NEW pricing regulations will pinch the cable television industry, but not enough to wake it up from its exciting dream for the future.
If the industry is correct, it is on the verge of building a network that will offer consumers brand new services: movies at the touch of a button (called video-on-demand), dozens of niche programming channels you can buy for a week, and interactive programming where, for example, you could order a product you saw on television by sending a message through the set. New system would enable two-way communication
The boldest move yet to build this new network will be announced today when Tele-Communications Inc. discloses a four-year, nearly $2 billion plan to upgrade its system. TCI, as the Englewood, Colo., company is called, is the nation's largest provider of cable service. The new system would be capable of hundreds of channels and enable two-way communication.
"The net result of it is that we have in place a network that will permit two-way broadband communications," says John Bringenberg, director of strategic planning at TCI. Television, in other words, will begin to act more and more like a telephone but with a pipeline fat enough to deliver moving pictures, not just voice.
The company has already begun work to create four "super hubs:" here in San Francisco and the Bay area, Pittsburgh, Miami and South Florida, and Denver. Four more super hubs will begin conversion this year: Chicago, Hartford, Conn., St. Louis, and Salt Lake City. The conversion involves replacing most of the company's standard coaxial cable with fiber-optic cable. All but the last segment of cable - the one that connects to an individual home - will eventually be replaced with fiber.
TCI is not alone in this fiber conversion. Time Warner Cable, the nation's second-largest cable provider, plans by next January to have 4,000 Orlando, Fla., households hooked to a fiber-based system. All the major cable providers are making the switch. Economics of fiber-optic cable outshine coaxial
The economics are too compelling to ignore. Fiber is cheaper to install, easier to maintain, more durable, and can carry many times more data than conventional coaxial cable. TCI's new installation, for example, will carry an average 24 fiber strands. Each strand can carry more data than the entire coaxial cable.
"There's no question about the technology being ready," says Richard Green, president and chief executive officer of CableLabs, the industry's research arm. "The next step is getting it to the home."
Many analysts remain skeptical that the new networks will be built as quickly as the industry says they will.
"There's certainly enormous questions about where all of this is going to end up," says Mark Stahlman, president of New York-based New Media Associates. TCI and Time Warner Cable especially have been one-upping each other with announcements.
The move to a fiber-based network comes just as the Federal Communications Commission (FCC) is reregulating basic cable service. On April 1, it imposed a four-month freeze on rates. That will be followed by a price rollback of as high as 10 percent and strict limits on how much cable rates can rise after that. These new rules could cost the industry an estimated $1 billion.
"It will squeeze out a lot of excess profits" from cable operators, says Mark Cooper, director of research at the Consumer Federation of America. "They are going to have less cash, but they probably had too much anyway."
Some cable operators said the proposed regulations bordered on punitive. But the operators do not appear overly concerned.
"It could impact our ability to secure financing" to build the next-generation cable service, says Ron Cooper, senior vice president of Continental Cablevision Inc. "However, we are very bullish about the new technologies and the new business areas."
"Our past is cable television," says Jim Duffy, a spokesman for Time Warner Cable. "Our future is broadband super-highway information."