BellSouth MMDS Deal Marks Major Pace U.S. Expansion

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After years of trying, one of Europe's major
digital-set-top-box makers has landed its first U.S. deal, with anticipation of more to
follow soon.

Pace Micro Technology plc's agreement last week to supply
100,000 MPEG-2 digital set-tops to BellSouth Entertainment's wireless-video venture also
marks the second U.S. win in recent weeks for the predominantly European Digital Video
Broadcasting platform.

MediaOne Group Inc. said last month that it would buy
DVB-based set-tops -- consistent with cable's OpenCable standardization effort -- from
Canal Plus, DiviCom Inc. and Philips Consumer Electronics Co.'s Philips Digital Video
Systems unit.

"I would like to say that the American market has
opened up, but I don't think that's yet the case," said Neil Gaydon, Pace's senior
vice president for North America, the Middle East and Africa. "I think that a lot of
people have gotten fed up with General Instrument [Corp.] and Scientific-Atlanta [Inc.],
and they want to look at alternatives."

While MediaOne claimed that it was the first U.S. MSO to
plan deployment of DVB equipment for its digital rollout, BellSouth Entertainment -- the
cable and video arm of regional Bell operating company BellSouth Corp. -- made it clear
that it will widely use the platform for both its wireless and its hybrid fiber-coaxial
cable systems.

BellSouth Entertainment plans to begin deploying the Pace
boxes -- that company's first for MMDS (multipoint multichannel distribution service, or
wireless cable) -- in November.

BellSouth currently uses Zenith Electronics Corp. Z512C
boxes, which also use the DVB protocols.

"We wanted to make sure that our customers had more
diversity," BellSouth spokesman Jeff Battcher said, adding that the carrier has been
talking with Pace on and off for about 18 months.

Pace's new model uses a C-Cube Microsystems Inc. 9300
processor and graphics chip and incorporates a V.22bis (an International
Telecommunications Union standard) modem, Gaydon said.

The box is capable of downloading different electronic
program guides. but it will initially support the StarSight Telecast Inc. model, he said.
(StarSight is a unit of Gemstar International Group Ltd.)

Neither side would disclose a dollar value for last week's
deal. It marks the long-awaited entry into the huge U.S. market by a company that has
already built more than 2 million digital set-tops over the past four years for its
customers in Europe, Latin America and the Asia-Pacific region.

West Yorkshire, England-based Pace made its name producing
digital set-tops for satellite and cable platforms and analog boxes for pay television --
a diversity that it says is a plus for telcos like BellSouth, which may utilize more than
one video-delivery platform. Market diversification has become more imperative as new
competitors vie for the business.

Pace does dominate some market sectors in Europe: It claims
a 75 percent share in the installed set-top base of British Sky Broadcasting Group plc's
"SkyDigital" business.

Pace's original U.S. plans -- to become a second source of
digital set-tops for GI's MSO customers by licensing GI's core "DigiCipher II"
encryption technology to make clones -- have proven fruitless.

Pace continued pressing its U.S. initiative, which included
an alliance with Cisco Systems Inc., unveiled last fall, to develop a new generation of
set-tops and infrastructure solutions.

In the meantime, it continued to land significant equipment
orders in its core European market.

Although it sees the U.S. telco-video market as promising,
Pace is also still aggressively pursuing the U.S. cable and satellite business, with
negotiations currently ongoing with two MSOs and one satellite broadcaster.

"I think that anyone who's involved with cable knows
the capital might of the telcos," Gaydon said. "They are a tremendous force to
be reckoned with, and they shouldn't be ignored."

BellSouth's Americast package offers basic and premium
packages, plus pay-per-view and near-video-on-demand.

BellSouth does not disclose subscriber figures for its HFC
networks, which initially launched in 1996 in Atlanta and which are now also running in
Birmingham, Ala.; Charleston, S.C.; and Jacksonville, Fla.

BellSouth's digital-wireless service is operating in
Atlanta, New Orleans and Orlando, Fla. Battcher said the company planned launches by
midyear in Jacksonville and Miami.

Separately, another significant MMDS-related order was
announced last week by Comwave, the MMDS-technology arm of Thomcast Communications Inc.

PrimeOne Tele-TV -- which has 40,000 subscribers for its
31-channel digital system in Los Angeles and adjacent Orange County, Calif. -- is buying a
turnkey transmission-system upgrade from Comwave that will boost it to 100 watts of
average power from 15 watts.

The system operator said the power boost will increase its
coverage area and signal reliability as it relaunches its digital-video product with up to
200 channels of programming and NVOD.

The upgrade should be completed in the next several months,
following regulatory approval, Comwave said.

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