MediaOne Goes Digital: Detroit Is First

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Despite initial caution about digital tiers, MediaOne is
taking the plunge in suburban Detroit this week, launching the MSO's first deployment
of digital set-top boxes in a system that faces direct competition from Ameritech New
Media.

The new technology will be available to 52,000 homes in the
upgraded, 750-megahertz system servicing Canton, Plymouth and Northville, Mich., and it
features dozens of pay-per-view channels, multiplex-premium tiers, an interactive program
guide and addressable commercials.

MediaOne will charge subscribers $9.95 per month for the
digital tier, which includes a new set-top box, a remote control, an interactive program
guide, The Box service, 31 PPV channels, 40 digital-music channels and multiplex tiers.
For an extra $2 per month, customers get four new Discovery Networks U.S. channels, and
for another $2, they get seven Encore Media Group thematic channels.

Customers will also be billed an additional $7.50 per month
for a second box to receive the digital tier on a second set.

While MediaOne has billed itself as a "broadband"
company, and it has spent heavily on system upgrades to two-way 750-MHz fiber optic wires
that can be used for high-speed-data transmission and telephony, it has expressed
reservations about rapid deployment of digital boxes, emphasizing advanced-analog tiers
instead.

Just last week, Chuck Lillis, CEO of MediaOne's parent
company, U S West Media Group (UMG), told a National Show audience that the company was
emphasizing advanced-analog because of the heavy cost of digital set-tops.

But Rob Stoddard, vice president of corporate
communications for MediaOne, said the Detroit launch was "entirely consistent"
with the MSO's broadband strategy.

"We want to examine the best possible mix of
services," he said.

Stoddard reiterated that in the "short and medium
term, [MediaOne] feels strongly that advanced-analog has some real advantages,"
including expanded channel capacity and new programming services that give the MSO a
"solid return" on an "incremental investment."

But, he continued, the company recognized that cable will
eventually be a digital world, and it wanted to use Detroit to test the waters and to
gauge customer response to the product to help it "craft pricing and packaging"
for future rollouts.

Stoddard said MediaOne has not determined its next markets
for digital launches, but likely prospects included cities with upgraded plant where cable
modems and telephony have already been introduced, such as Los Angeles and Atlanta.

In fact, Stoddard drew an analogy between the digital
launch in Detroit and MediaOne's telephony launch in Atlanta, which was marked by
low-key marketing and a lengthy "incubation" period.

Marketing will be similarly low-key in Detroit, targeting
only premium customers with direct-mail solicitations, according to MediaOne executives.

Expectations are also being downplayed. Tim Collins,
MediaOne's vice president for the Midwest region, predicted "initially
modest" penetration of below 10 percent this year, but he forecast more rapid growth
once more programming and interactive products, like games, became available.

The digital rollout will continue through the year, as
systems are upgraded in the nearly 300,000-subscriber market, he said.

The new digital platform will also feature Next Century
Media's Opti*Mark addressable-commercial system, which delivers different ads to
different homes based on database research on specific household characteristics.

Ron Cooper, executive vice president of operations for
MediaOne, said the new technology had the potential to help the MSO to double its $150
million of ad revenues. Cooper said MediaOne averages $30 in ad revenue per subscriber,
but some systems average $50. An additional $20 per customer in ad revenue, he added,
would increase overall ad revenues by $100 million.

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