Execs Tell Hearing Set-Top Wont Stop HDTV

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Washington -- The cable box won't be a bottleneck.

This was the unequivocal message that cable executives Leo
J. Hindery Jr. and Joseph Collins gave Congress last week, in a bid to damp fears that
cable's newest digital device, the OpenCable set-top box, would cripple some broadcasters'
transition to high-definition TV.

"Cable will not be, as some have falsely asserted, a
bottleneck to digital," said Hindery, president and chief operating officer of
Tele-Communications Inc.

"Our boxes will be able to deliver whatever the
digital payload is that's transmitted by the broadcaster," said Collins, chairman and
CEO of Time Warner Cable.

While pledging total cooperation on the set-top front, the
two assailed the idea of mandatory carriage for digital-broadcast signals, claiming that
it would eject cable networks on a one-for-one basis from channel-crammed analog-cable
systems. The broadcast lobby is split on the digital must-carry issue.

"Should we drop Lifetime [Television], one of the most
popular cable-programming services among women?" Hindery asked the House
Telecommunications Subcommittee. "Should we drop Fox News [Channel], MSNBC, C-SPAN,
Black Entertainment Television, or The Family Channel? Which would it be?"

Collins said digital must-carry on Time Warner's Manhattan
system, for instance, would require dropping 14 cable-programming services to accommodate
the city's off-air TV stations once they start beaming digitally.

"We are essentially channel-locked," Collins
said, adding that thousands of subscribers would lose cable networks so that "very
few" could receive digital broadcasts.

Oddly, Hindery and Collins volunteered their views on
must-carry. None of the 12 witnesses -- which included executives from the cable,
broadcast, computer and electronics industries -- was asked directly about the issue.

After the hearing, however, panel chairman Rep. Billy
Tauzin (R-La.) said he supported digital must-carry while cable operators continued to
dominate the local-video-distribution market.

While the National Association of Broadcasters is pressing
the Federal Communications Commission to impose must-carry, some major networks are
declining to make it a priority, mainly due to retransmission consent and to the networks'
growing ties to the cable industry through their ownership of cable networks.

NAB spokesman Dennis Wharton said cable's reliance on the
channel-scarcity argument to counter digital must-carry for TV stations was disingenuous.

"They have known for a decade that DTV is
coming," he said. "If they haven't been adding capacity, what are they doing
with the money from double-digit rate increases?"

At the hearing, NBC Television Stations president Scott
Sassa said he was concerned that the cable box would degrade a 1080-interlace (1080i)
signal to a lower-resolution format, thereby angering buyers of digital-TV sets who were
expecting the best picture quality.

Sassa said he also feared that cable's digital box would be
unable to convert a 1080i signal to analog, preventing cable subscribers with analog sets
from receiving NBC's digital feed.

"Without this [1080i-to-analog conversion] capacity,
cable subscribers may not be able to access 1080i digital signals. This would spell
trouble for meeting Congress' market-penetration test," Sassa said.

The market-penetration test refers to a federal law that
allows a TV station to retain its analog and digital TV licenses beyond 2006 if fewer than
85 percent of the households in a market own or lease digital receivers or converters.

In his prepared testimony, Hindery made the point that
analog-only TV owners who subscribe to cable would be better off than those who don't.
Nonsubscribers, he said, could not access NBC's digital signal until they purchased an
expensive digital-TV set, while Tele-Communications Inc. subscribers, for example, could
access NBC's digital signal with just the box and the analog set.

Hindery said 1080i has deficiencies: It occupies more
bandwidth than the 720-progressive-scan (720p) format and 480p, and it adds cost to the
set-top without providing a substantially better picture than that offered by 720p.
Nevertheless, Hindery said, the cable box would deliver a 1080i picture.

NBC and CBS are planning to launch digital in 1080i, while
ABC is committed to 720p and Fox to both 720p and 480p.

"It will be up to the consumer to decide what they
want over time," said CBS Corp. chairman and CEO Michael Jordan, adding that he is
talking to cable operators about a compromise.

ABC Television Network president Preston Padden offered a
slew of reasons for selecting 720p, including its ability to compress better than 1080i
and its compatibility with the cable box.

Robert Stearns, technology vice president at Compaq
Computer Corp., said 1080i was a technological "cul-de-sac," and 720p was better
in terms of price and performance. He said cable operators should not be forced to pass
through 1080i signals.

TV-set makers are building receivers for sale beginning
this autumn that can handle all three formats, said Gary Shapiro, president of the
Consumer Electronics Manufacturers Association.

"We do not have a 'Beta versus VHS' situation
here," Shapiro said, adding that his member companies have already invested $1
billion in digital technology.

But he told Tauzin's panel that the FCC should impose
digital must-carry on cable and ensure that operators do not "dilute, or dumb
down," digital-broadcast signals.

Hindery replied, "Our upcoming advanced digital
customer terminals will be capable of passing through to HD televisions all -- I repeat,
all -- HDTV formats, including the 720-progressive and the 1080-interlaced formats."

Two days prior to last Thursday's hearing, National Cable
Television Association president Decker Anstrom summoned the media to lay out the
industry's position on digital must-carry.

As a legal matter, the NCTA claimed that the FCC has no
authority to require carriage of both analog and digital TV signals. He said it was
"nonsense" that must-carry was vital to broadcasters' transition, and he urged
the FCC to recognize the damage that such a mandate would inflict on cable networks.

"I can guarantee you that we won't be bashful about
making sure that whoever adopts that policy gets full credit for it," Anstrom said.