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AT & T Box Deals Eye Retail

10/01/2000 8:00 PM Eastern

AT & T Broadband, signaling a serious effort to diversify beyond set-tops from Motorola Broadband Communications Sector, signed a deal last week to buy 1 million advanced digital set-tops from Panasonic Consumer Electronics Co. Financial terms were not disclosed.

It's the second non-Motorola, retail-related deal in six weeks for AT & T. In mid-August, the MSO contracted with Philips Consumer Electronics Co. to deliver 1 million advanced digital set-tops, beginning in 2001.

The deal with Panasonic parent Matsushita Electric Corp. calls for the delivery of 1 million boxes over a three-year period, beginning next summer. The set-tops will include built-in Data Over Cable Service Interface Specification cable modems and be manfactured to the Motorola DES (Data Encryption System) specification.

They'll also be OpenCable-compliant and include the Institute of Electrical and Electronics Engineers'IEEE-1394 "fire-wire" port for connection to various consumer devices.

As with the Philips deal, retail plays a big part in AT & T's strategy.

"Both AT & T and Panasonic are pushing to move this into the retail arena," said Panasonic cable group vice president Dick Strabel.

Panasonic and AT & T plan to conduct retail tests next summer, with an eye toward a full launch by year-end 2001, he said.

"Retail is a great distribution channel," said AT & T Broadband chief technology officer Tony Werner, who is leaving the company later this month. "It's where consumers want to go, and it's hugely important going forward. Where we have a retail presence with cable modems, they account for up to 50 percent of all sales."

Panasonic will likely produce three different boxes for retail, differentiated by the services offered and perhaps by price, Strabel said. For instance, Werner described a "watch-and-surf" set-top, geared for Web surfing and interactive TV.

A second box, with personal-video recording and HDTV capability, may be more video-centric, he said.

The transaction is Panasonic's first announced digital set-top deal in the U.S. It has been shipping 100,000 set-tops a month for British Sky Broadcasting Corp., which uses OpenTV's operating systems and BSkyB parent News Corp.'s conditional-access system, he said.

Werner acknowledged that MSO officials were at first skeptical about Panasonic's lack of presence in North America.

"We sent in four or five engineers from our staff and they all came back very bullish on Panasonic," he said.

Panasonic was among the first manufacturers to develop interoperable cable modems, but opted years ago not to go into that business, he said. They've also worked with Microsoft Corp.

"Panasonic is not that far behind," Werner said. "I think they will be very quick to market."

Although Panasonic hasn't shipped any set-tops with Liberate Technologies software, Strabel said "we've been talking with them for a long time." Two weeks ago, AT & T broke ranks with Microsoft Corp., agreeing to deploy Liberate's interactive-TV software in a trial market by year's end.

The Panasonic box will include 8 megabytes of flash memory and 32 megabytes of RAM. Panasonic will work with AT & T to include DVD, DVD-ROM drives and hard disk drives in future set-tops. But next year's versions will give AT & T the ability to offer video-on-demand.

AT & T has committed to buy 5 million set-tops from Motorola, an order that includes the Motorola DCT-1000s and DCT-1200s already in the field, as well as the DCT-5000. The Philips and Panasonic deals put AT & T Broadband's set-top count at 7 million. The MSO has more than 2.2 million digital subscribers across its 16-million home base.

Panasonic says it plans to develop peripheral equipment, such as IP phones, faxes, video cameras, Web phones and digital still cameras for home conferencing.

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