GTE Makes Inroads Vs. Cable in Calif.

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When GTE Video Services came to town, Thousand Oaks,
Calif., resident Michael Markey was torn. The incumbent operator, Tele-Communications
Inc., is an active part of the community.

"We feel like they're both hometown companies,"
said Markey, then a TCI subscriber. But in the end, he switched to GTE.

"The quality of picture is just better. They have more
programming. I've been happy with it," he said. On his six-home block, he added, four
households switched to GTE.

And Markey would not be classified as an uninformed
consumer. He's the mayor of this Southern California town.

Markey said competition among cable operators has created
myriad benefits for this growing college town. Consumers immediately got more programming
choices when GTE Corp.'s video service launched two years ago. Cable operators responded
by rebuilding or accelerating the launch of digital services. Basic rates are below the
national average for a larger suite of services.

Further, competition is good for attracting new business,
Markey said. Commercial complexes are popping up throughout the community and developers
are able to lure tenants with the bait of multiple connection opportunities.

GTE has found the Ventura County area to be a good business
opportunity, too. In just over two years, the telco-backed video venture has attracted
40,000 customers, most of whom bolted from the other operators in the area:
Tele-Communications Inc., Falcon Cable TV and Jones Intercable Inc. The largest competitor
is the TCI operation in Thousand Oaks.

Ron Hummel, general manager of GTE Americast, said the
telco has access to 85,000 homes.

"We're in 47 percent of the homes we have access
to," he said, adding that in some chunks of the community, GTE has 60 percent
penetration.

The biggest system in town questions GTE's penetration
figures.

"I think they're adding in all they've got -- Port
Hueneme, Oxnard. They're not taking it from me. ... Erosion is down to a trickle and we're
starting to see some reversal [with the launch of digital]," said Dan Deutsh, general
manager of TCI of Ventura County.

Indeed, part of the overbuilder's growth came from a deal
it cut with the operator of a 2,100-home retirement mobile home park that ousted a SMATV
(satellite-master-antenna-TV) operator.

Hummel attributed GTE's quick progress to "our very
rich product offering at launch." GTE launched with 79 channels, but soon increased
that number to 170, including attractive niche channels such as BET on Jazz, Outdoor Life
Network, CNN/SI, The Independent Film Channel, Travel Channel and the Game Show Network.
That figures includes 40 digital audio services and 23 channels of pay-per-view.

The telco also gets support, he believes, from part of the
community that, in general, was angered by its lack of choice when there was only one
operator.

But one extra choice that has not proven to be a
significant attraction is GTE's proprietary interactive product, Main Street. Hummel said
the product, which provides customers with online information sources, games and other
features, is sold a la carte, but "there's not a whole lot of those [takers of the
service]."

Mostly Main Street is given away as an enhancement to the
operator's high-end customers, the 1,200 subscribers to the so-called "producer's
package" of multiple premium services.

GTE no longer has competition in this product area. TCI
tested ACTV, which allowed sports fans to change camera angles and pull up stats on live
contests on Fox Sports West, but the service was dropped after the experiment, said
Deutsh, in favor of development of other fare.

But Deutsh said customer reaction to the service was
positive and he wants to revive it eventually.

The telco is also out front with Internet connections. Last
year it launched WorldWind on a synchronous, 10-megabit-speed local-area network. Using a
LANcity modem, GTE offers three connection speeds: 56, 64 and 128 kilobits per second.
(The latter is the speed of an ISDN service.)

Hummel said that GTE sells the Web service to two-thirds of
its customer base and the company has had a "fair degree of success" with it
despite minimal marketing. However, the operator will repackage the data services
beginning this month. Pricing and features have not been determined, but the company is
re-examining its three-speed concept.

TCI, on the other hand, is still waiting its turn on the
@Home rollout schedule. Deutsh said he hopes to launch cable modems this year.

TCI systems have been waiting for cable-modem manufacturers
to complete certification for DOCSIS modems that will clear the way for them to be sold in
stores. That process, which operators had expected to be completed this month, has been
delayed because no modem vendor has been certified DOCSIS-compliant.

With respect to the core video product, the primary
competitors in the market are closer than ever. TCI now offers an expanded-basic package
in Thousand Oaks, with 99 or 119 channels, depending on area of the community, for $26.30.
As an enticement, TCI sells its digital package for a bit less, starting at $25.99, which
includes the 65 analog channels and 26 "special-interest" digital services.
GTE's digital expanded-basic channel is $26.95.

Nationally, basic service averages $26.48, according to the
National Cable Television Association.

Hummel conceded that the duel in the sun here has
suppressed rates.

"You can't just pass along price increases through
rate hikes. You have to look at creative packaging and bundling. Without raising rates,
you can get more money through value packaging," he said.

All parties agree the competition has been very
gentlemanly. Even consumers have been circumspect.

"Some customers that have come in [to disconnect]
didn't want to tell us why they were leaving. They want to leave the door open; they
definitely want to leave the options open," said Deutsh, who said his
71,000-subscriber system (which includes some noncompetitive areas) has had customers
return.

Indeed, the mayor, Markey, said some of his neighbors have
switched back, but he added he had not been subjected to any pleas to return.

For next year, Hummel will not apply for more franchises,
but will attack the multiple-dwelling-unit market. The telco's growth to date has been
contained primarily to single-family homes.

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