Convergence Redux: This Time for Real?

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The only requirements for this year's convergence redux are
speed and focus, and not the myriad other musts that strangled the "c" word the
first time around, three years ago.

While not everyone agrees on whether the industry is going
through a convergence resurgence or merely a continuation, most cable executives who have
given the matter thought said multiple-service and equipment realities are blending to
create a whole new chapter for the industry.

That's because the Internet is a common communications tool
in millions of homes, and because open standards are the mantra for cable modems and
set-tops. As a result, broadband-network operators are confident that the ingredients are
now in place for the perfect communications elixir.

On the services side, convergence means that the Internet
and other interactive information become part of TV programs, while TV programs are also
shown on the personal computer. It means that phone calls ride cable to the PC, the TV or
the whole house.

"Convergence means a lot of things to a lot of
people," noted Alex Best, senior vice president of engineering for Cox Communications
Inc. "To me, it means one of two things: either watching TV while surfing the Web on
TV, or watching TV on the PC."

Other business factors are also pushing the re-emergence of
convergence. Huge companies like Intel Corp. and Microsoft Corp. have repeatedly and
loudly noted that they need bandwidth -- fast. Intel needs it to justify the market need
for more powerful chips that can handle rushes of incoming data, and Microsoft needs it to
sell multimedia and operating-system software.

"For the computer industry to thrive, it needs
bandwidth -- [that industry] is frustrated with the telco network, and they're Moore's Law
people," said Richard Green, CEO of Cable Television Laboratories Inc., referring to
the axiom dictating a doubling in capabilities every 18 months.

Broadband capabilities have also attracted the attention of
other well-heeled suppliers from the data-networking marketplace, like 3Com Corp., Bay
Networks Inc. and Cisco Systems Inc. Their entrance as data-equipment suppliers validates
the concept, drives prices competitively down and gives network operators more vendor
choices, experts said.

"There's a big difference between having GI [General
Instrument Corp.] and S-A [Scientific-Atlanta Inc.] as your two primary suppliers, and
having Sony- [Electronics Inc.], 3Com- and Cisco-type companies in the mix," said
Michael Harris, an analyst with Phoenix-based Kinetic Strategies Inc. "When you're
basing your future on two vendors, you're limited in what you can do."

If CableLabs is the microcosm of the industry's key service
and equipment environment, then a quick glance at its project load shows blending across
the board.

For example, the OpenCable group is considering how to best
meld DOCSIS (Data Over Cable Service/Interoperability Specification) modems into digital
set-tops, while the DOCSIS team is noodling how it should add fragmentation and
quality-of-service techniques to allow IP (Internet-protocol) phone calls.

At the same time, the PacketCable group recently created an
IP service "wish list that OpenCable needed as part of a service requirement to
outline what kinds of applications run on digital set-tops," said Mark Coblitz, vice
president of strategic planning for Comcast Corp.

"Two years ago, you would have sworn that convergence
was dead," Green said. "Now, everything that we're doing resembles convergence:
OpenCable is all about it, as are DOCSIS and PacketCable, [the latter of ]which is more or
less computer- and telephony-based."

Harris and other analysts said that if operators really
start leveraging their broadband networks to carry all different sorts of data, "they
could actually make the Wall Street guys happy."

The last time around, in the 1993 through 1995 time frame,
convergence was interchangeably called "interactive television" and
"multimedia," and it occurred during a backdrop of telcos tiptoeing into video
as cable operators considered entry into telephony.

In retrospect, there were several crucial and missing parts
to the first bandied convergence: The World Wide Web was nowhere near as widely used as it
is today; there was no mass-consumer hunger for interacting with the TV; and there were no
open standards or interoperability efforts, to name a few.

"It was a classic example of people getting ahead of
economics and demand," Harris said.

The shining example of the first convergence was Time
Warner Cable's Full Service Network in Orlando, Fla. At the time, Time Warner described
the ambitious project as a market experiment based on an ATM (asynchronous-transfer-mode)
architecture that, by its nature, offered the ability to provide voice, video and data
services to subscribers.

Time Warner spent an undisclosed fortune on FSN, which
offered interactive shopping and movies-on-demand as two of its many services.

FSN shut its doors in 1996, but not without gathering
electronic reams of consumer-interest patterns and learning valuable lessons about how to
integrate multiple services and how to cost digital-video servers and bit streams.

"In terms of technology available to society, we got
to the point where we could do astounding things," said James Chiddix, chief
technical officer of Time Warner Cable. "It was maybe not financially feasible or a
sound business at the time, but it was technically doable."

FSN was a bit before its time. Open standards have helped
to lure big vendors, which help to keep equipment prices moving south. Now, Time Warner's
voluminous market data about demand and buying patterns -- still undisclosed -- may soon
lead to a point where the potential revenues enjoy a measurable gap over equipment costs.

The closing of Time Warner's FSN also stands as a
historical reference point to the end of the interactive-TV bonanza that so headily topped
news headlines in the mid-1990s.

Chiddix's view is that the most critical point in the
convergence rebirth was the "harmony agreement" etched out by MSOs, GI and S-A
in 1996. That agreement was the first plank in what is now a widespread
set-top-interoperability platform.

"That was the seminal event that ultimately grew into
convergence factors this time around," Chiddix said.

Notably, he insisted that the Internet and the WWW are not
really convergence-drivers.

"The Internet isn't causing anything," Chiddix
said. "It's more a reflection of technologies working within standards that have
evolved in ways that may seem almost accidental."

MSOs and analysts cited varying pitfalls that they will try
to avoid this time around, ranging from hype-aversion to simply being methodical about
two-way plant upgrades.

"With all due respect, what we need to do this time is
to avoid talking to the press -- to manage hype," Chiddix said, describing hype as
"a cycle that feeds on itself."

"Companies want to tell Wall Street about exciting new
products, and Wall Street wants to hear exciting new things, and there's no damping force
in there," Chiddix mused. "There's no reward for standing up in the midst of all
of it to say, 'Of course, these new things are all possible, but it will take 10 to 20
years.'"

Harris and other analysts believe that the only remaining
sticking point that could puncture convergence this time is a slowdown of
network-infrastructure upgrades.

"Now, it's just a matter of blocking and
tackling," Harris said. "The mistake made the last time was the industry's
minimization of the time that it took to do things correctly and simply
overpromising."

Best said he remains concerned about market demand for
interactive-TV and TV-over-PC services.

"Whether or not the TV and PC come together, I still
struggle with the notion of convergence" he said. "I think that different
audiences want to do different things at different times -- I may want to fool with the PC
while the family watches TV, for example."

Still, many believe that the stars are all in alignment for
a TV/PC/set-top convergence that doesn't become technological roadkill this time.

"It's a different scene now," Harris said.
"IP is emerging as a viable, multiservice transport architecture and, if you look at
all of the vectors here, there really is an opportunity."

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