Pace Micro, Cisco Systems Combine on Do-All Set-Top

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Pace Micro Technology plc, encouraged by an order for
digital set-tops from a large U.K. cable operator, aligned with Cisco Systems Inc. last
week as part of its play to re-enter the U.S. equipment-supplier segment.

In an arrangement detailed last week, Pace said it will
work with Cisco to develop "a new generation of multimedia set-top boxes and
infrastructure solutions" that mirrors the technology of the moment: integrated TV,
data and telephone services on one box.

The first big taker, and on very short order: Cable &
Wireless Communications, which operates cable systems that pass 4.2 million homes in the
United Kingdom. In late July, C&W agreed to buy 100,000 of Pace's digital boxes;
last week, the MSO detailed plans to start rolling out the Pace/Cisco units before
year-end.

Andy Trott, director of engineering for Pace, said
shipments will start in December, followed by another batch in January and "four
volume deployments in March."

Notably, the Pace boxes that C&W selected will include
cable modems based on the U.S. standard, DOCSIS (Data Over Cable Service/Interoperability
Specification), and not on the European DAVIC (Digital Audio/Video Interactive
Communications) or DVB (Digital Video Broadcast) standards.

C&W is the first European operator to endorse the
DOCSIS standard in a set-top environment, and it is doing so because the technology is
more readily available than other formats, C&W executives have said.

Plus, the arrangement gives Pace another doorway into the
U.S. cable market, Trott said.

"Understand that we never lost interest in the North
American market," he added.

In its earlier play, Pace licensed General Instrument
Corp.'s DigiCipher conditional-access control and encryption technology. The strategy
then was to build GI set-top clones and attract orders from MSOs that wanted a second
supplier in addition to GI.

But those orders didn't come in -- partly because GI
slashed prices for its boxes in situations where Pace was also a bidder. So Pace shut down
its Denver office, relocated to Miami and turned its attention to the Latin American
marketplace, MSO and Pace insiders have said.

Its new Cisco arrangement and its experience in developing
set-tops for the U.S. market "all add up to putting us in a very good position when
we focus our attention on the North American market again," Trott said.

Trott expects that to happen "sooner, rather than
later, but not in the next few months."

Notably, despite C&W's earlier intent to deploy
GI's conditional-access and encryption technology as part of its set-top platform,
another, unnamed vendor has since been selected, sources said.

In its Cisco arrangement, Pace will license Cisco's
"NetWorks" technology, said Paul Bosco, general manager of Cisco's
cable-products and solutions business unit, describing the alliance as an important first
for Cisco.

"This is sort of a big step forward for us ... to
collaborate on an end-to-end solution for video, data and telephony over a set-top
box," Bosco said.

Cisco's cable presence so far has been focused on
intense participation in data activities, including the development of a cable-modem
headend and reference platform for cable-modem manufacturers. Last month, Cisco became the
first vendor to submit its high-speed-data product to Cable Television Laboratories Inc.
for DOCSIS-certification testing.

Bosco said Pace approached Cisco six months ago, under the
direction of C&W, adding that the fast-track project will put interactive boxes into
field tests within 12 weeks.

Cisco's NetWorks suite, described by Bosco as
"the back end," includes a reference-hardware design, support for certification
and an IP-based (Internet protocol) stack that affords multiple-services support, Bosco
said.

"This is truly a multiservice gateway," he added,
describing the forthcoming box as one that will be compliant with the DOCSIS, OpenCable
and PacketCable industry efforts.

"Obviously, all of those [industry efforts] are
evolving," Bosco ceded. "But our intent, as we've done elsewhere, is to
make a platform-standards drive, which is more of a challenge on the set-top side."

That's because set-tops are intrinsically more
complicated than cable modems, given the need for forward and backward compatibility over
what will likely be a large base of different manufacturers producing boxes.

C&W's plan is to exploit its broadband network by
offering an interactive set-top that enables viewers, via their televisions, to shop,
arrange home deliveries, check their bank accounts, look for news and information, or book
tickets for holidays and concerts.

Dubbed "TV Mall" and based on Internet
technology, the offering will feature a "wide range of easy-to-use retail,
entertainment and information services," said Graham Wallace, CEO of C&W, in a
prepared statement. Those services will be available alongside a complete range of TV
channels, movies-on-demand and other services, he added.

"The success in recent years of remote retailing --
from phone banking and teletext to mail-order and home delivery services -- is clear
evidence of the consumer appetite for greater flexibility in the purchasing of services
and products, and for accessing information," Wallace said.

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