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Bottleneck Threatens Digital Cable in Germany

7/18/1999 8:00 PM Eastern

Frankfurt, Germany -- German media regulators late last
month delayed a decision on regulating the entry of digital program channels onto cable
systems -- a move that could cause a logjam in the market as players ramp up such
networks.

Instead, officials moved to only "moderate" the
entry of digital channels, said Wolfgang Thaenert, director of LPR Hessen, the
media-regulatory body for the German state of Hesse.

Regulators will allow German cable operators -- an industry
dominated by Deutsche Telekom A.G. -- to decide to which channels they want to allot
digital carriage. Cable operators will submit their lists of selected channels to
authorities, who will evaluate and rule on them at a meeting scheduled for Sept. 7.

While authorities are still scheduled to evaluate digital
carriage, industry observers are worried about what they considered yet another regulatory
delay weighing on the German cable market.

"The worst possible thing happened: ongoing
discussions for the next couple of months," one pay TV programming source said.

Thaenert said regulators put off any decisions on digital
cable due to wider changes that could loosen regulatory control on the cable industry.
"We will probably lose our power to decide on the cable channels, and it doesn't make
sense to jam the digital capacities so shortly before that," he added.

The delay of a regulatory framework could prove problematic
for programmers that intend to launch digital-channel bouquets this fall.

It is likely that DT, which controls about one-third of
Germany's 17.5 million cable homes and owns the country's broadband backbone, "will
assign the digital-video [channels] on a temporary basis to those channels that intend to
launch this fall," a media-industry source said.

The logjam in digital cable here is almost as severe as it
has been in analog, where a lack of capacity has stymied new channel launches for years.

Only one week before the regulators' meeting, CLT-Ufa, the
corporate parent of the powerful RTL network, said it intended to launch a package of
digital channels by autumn, and it applied for as many as three digital-cable-channel
slots.

DT had been expected to open 15 digital frequencies, each
capable of transmitting nine video channels. But so far, it's only opened 12.

The Kirch Group-owned pay TV channel Premiere and platform
DF1, which will merge operations this year, occupy five of those frequencies.

Another is reserved for other established digital channels,
such as ones owned by Multithematiques GmbH -- the German unit of the European programming
platform owned by Liberty Media International Inc. and Canal Plus S.A. -- as well as by
Universal Studios Networks.

DT itself is using one frequency for a bouquet of ethnic
programming, and it plans to use another to introduce new services such as Bloomberg
Television and French service fashion.tv.

German legislation requires DT to reserve its last digital
frequency for so-called new and interactive services, suggesting that there is no capacity
left for the digital channels planned by programmers such as MTV Europe and News Corp.
majority-owned women's channel tm3.

Question marks also hovered over digital-programming
projects at Bertelsmann A.G., the parent of CLT-Ufa. Bertelsmann had applied for
digital-channel licenses for its Broadband Group to provide high-speed Internet service.

MTV Germany managing director Christiane Salm zu Salm said
in a recent interview that the programmer has "not decided yet" how it will
proceed with its digital projects in light of the tentative regulatory situation.

New compression technologies could provide some relief,
however. Upstart digital-channel packager @TV has already reduced by one-half its
application for 10 digital channels to provide interactive services and another 10 to
provide pay-per-view services.

"But we hope to get the additional [channels] once
higher compression is available," said Bernd Fronhoff, an @TV company manager.

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