Cable, CE Firms Hit Impasse, So Market Will Set Interface

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Sometime in the spring, digital set-top vendors will begin
shipping their first hardware with digital interfaces designed to connect directly to
digital-TV receivers. Whether there will be a like-minded receptacle at the other end,
though, is very much open to debate.

Cable- and consumer-electronics-industry negotiators have
apparently reached an impasse in talks over a digital interface specification, so the
issue will be settled in the marketplace, both sides now tacitly concede.

At the heart of the dispute are the disparate definitions
of "cable-ready" assigned by the cable and consumer-electronics industries first
to analog-TV receivers and now to digital-TV receivers. With digital-TV receivers and
digital-cable boxes shaping up as portals to a new range of services that can be delivered
over a hybrid fiber-coaxial pipeline, both industries are in effect waging a turf war to
see who controls the gate.

Any digital interface specification that could effectively
replace the interactive electronic program guide built into a digital-TV receiver with one
delivered by a cable-system operator is a red-flag issue for many manufacturers.

Cable operators appear equally determined to pursue a
technical solution that gives them control of revenue-producing services.

"This goes back to the 1992 Cable Act and [the
question of] what goes into a cable-ready set," a senior executive with one
consumer-electronics manufacturer directly involved in talks over the years said just
prior to the Western Show last month.

Much of the dispute has been framed by the cable
industry's adoption of an IEEE (Institute of Electrical and Electronics Engineers)
1394 connector, protected by "5C" copy protection. But the broader issue
encompasses competing EPGs built into digital-TV receivers and cable boxes, and all of the
services -- and revenues -- that will flow from those guides.

"The NCTA [National Cable Television Association]
wants 1394 and 5C as part of the cable-ready spec, and they don't really care about
[passing through] the information for [a digital-TV receiver's] EPG," he noted.

"The original idea [behind a digital interface] was
getting a high-definition bit stream out to an HDTV set. But you're also going to
have SD [standard-definition] sets," he added. "You don't necessarily need
it there, but it begs the question: How do you define an SD cable-ready set?"

The OpenCable hardware and software specifications released
in October include a digital interface -- better known as the "terminal-device
core-function requirement" -- based on IEEE 1394 with 5C copy protection.

But some consumer-electronics manufacturers continue to
resist any standard that mandates the use of 1394 in every digital-TV receiver, rather
than a spec that allows digital-TV receivers to connect directly to cable systems without
digital set-tops.

"The whole idea was to make cable-ready [digital-TV]
sets, not cable-set-top-ready sets," one consumer-electronics industry official
argued.

With cable and consumer-electronics negotiators unable to
agree on a joint specification, the Federal Communications Commission in early December
brought both groups together -- albeit reluctantly -- in its latest move to resolve the
dispute.

Commission insiders indicated that the FCC would still
prefer that both industries settle their differences. But there were signs that neither
the NCTA nor the Consumer Electronics Association was about to unilaterally bridge the
differences.

In fact, cable-industry executives in recent weeks have
appeared in no mood to continue negotiations with consumer-electronics manufacturers.
"The hardware spec, from our standpoint, is done," Cable Television Laboratories
Inc. senior director of OpenCable Don Dulchinos said in early December, just before
meeting with FCC officials.

There could be some "minor" software changes to
the spec, he added. But he suggested that market factors would compel digital-TV-receiver
manufacturers to support the OpenCable spec, regardless of CEA opposition.

"You should ask each manufacturer what they plan to
do," Dulchinos said. "[Opposition to OpenCable] is a CEA decision, not that of
each manufacturer. I've talked to a lot of companies."

CEA lobbyist Michael Petricone said there were going to be
more meetings with cable-industry groups. But he conceded, "There comes a certain
point where you say, 'We're going to do what we're going to do, and
they're going to do what they're going to do.'"

Neither industry should expect this to be settled by the
FCC, commission officials said following the meeting. Although FCC chairman William
Kennard earlier won informal commitments from cable and consumer-electronics groups to
agree on a digital interface, he has done little since to force the issue.

Complicating matters is the lack of consensus even among
consumer-electronics manufacturers.

Some -- notably Thomson Consumer Electronics -- oppose any
standard that would force them to incorporate 1394 in every digital-TV receiver.
"It's a cost issue," a senior executive with one manufacturer said.

But executives with several other manufacturers said
privately that they expect to support the OpenCable specification -- if for no other
reason than to win digital set-top-box contracts from cable MSOs.

"The CEA will fall on its sword over 1394, and then
[manufacturers will] put 1394 in every TV set," one senior FCC official said last
month.

As for the consumer-electronics industry's concerns
about EPGs, he added, "If they can figure out a way where the money they lose [from
EPG-based services] gets transferred to cover that, then it all goes away."

Many cable and consumer-electronics executives privately
said the issue should be moot once manufacturers start incorporating point-of-deployment
modules in digital-TV receivers, presumably by the second half of 2000.

PODs, in theory, allow digital-TV receivers -- HDTV or SDTV
-- to connect directly to cable systems without the need for separate digital-cable boxes.

But with POD interoperability still being tested and
questions remaining about POD-based digital-TV receivers delivering advanced EPGs built in
by manufacturers, there are still doubts about whether OpenCable PODs will fully fill the
bill. And some cable operators are likely to deploy proprietary solutions for
digital-cable service for several years during the transition to OpenCable-based services.

"Part of this is a timing question," said a
senior executive with one consumer-electronics manufacturer involved both in
digital-set-top and digital-TV-receiver development. "[But] what we see is that for a
long period of time, you're going to have a need for 1394."

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