's the holdup?
Possibly location.

Bandwidth availability will play an important role in the
design of an effective platform. By balancing bandwidth and customer-equipment investment,
the cable industry can provide an effective platform approach for the subscriber.
Application-specific technology can be kept to a minimum in the home while maximizing
interactive-application access.

Centralized, application-specific hardware at the cable
headend reduces the costs associated with hardware upgrades and operational support. Fear
of owning "boat anchors" is reduced or eliminated, and life-cycle costs are
lowered for the MSO.

SO, WHAT'S NEXT?

Cable operators have been successful in using the bandwidth
advantage to provide high-speed-data services to subscribers' PCs.

Cable-modem installations are continuing to accelerate, but
the market is limited. Cable operators are well-positioned to apply the same bandwidth
advantage to the television. By using bandwidth in combination with customer-premises and
centralized technology, successful, obsolescence-resistant platforms will be developed for
providing interactive, high-speed-data services to the household.

Bandwidth will make it all possible, and it will continue
to be the most important factor in the design and provision of successful consumer
platforms. The cable industry should expect to see more news like Information
Network's for some time as the industry becomes the predominant source for
interactive services.

Wesley Hoffman is president of ICTV.

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