Technology Hands Off to Programming at Cable 98

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Atlanta -- Tele-Communications Inc. firmed up software
plans for its advanced-digital boxes last week, leaning strongly toward Sun Microsystems
Inc., while challenging Microsoft Corp. to prove itself.

TCI executives worked late on the eve of the National Show,
sitting in a conference room in building 9 of Microsoft's Redmond, Wash., campus.
While they finalized a deal with Microsoft for a minimum of 5 million copies of Windows
CE, simultaneous phone conversations were under way with Sun to lock down plans for its
PersonalJava software, which will run on all digital boxes going forward.

"We've moved one notch forward," said Bill
Gates, chairman and CEO of Microsoft, during his keynote speech here. "We've
moved to a formal contract."

In an informal discussion with reporters following
Gates' speech, Malone said getting Windows CE to work with PersonalJava is a tricky
business, given Microsoft's and Sun's mutual disdain for one another.

"This is like mating porcupines," he quipped.

Apparently, Sun had fewer quills. By midweek, TCI released
details about its deal for Sun to handle the "porting," or linking, of the
Windows CE operating system with Sun's PersonalJava middleware.

Malone said the Microsoft deal is not exclusive, and he
will still use real-time operating systems, like Sony Corp.'s Aperios and Sun's
"Chorus."

The TCI nod to Microsoft moved the negotiations beyond what
had repeatedly been characterized by both players as an "arm's-length
arrangement."

But during a press teleconference last Wednesday to
describe the Sun deal, TCI executives suggested that Microsoft and other operating-systems
providers will need to prove themselves before they can participate in commercial launches
next year.

"Both Microsoft and Sun, and our other suppliers that
come along, have got to perform," said David Beddow, senior vice president of
TCI's National Digital Television Center. "I'd say that destiny is in their
hands."

On the Sun announcement, Beddow said he thinks that TCI
"has reached a major milestone."

Scott McNealy, chairman, president and CEO of Sun, said
during the call that all of the boxes that TCI deploys "will proudly wear the
coffee-cup logo and clearly pass all compatibility tests."

Beddow said TCI is hopeful that the new services enabled by
the advanced OpenCable platform will actually increase cable-penetration rates from their
current spot in the mid-60 percent range into the high-70 percent or 80 percent range.

"We'd like to develop enough applications so that
customers would like to watch TV 24 hours a day, seven days a week," Beddow said. He
added that TCI will spot-test different interactive applications in some of its systems
starting next year, to find out what customers like and don't like.

"Over time, you develop the stars," he said.
"In the other extreme, some applications will fall away, never to be seen again --
it's kind of a natural-selection process."

TCI's moves joined pockets of other news at last
week's National Show here, which found the industry at a pass-the-baton juncture,
from technologists to creative-content minds.

Last Tuesday, senior cable executives gathered on a panel
to discuss packet-based applications, agreeing that creativity is what's needed next
-- not from technologists, but from networks and other entertainment outfits, which are
more seasoned in finding ways to lure viewers.

And all through the week, data and digital-video suppliers
talked IP (Internet protocol), saying that set-tops with built-in cable modems will sell
at twice the rate of stand-alone cable modems in four years.

Suppliers said the standards, cost and compatibility stars
are in alignment for cable to emerge as a communications heavyweight. A cornucopia of
services running on personal computers and TVs will range from TV-based e-mail to
networked in-home electronics that let consumers buy and store CDs, videoconference with
far-away relatives and tap into large stores of customized community information.

This means that it's time for the entertainment
experts to point their brains at new content ideas.

"I think that creativity is sorely needed at this
stage," said Geraldine Laybourne, president of Disney/ABC Cable Networks. "Not
just what it'll be, but also: How are we going to make a business out of it?"

If Microsoft has any ideas, they're on the way. In its
deal with TCI, the software giant will supply a minimum of 5 million copies of Windows CE
for use in some of the boxes that TCI has on order with General Instrument Corp.

So far, Malone said, he's happy with Microsoft's
timetable for getting the operating system ready to go. The boxes and software are
scheduled to be ready by the second quarter of next year.

When asked for his reaction to Gates' comment that
"it's hard to keep a straight face" when accused of trying to be a dominant
technology and content supplier, Malone said that Gates, behind the closed doors of
negotiating rooms, has always taken a hands-off attitude toward TCI's customers.

"The fear is the [revenue] splits -- it's always
the splits," he said, explaining concerns about paying low fees for early versions of
Windows CE, then having to ante up more cash for later versions.

Gates, in typically self-deprecating style, poked fun at
himself and the Internet by showing a mug shot of himself at age 21, when he got picked up
for speeding in Albuquerque, N.M.

He also showed a clip modeled after a Volkswagen
commercial, with Gates and Microsoft executive vice president Steve Ballmer driving along,
picking up a trashed Sun workstation, finding it to be stinky and dumping it along the
side of the road. The clip brought gales of laughter from the standing-room-only National
Show crowd.

And Gates complimented cable's progress in upgrading
its plant to 750-megahertz, two-way capacity. "I'm very pleased with the rate
that's going at," Gates said. "All that the cable industry needs to do is
to continue rebuilding plant ... and to partner with a few technology companies with a few
of the pieces to make this a reality."

Later, Laybourne scoffed at that. "I sat there and
thought, 'Isn't he missing the larger ingredient, which is creativity, focusing
on the customer and figuring out how we really make this important for people?'"

Leo J. Hindery Jr., president and chief operating officer
of TCI, also took issue with one of Gates' concepts, cautioning attendees to pay
attention to consumer realities.

His comments were directed at Gates' demonstration of
a "smart agent" -- a talking green parrot named "Petie" that
recognized human speech and did digital errands, like creating a list of individualized
programming.

"I don't live in a world of parrots and
flat-screen TV sets in every house, and walls that talk to me," Hindery said, adding,
"We have to be more respectful of what's going on" in consumers'
homes.

Also notable in last week's pockets of technology news
was another link in the technology-partnership plans of Time Warner Cable' Road
Runner/MediaOne Express. On Monday, Network Computer Inc. -- which is expected to land
inside the circle of a large, planned announcement by the merging data services this week
-- struck an arrangement with Pioneer New Media Technologies.

NCI technology already runs on Scientific-Atlanta
Inc.'s digital boxes. And Time Warner has ordered digital boxes from both vendors.

In the Pioneer deal, NCI will provide its "DTV
Navigator" software, which includes enhanced and interactive-TV applications, like
Web-browsing.

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