Can Interdiction Make a Comeback?

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Cable companies will put big money down on digital, but
Robert Palle hopes that they will place a few side bets on his technology: interdiction.

Just a few years ago, interdiction was a hot up-and-comer.
Cox Communications Inc., Time Warner Cable and Jones Intercable Inc. were among the
operators reporting good customer satisfaction and excellent reliability from the
technology, which allows addressability without set-tops. But most of them dropped the
hardware like an old girlfriend when sexy digital technology burst on the scene.

However, Palle, executive vice president of Blonder-Tongue
Laboratories Inc., is still confident that there will be a surge in deployment of the
technology from operators that are attempting to comply with new equipment-compatibility
rules and buy-through provisions in the Telecommunications Act of 1996.

Blonder-Tongue has invested in its beliefs: The distributor
acquired Scientific-Atlanta Inc.'s interdiction-product line, Subscriber Module
Interdiction, in a deal that closed in March.

"There's no rational reason why this
shouldn't be in [0.5] percent of the franchised cable market [in the near
term]," he said, growing exponentially thereafter.

Interdiction, Palle argued, gives an operator a service
distinction from other providers, and it can cut operating expenses as a "pocket
deployment" in multiple-dwelling units and resort areas, where revolving
installations eat up any profits from that niche business.

The S-A acquisition complements Blonder-Tongue's
existing product line, Videomass, which it acquired from Phillips Broadband Products in
1995. S-A's product is most appropriate for 450-megahertz to 550-MHz plant, deployed
in noded, tree-and-branch suburban topology; Blonder-Tongue's product for 750-MHz
plant is better for MDUs, Palle said. Blended, the products can seamlessly handle most
operators' challenges, he added.

The acquisition also served to resolve a
patent-infringement suit brought by S-A against Blonder-Tongue.

S-A sold its interdiction line so that it could devote more
resources to its digital set-top business, said Yvonne Jordan, director of marketing
communications for S-A. Its Explorer 2000 digital set-top has been bought by Time Warner,
among other customers.

UPS & DOWNS

Interdiction puts the addressing function in hardware
installed on the poles in a system, allowing set-tops to be removed from the home and
restoring high-end features to consumer electronics. In test markets including Cedar
Rapids, Iowa (Cox); Williamsburg, Va. (Time Warner); and Elgin, Ill. (Jones), operators
said the hardware held up well in extreme weather. They added that consumers welcomed the
technology because it gave them back the ability to watch one program while taping another
on the same TV.

The downside? Increased powering costs and large curbside
vaults.

The latter was cited as a factor in the decision by one
operator to reverse its course on interdiction. Last year, executives at Chambers
Communications of Oregon -- a small MSO with 82,000 customers in five systems in
Washington, Oregon, Idaho and California -- stated publicly that the company would rebuild
its systems to 750 MHz and introduce interdiction by this year. The systems were trapped
and channel-locked, which meant that the operator could only offer special pay-per-view
event.

At that time, marketing manager Minnie Marshall said
numerous marketing surveys showed that set-tops were still a major hurdle to
product-segment growth in its markets.

"Customers often tell us, 'I'd get this
service if it weren't for the box,'" she said then.

The technology would be a hedge against competition, too.
Chambers executives said they could offer unlimited hookups and no boxes for a single
price, undercutting the single-set cost for a Digital Satellite System.

Elimination of traps, replaced by interdiction, would also
cut piracy, president Scott Chambers said, in addition to reducing truck rolls and other
recurring operational costs.

CHANGED THEIR MIND

But things change quickly in the cable industry. Chambers
executives now said they will go with the digital flow, although they haven't
purchased the hardware yet.

Chambers will rebuild its 330-MHz systems in California
first, increasing them from 32 to 60 channels in Novato and Chico.

"It became necessary" to proceed with a standard
rebuild, Marshall said. High licensing fees for programming would have prevented the
operator from offering the customer-driven channel lineups that it wanted to package.

"We needed a la carte," she said.

Additionally, equipment and powering priced out higher than
the operator expected, as digital-hardware prices fell.

"We've heard from vendors, and [digital] boxes
have gone down $120 in the last 12 months. We're going to invest our money in the
boxes and the headend," Marshall said.

Aesthetics also played a role in Chambers'
decision-making.

"The powering-device enclosure is huge. We believe
that getting City Council approval for them would have been long and arduous,"
Marshall added.

Chambers wasn't the only company to step away from
interdiction. Blonder-Tongue saw a huge order canceled by SBC Communications Inc. But that
was not a comment on the value of the technology: When SBC merged with Pacific Bell, the
latter telco changed its video goals and red-penciled its hardwire-cable plans.

SOME LIKE IT

But the technology is not without its vocal champions.
Greater Media Cable in Chicopee, Mass., has used the hardware since 1992, in place of a
major rebuild. With the technology, 95 percent of the operator's 30,000 homes passed
are accessible for instant installs, whether for a special event or a standard cable
hookup.

When asked why the system invested in interdiction, Richard
Carnall, Greater Media's regional marketing director, said, "Look at the
numbers."

"It's exceeded all of our expectations.
Customer-satisfaction levels are higher, and our operating costs are lower," he said.
"We had some deep addressable goals, and interdiction came out cheaper.

Before its installation, the classic trapped-cable system
had a 50 percent pay-to-basic ratio. The rest of the market for premium and special-event
PPV was "anemic," he said.

In 1997, the system had a 100 percent pay-to-basic ratio in
its addressable homes, and a 40 percent overall buy-rate on PPV titles.

The system averages about three outlets per home, Carnall
said, and there are significantly fewer service calls. Direct salespeople can canvas a
serviced neighborhood and, if they make a sale, they can call in and activate the account
immediately. Consumers can even call in and activate the connection for one night with a
credit card, if there is a movie advertised that they want to see.

"It's a great way to provide plain old
cable," he said, adding that the system is considering a digital overlay to add
premium units and an interactive guide, which the system can't do currently.

"You pay a lot more for powering, but that is more
than offset by the instant installs," he added.

Carnall believes that Greater Media's success can be
replicated in other suburban communities, but he added that in his opinion, it would be
inefficient in a rural system with a low houses-per-mile rate, where there is not enough
traffic to use all of the ports in a four-port housing.

Palle said the technology is in heavy use by wireless
competitors such as Optel because it allows management of apartment accounts with less
set-top theft and diminished "windshield time" -- wireless jargon for truck
rolls.

Programming costs might bolster the technology's
fortunes, Palle suggested. As rights fees for networks such as ESPN rise, operators may
consider using interdiction to carve the high-priced channels out of the standard basic
package, selling them only to interested consumers, he said.

Palle said he is talking to representatives of the top 20
MSOs about future interdiction deployments.

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