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Keeping pace with the big guys

Sat, 05/31/1997 - 8:00pm
Michael Lafferty
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Long ago (two, maybe three years ago) when the idea of high-speed cable modems really caught on in the cable industry, the idea that they could be the linchpin for an economically-viable datacom service in a 100-subscriber system (at least in this lifetime) was considered all but absurd.

My, my, what a difference just a couple of years makes.

As the top 10 MSOs stumble over each other rushing to the press rooms with the latest announcement on the newest system launches of their particular on-line data service (@Home, Roadrunner, etc.), innovative software developers and hungry operators, small and medium alike, aren't waiting for the trickle-down theory of high-speed data to start flowing their way one drip at a time.

They're joining forces to catapult themselves and small-town cable subscribers onto the information superhighway today. The turnkey ISP providers bring their computer expertise and Internet savvy to the mix. The small- and medium-sized operators not only bring their considerable appetites for new revenue (and risk taking), but their close ties to the communities they serve. By capitalizing on those relationships, the operators and the service providers are looking to build a solid local content base on which to anchor their new service.

It's a dynamic collaboration that's beginning to put smaller operators in the datacom big leagues. And while their subscriber numbers may not be all that big, the datacom services these smaller ops are putting together, with their strong emphasis on local content, are becoming as compelling as anything the big boys have on the street.

Worldly view of local content
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One of the most innovative datacom services to come along is WorldGate's TV On-Line (TVOL) service. Led by a renowned former GI executive, Hal Krisbergh, the service shuns cable modems and their high-speed hype. Instead, TVOL's computing intelligence is based in the headend and uses eight VBI lines to send content to analog set-tops.

Subscribers can surf the 'Net with their remote controls or communicate via e-mail and visit chat rooms and newsgroups using a wireless keyboard. The service's "hyperlinking" capability gives subscribers one-button access to various Internet locations/options (web sites, e-mail, chat rooms, etc.) highlighted during TV shows and advertisements.

WorldGate's efforts to target the curious, but unsophisticated, Internet user (...Connecting the Unconnected™) beg the question of what they're going to do to snag subscribers whose ignorance of the Internet could fill a couple of high-density disks. Ken Nimmer, WorldGate's vice president of consumer marketing, believes this indifference works to his company's advantage.

"This is Internet for the masses," says Nimmer. "Consequently, we don't believe a large number of our subscriber base will be that focused on surfing the 'Net, with its 10 billion pages. Instead, they will be going after things that are more meaningful, that are less threatening, that are less awesome. And that certainly includes local content."

Nimmer believes WorldGate's success lies, in part, with the parent who has school-age children. That parent knows there's a PTA meeting coming up, but can't remember where or when it's scheduled. That parent wants to check on his child's soccer team schedule, as well as its win-loss record. It's this type of local content that Nimmer thinks will hook the unconnected to WorldGate's PC-less Internet service.

"That's what is going to get people to use this service," insists Nimmer. "Because it's a useful way to get information that they currently can't get very easily. We've broken our local content category down into such things as schools, shopping, restaurants, entertainment, and even a phone directory (see above) so that they can get the latest information. You may want to find which restaurants are having special discounts, movie start times, or whatever. All of that will be a part of the local content category. And because we think it will be so important, local content will be on our main menu, which is the first screen people see."

This emphasis on local content, says Nimmer, has revenue implications for the operator as well. "We think that the local content category is something that will be extremely important to the cable operator for Internet TV. Because we think the local sales person can go out to advertisers and say, 'Gee, wouldn't you like to sponsor the school board Web page? Or wouldn't you like to do a page for City Hall or some other civic organization?' Tying in local advertising to local content and then getting people to use it, making sure they know that it's available, is a whole new revenue stream and something we're certainly going to focus on."

True grit = real success
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While Bill Bauer may not be on a mission from God, he's certainly got the drive, determination and dedication to make it look that way. Bauer's tiny WindDBreak Cable system (110 subscribers scattered over the Nebraska landscape) and his newly-formed Internet service company, interTECH, are garnering a lot of attention from operators, both large and small.

Bauer has never let his system's small size hold him back. As a result, he's come up with a unique system that can put almost any sized operator on the Internet service map. His system shuns hard-wire connections to Internet service providers (T-1 prices in his neck of the woods: $4,300 a month!). Instead, he's put his faith and his IP packets in the sky, using much more affordable VSAT technology.

The WinDBreak/interTECH system uses a 1.2-meter satellite dish for both uplink and downlink traffic to connect the headend with a national operations center (NOC) that, in turn, provides connection to the Internet backbone. Traffic is carried at up to 12 Mbps down to the cable headend, and 64 Kbps up from the headend. Data is sent through a PC-based router connected to an HTTP/proxy server, which is connected to the cable network by 10BaseT Ethernet and cable data modem launch equipment. Cable customers connect through 4 Mbps cable modems.

While the technological achievements his system features are considerable, he hasn't forgotten that content is what is going to make his system a winner among subscribers. Bauer readily admits he doesn't have the budgets the big boys have to develop and deliver content. Yet, that hasn't stopped him from coming up with his own approach to the problem.

"How do we keep it new, fresh and alive all the time," asks Bauer, "without breaking the bank? I'm going in a bit of a different direction when it comes to content. How do we connect local stores, organizations and other events with all the information that's on the Internet? Me creating more content for the Internet is ridiculous. There's so much out there now.

"It's more important to direct people to what's out there. Which is quite a bit different from what @Home and Roadrunner and all these others are doing. They're going and presenting the content to the customer. I just want to point them in the right direction."

To help his datacom subscribers find the Internet path they want, Bauer and his small staff have been working on the system's Navigator or homepage (www.windbreak.com) to make it even more user friendly, and even entertaining, he says. "We have to move past the technology stage and move to the idea that we're in the entertainment business. And this is an entertainment service to some extent."

Using the VSAT satellite system, Bauer explains, allows him to do IP multicasting. What that does, he says, is allow him to send out one packet of information to, say 500 sites. "And what that can do," says Bauer, "is change the background, change an icon, move things around to keep it (the homepage) fresh and new all the time, whether it's my particular system or another interTECH system three states away. Because the Internet changes so rapidly, sites get really old in just weeks. And it's hard to justify having a graphics person on staff full-time for a 100-subscriber cable system. This way, it stays fresh. It makes it look like that system has that kind of staff that does all these kind of things."

Bauer's sites are also trained on developing his service for local businesses as well. As far as he sees it, there's no reason why the local shoe store can't cash in on a national promotion or sale.

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"What I have envisioned, for the future," explains Bauer, "is a way to sell products over the Internet. It's basically akin to QVC on line. But I want to take it to the next generation, to where, say, Nike wants to sell a certain brand of shoe. And they put an ad in our cyber mall. The customer goes in and buys the shoe and the shoe gets delivered to the local shoe store, not to the customer. So, the customer goes down to the store, where he makes sure everything is all right, the shoe fits, etc."

Bauer's focus on content for his system and interTECH client/operators hasn't swayed him from developing technology he and others will need in the datacom arena. For example, Bauer says there is a virtual void in the industry when it come to effective datacom test equipment.

"There are no pieces of test equipment out there. And we've been working with an engineer to develop some new software/hardware combination that will work and is affordable. And we did the first plant testing on it recently. It was great."

He reports that with this new testing device, he was able to learn "more about my cable system in two days of work than I've known since I started the plant. We were able to track down an end-of-line seizure screw that had not been tightened. It had no effect on the video signal, but we were seeing a reflection on some of the testing we were doing. And, we are looking at a platform that is $2,500, not $20,000. And it's giving us more information than we can get from a spectrum analyzer."

The interTECH system has been designed with its creator and his billfold in mind. "It's a simple system that doesn't cost a lot, and it works," says Bauer, who has spent about $17,000 to get data service up and running in his Harrison system. In his discussions with other operators, Bauer quotes a price of about $19,000, to give himself some "wiggle room." The price quote includes equipment from Zenith, which Bauer considers to be the most cost-effective today.

"We can purchase cable modems for $318 right now (the Zenith 4 Mbps product). What interTECH is moving toward is having a high enough order volume to be able to move to the $299 price. If you buy 1,000 modems you can get them for $299 each. What InterTECH will do is buy that volume of modems and sell them at that price. It's to our advantage to give the operator any help they can get. Because we'll get our income from on-going revenues with support and other services."

The plight of the smaller operator in an industry that's dominated by cable behemoths is not all that bleak, as Bauer's system has shown. But, he's convinced there's a real danger to the entire industry and small communities themselves if the small operators succumb to outside competition or don't take the opportunity to support their communities in new ways.

"I've been looking at an interesting opportunity," says Bauer. "There is a cable operator that has 34 headends and a total of 3,600 subscribers. So, that's roughly a little over 100 subscribers per headend. They have no big systems. I think their biggest system is something like 270 customers.

"Now, how do they stay viable? How do they make money in markets with 19-channel systems? When you're looking at a system designed this way, how do they survive? How do they compete against DirecTV and other DBS competitors? What is it they can offer that gives them some strong revenue and is something they can do better than anyone else? The Internet fits the bill perfectly.

"The thing we keep forgetting is that as people in smaller communities keep buying dishes and doing things outside the community that don't bring revenue back into the community, it fosters a long, steady decline. These communities are going to die. So, what the cable operators can do is help their communities stay alive and vibrant. They can help residents keep a strong interest in these communities that are the heart of our nation. And cable is out there and it can make it happen."

Ramping up in Virginia

One of the most ambitious and accomplished smaller system Internet rollouts is occurring in a burgeoning suburb 35 miles west of Washington, D.C. Cablevision of Loudoun (county) and Community Networks Inc. have joined forces to forge a dynamic service that is ramping up to serve a population with almost ideal demographics.

According to Max Kipfer, vice president and general manager of Cablevision, his system's demographics almost beg for an Internet service. For example: the median income is $84,000; average monthly cable revenues are $50; 70 percent of all homes have a PC — and 18 percent have two; 35 percent subscribe to an on-line service; and the area is growing rapidly — 10 percent new home growth per annum.

Cablevision's 32,000 computer-savvy subscribers are about to experience the roll-out of a service that's generated a waiting list of nearly 400 people simply by word-of-mouth. CNI's turnkey approach (data network design, systems integration, local and national content development, network management, customer support, etc.) has obviously struck a chord in this Virginia community.

Not one to spend money when he doesn't have to, Kipfer notes the system has been designed to grow at its own pace, beginning with telco-return cable modems. The effort began, says Kipfer, about a year ago, when the system was upgraded to 550 MHz. Bob Dattner, Cablevision's chief technical officer, approached Kipfer about reserving some of the new bandwidth for Internet access.

"We went round and round about it," reports Kipfer, "and I kept saying, 'Give me a business plan, Bob. You know I sell cable. I sell video. That's what I've done. I'm not opposed to it, but you've got to show me that I can make as much money selling the Internet as I can selling another Playboy service or something.'" Kipfer says, after considerable research, lots of inquiries and more than a few meetings, Dattner came up with "a business plan that made some sense, but it involved not doing it on our own, but in partnership with CNI."

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Both felt there was an urgency in their efforts to get an Internet service rolling. Their bright, affluent customers, they were afraid, might commit to some other service that would leave Cablevision out in the cold down the road.

"What we're doing right now in my mind is a no-brainer," says Dattner. "Any cable system that isn't using at least 6 MHz to do a telephone return, I wouldn't say they're quite making a mistake, because maybe if they wait six months they're better off. But boy, what you're doing to your image and what you're letting your customers get used to in the meantime...Why let your customers buy an ISDN line, when a year from now you can blow it away when MCNS modems kick in. Let them buy from you right now and establish the relationship."

In the meantime, says Kipfer, Cablevision not only establishes a strong relationship with its new Internet customers, it also gets a jump on what neighborhoods are primed and ready for two-way cable modem service.

"What we decided," says Kipfer, "was that we'd let market demand decide where to go two-way. So, if a specific community or a specific set of streets seems to have a heavy concentration of one-way users, we'll just upgrade that area. That way we're upgrading because we know there is demand, as opposed to upgrading in anticipation of demand.

"We think the penetration numbers are probably around 10 to 15 percent. When we start getting those numbers, it almost justifies that area to be turned to two-way. We've allocated enough channel space to be able to support both a one-way modem and a two-way modem service."

Kipfer and Dattner readily admit that their current customer base of about 120 people contains a goodly portion of "wonks" who have gone ga-ga over the speed of their cable modems. But that doesn't preclude them going after others who look beyond the speed for some Internet substance. "I think we get the early adopters just by saying we're fast," says Dattner. "So take a guess, maybe that gets you 5 percent. I think the next 5 to 10 percent are the people who want to buy it, but they need an excuse to buy it. So you say, 'Look, read your homeowner's association newsletter. You've got kids in school. We'll give you an e-mail account. We'll teach the teachers how to give your kids homework over the 'Net.' So, I think you get some people out of that.

"The people that I'm really interested in can barely handle the point-and-click of Windows. Maybe they can handle their Macintosh. With the Pulse product that CNI is developing, when you sign on, it suggests places for you to go on the Internet. So you don't have to go surfing. You just point and click and it takes you to interesting places. And it's intelligent software. We're probably six months to a year away from having something I would say is a good product."

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When fully developed, the Pulse local content product will take a lot of the worry out of Internet surfing. Subscribers, when they initiate service, will be asked to fill out a personal profile that details subscriber interests, whether it be antiques, wine, travel, or bottle cap collecting. Once completed, the profile serves as a guide for the Pulse program to search out the Internet for sites that fit that profile. Whenever subscribers sign on, they can check to see what the service has found, and with a simple point and click, they'll be at a site that fits their particular interest.

Kipfer and Dattner report the beta tests and the initial rollout have taught them a variety of important lessons. Their contract installer force, in large part (approximately 60 percent) took the installation training (which includes installing computer modem cards) and are doing well. They've established two-man installation teams, even though one could do the task. It seems they've found that customers aren't quite ready to accept the idea that the guy crawling around in their attic pulling cable wire has the finesse to crack open their computers.

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Kipfer has also made the executive decision to keep cable invoices separate from Internet service payments. He thinks the $39.95 unlimited access charge for the Internet service could have a detrimental effect on the average $50 cable bill. "I'm currently in favor of separate billing," explains Kipfer. "I'm just not sure customers are ready to see a Cablevision bill that says $90 owed on it, even though I think that's just perception.

"But, I don't want to jeopardize my $50 a month average revenue by throwing a $40 CNI bill on that. I'm afraid people will look at their cable bill and there will be a cannibalization effect on our cable services."

Turnkey tango

Another entrant in the turnkey Internet tango contest is Online System Services (OSS) based in Denver, Colo. What originally started out as a web development and consulting firm, has branched out to fill what they think is a pressing need — Internet access for small-to medium-sized communities.

"One of the areas we identified," says Steve Adams, OSS president and CEO, "was that smaller communities weren't being provided Internet access, at least at good rates. A lot of the smaller communities were having to dial up through 800 numbers or whatnot and were spending $8, $9 or $10 an hour to get that access. So, we put together a package that integrated hardware and software, and developed some of our own proprietary software, and ended up with our own turnkey package — the Community Access America (CAA) product."

Adams says the OSS package is more than so much hardware. "This isn't just a bundle of hardware and software," he explains. "We've got a complete system that supports the cable operator in getting into this business. We've developed very comprehensive business models so that we can go in and do an analysis of the market. We figure out how many subs are there, what the demographics are, the PC penetration of the market and what the potential return on this is. We help calculate break-even point. So we go through and really help the operator develop their whole business model."

The company has begun two trials of its system. In Kingsport, Tenn. a hybrid telco return system is being installed, while full two-way LANcity installation is taking place in Kansas. In their dealings with these and other operators, Adams has found a few things that seem to send chills down cable spines.

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"We found two things that really scare the hell out of cable operators about this whole thing," says Adams. "One, is help. Where do you get technical support? Where does a cable client go if their modem isn't working? And that really scares them. So we're providing that service and getting rid of that fear. The second one is the installation part. I mean, I've sat in the room with the top execs at TCI and watched them go pale when you talk about opening up the computer case and installing a modem inside. Their next thoughts are liability, lawsuits, what happens when they format the hard drive accidentally, or whatever?

"So, the other thing we help the cable operator with is that we will work with the cable modem manufacturer, whomever they select, and we'll go into that community and identify the dominant PC retailers. Then, we'll go to those retailers and say, 'Look, we're going to be using GI modems or whatever in this system, and we'll train your people on how to install them.' So, when the subscriber wants to get his cable modem installed, he takes his PC over to the retailer and pays for the modem and the installation.

"That does two things for the operator. All the cable installer has to do is run a splitter and plug in the coax. Secondly, it gets that cable modem off the balance sheet. That capital investment is not an issue."

Adams says the technology doesn't obscure other operator needs. They're currently in the process of finalizing their Community Access Partnership product, a local content creation software program. "It's probably one of the most important features that we have," says Adams. "And what we've done there is that we've spent better than a year now, and I'd hate to admit how many dollars, developing a very feature-laden and robust Web content development system for a local community.

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"We've gone to the extremes, because in a smaller community the cable operator may not have someone who's got the technical expertise. We've done it so you can provide local content for businesses, schools, the media outlets — radio, newspapers, television — without having to be technically proficient. If you can type, you can develop content for community groups.

"So, what we've done in this Community Access Partnership program is put together a method for content to be provided on a local basis, where the cable operator acts as the aggregator of all that. And, probably most importantly, we've devised a way to lower the barrier of entry for merchants to sell their products and services on-line. So, instead of spending thousands of dollars, we can really reduce the cost of that, and it becomes financially viable for a small store to sell on-line."

These service providers are just the tip of a growing iceberg. Internet access is no longer confined to the big-budget MSOs. Technology, ingenuity and a fair amount of chutzpah has given smaller operators the leg up they need to stave off competition where it hurts most — in their own backyard.

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