Retailers Challenge Cable On Selling Cable Modems

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Chicago -- The inevitable negotiations about retail shelf
space between cable-modem makers and stores will gain momentum next year, probably sucking
cable operators into uncomfortable talks about splitting up the pie.

That was perhaps the loudest unspoken message at last
week's Retail Forum here, when nearly 100 heavyweights representing seven retailers,
11 cable-modem manufacturers and seven cable operators met for initial talks about how to
enable the retail high-speed market category.

At one point, Rick Sharp, CEO of Circuit City Stores Inc.,
in a rare public appearance, challenged Road Runner senior vice president Robert Rusak,
saying that Circuit City would want a cut of ongoing revenues -- or at least some piece of
the pie -- before agreeing to sell product.

Asked later about his questions to Rusak, Sharp smiled and
said, "It was just a starting point." He declined to elaborate.

But cable attendees did not miss Sharp's point.

"I doubt that America Online [Inc.] pays an annuity to
retail stores, and I doubt that a cut of monthly subscription fees is something that we
want to do," said Ken Wright, vice president of engineering for InterMedia Partners.

The most common spoken sentiment during the Forum about
selling modems: It's complicated. Not only do retailers and cable executives need to
familiarize themselves with each other's lingo, but layered issues also remain.

Among them: how retailers will know which cable markets can
support two-way data services; how to adjudicate shelf space for both cable modems and
high-speed-data services like @Home Network and Road Runner; and, perhaps most important,
how to forge mutually agreeable business arrangements.

Still, analysts and operators present for the meeting
expressed optimism that progress is being made.

"Retail availability of cable modems is not going to
happen overnight," said Cynthia Brumfield, an analyst with Paul Kagan Associates Inc.
"This is very much par for the course of any new media-business development,"
she added, speaking about the "more questions than answers" flavor of the event.

Sharp said that while bringing cable modems to retail
shelves "is not rocket science," it does require rigorous attention to customer
service, employee training and "detail, detail, detail."

He added that the cable industry should prepare for
formidable competition from other high-speed carriers, like wireless and ADSL
(asymmetrical digital subscriber line).

And, said Sharp, "We believe that the consumer will
want a choice of Internet-service providers, and they'll want to view this
cable-modem service as a -- not to use a charged word here, I won't say 'common
carrier' -- but as a transport method to get data back and forth."

Motorola Inc. laid down competitive considerations, serving
as an industry diplomat for the conference as the Retail Forum's organizer and host.

Motorola CEO Christopher Galvin kicked off the two-day
event last Monday, saying that the cable-modem market "feels a lot like the cellular
market in the 1984 and 1985 time frame," because the issue mix is the same:
interoperability, coverage areas and perceived pricing resistance.

The cellular market segment subsequently blew past even
Motorola's wildest expectations.

"The lesson that we've learned [in two-way and
paging] is that human beings have an absolutely overwhelming need to communicate,"
Galvin said.

But the road to retail will assuredly be tricky, Galvin and
others said. "There will be a variety of different tacks and vectors ... it is going
to be complicated."

That's because the roles of manufacturers, software
creators, content providers, cable operators and retailers will have to be determined so
that each is satisfied, Galvin said.

Galvin called the Retail Forum a first step at sorting out
those issues.

Circuit City and RadioShack executives, who delivered
prepared presentations here, used up most of their allotted time educating attendees about
their respective market presence, spending little time discussing actual retail-deployment
issues for cable modems.

In fact, RadioShack's senior vice president of
merchandising, Richard Borinstein, showed 10 video advertisements during his presentation,
apparently trying to underscore the retailer's attempt to change its image away from
that of a Mecca for techies.

Among Borinstein's statistics: RadioShack operates
7,000 stores in the United States, located within five minutes of 94 percent of the
population. More than 1 million customers visit a RadioShack store every day, he said.

Borinstein called RadioShack's progress on retail
modems "a work in process" so far, saying, "We're obviously working
with all of the major cable-modem players and service providers." He said RadioShack
is looking for "a fair and equitable partnership" that includes the sale of a
cable modem and a high-speed-data service.

As part of RadioShack's goal to be
"America's home connectivity store," Borinstein said the retailer plans to
put its fleet of 10,000 vans to work integrating and installing cable-modem and
high-speed-data systems.

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