Pacific Bell Video Services is getting ready to celebrate
the first anniversary of the country's first digital wireless TV service, but
industry observers wondered if it will survive to see the day.
Parent company SBC Communications Inc. is likely to sell
Pacific Bell Digital TV any day now.
"Everybody and their brother believes [that SBC] is
going to sell off PacBell Video Services," said Steve Blum, president of
California-based Tellus Venture Associates.
Others have gone so far as to say that the Southern
California-based service has already found a prospective buyer in Austin, Texas-based
Prime Cable.
While a spokeswoman for SBC said things are "business
as usual," others close to the negotiations said a deal is in the air.
Mark Greenberg, president of Prime One, a sister company to
Prime Cable under parent company Prime Management, confirmed that Prime Cable is in talks
over PBVS.
The Pacific Bell Digital TV service launched commercially
May 28, 1997, in parts of Los Angeles and Orange counties, following beta-tests in close
to 3,000 employee homes. According to Julie Dodd-Thomas, executive director of PBVS,
consumer reaction has been very good. Potential customers who find that they can't
have antennae installed at their homes due to line-of-sight problems "are usually
very disappointed," she added.
Such line-of-sight problems are not common, because the
company can place towers on surrounding mountaintops, and the land is fairly flat and
devoid of the tall, leafy trees and tall buildings that could obstruct a signal.
Dodd-Thomas estimated that 85 percent of the markets that PBVS is currently serving are
within line of sight of the company's two digital towers.
Andrew Kreig, president of the Wireless Cable Association,
said Pacific Bell Digital TV has been very important for the industry because it has shown
that digital wireless can work in an urban environment and that it can bring strong
consumer response.
Besides PacBell, GTE Corp. and Bell South Corp. have
launched wireless cable systems (also known as MMDS).
Like direct-broadcast satellite, Pacific Bell Digital TV is
an all-digital service that uses compression technology to offer more channels than the
typical cable operator and a beefed-up pay-per-view movie lineup. In addition, the digital
set-top box, manufactured by Thomson Consumer Electronics, offers DBS-like features such
as an electronic programming guide and parental lockout.
But what the digital wireless cable service offers that
most DBS companies haven't yet been able to provide is digital local channels
integrated with the multichannel service.
Pacific Bell Digital TV's local channels definitely
influence buying decisions, Dodd-Thomas said, attracting consumers who might otherwise
have chosen DBS. Consumers like the idea that they don't have to pay a cable operator
separately for local channels, she added.
Blum called local channels the "killer app" of
the television business. He said it would be interesting to see how DBS provider EchoStar
Communications Corp. does against PacBell when it brings its local-into-local service to
Los Angeles later this year.
Pacific Bell Digital TV competes with MediaOne in several
markets within the MSO's Greater Los Angeles cluster.
HOW CABLE SEES IT
"We have definitely seen some competition from
them," said Deborah Picciolo, vice president and general manager of MediaOne's
Western region.
"I wish that we were competing on a level playing
field," Picciolo added, in terms of franchise fees, municipal taxes and must-carry.
"Must-carry is a big issue in a market like this, where we have 19 local
channels."
Estimating that MediaOne's subscriber loss to the new
digital wireless service was in the low hundreds, Picciolo said competition from both
PacBell and from the various DBS services has buttressed MediaOne's operations..
"Our subscriber growth is better this year and last
year than any time I can remember," she said.
Picciolo said she sees DBS as more of a potential threat
because of its aggressive national marketing efforts, although that attention to video
services carries over to MediaOne, too.
Tom Schaeffer, senior vice president of operations for
Charter Communications Inc. in Southern California, competes with PacBell's digital
and analog wireless services.
Schaeffer said Pacific Bell Digital TV has taken a targeted
marketing approach, going after higher-end cable customers.
Picciolo observed that PacBell seems to be focusing its
efforts on Orange County and in MediaOne markets that have not yet been completely
rebuilt.
MARKETING METHODS
Dodd-Thomas said the company was challenged by the need to
market its service only to a localized customer base. To meet that challenge, PacBell uses
traditional methods -- direct-mail, community events, door-hangers, outbound sales calls
and door-to-door marketing -- rather than mass-marketing.
Some analysts have called the limited marketing into
question, blaming the lack of a more visible promotional effort for what one called a
"colossal failure" when it comes to overall subscriber numbers.
Although Dodd-Thomas would not release subscriber numbers
-- saying only that the service has met its objectives for the year, and that it is adding
customers "every day" -- other sources estimated that the figure is hovering at
below 20,000.
"I don't think that it's a question of
technology," Blum said. "It's a question of marketing."
"It's a service that deserves better," said
Jimmy Schaeffler, chairman and CEO of The Carmel Group. "Pacific Bell jumped into it
with both feet, and it had one of its feet pulled out by SBC Communications."
Schaeffler added that while the slow subscriber growth is
not a positive sign, it can be explained due to the identity crisis that the company is
going through and the limited marketing behind the service.
Kreig said a controlled rollout with limited marketing
makes "some sense," and not just because SBC has been re-examining its video
strategy.
"Installing the antenna takes time, and it takes
somebody who knows what they're doing," Kreig said. "Really aggressive
marketing could overburden the installers if it's a good service -- and it is a good
service."
From the beginning, Dodd-Thomas said, the company
anticipated difficulty in finding trained installers, "because it's a brand-new
technology." She said PBVS has had to commit to a minimum number of installs in its
contracts in order to encourage those companies to keep enough trained installers on
staff.
Over time, the installation time has been shortened, but
there has been a learning curve.
PROGRAMMING
Along the way, PacBell has run into the same kinds of
problems that many competing video providers face, including program access. Dodd-Thomas
said PacBell has not been able to negotiate successfully for a number of channels,
including American Movie Classics, The Weather Channel and Orange County News, as well as
for the NFL Sunday Ticket National Football League out-of-market package, to which DirecTv
Inc. has exclusive rights.
Pacific Bell Digital TV recently added its own original
channel, NewsStand, which continuously cycles different screens with information of local
interest, such as beach and surf reports, weather updates and traffic reports -- the
latter being especially critical in freeway-heavy Southern California.
Programming packages start at $31.95 per month for basic
service -- within a couple of dollars of local cable packages with fewer channels and no
electronic programming guide, Dodd-Thomas said.
Premium services start at $8 each, and those buy-rates are
higher than the company had originally projected.
"No one is pricing under $10 a month for a similar
product," Dodd-Thomas said.
Revenues on PPV movies exceed 100 percent (one movie per
month, per subscriber) at $3.49 apiece, Dodd-Thomas said of the 40-channel PPV service.
Extra set-top boxes cost subscribers an additional $6.95
per month. Customers can also choose a whole-house wiring scheme -- at no additional
monthly charge -- that would allow them to watch identical programming in different rooms
of the house.
SBC recently signed a deal to market DBS service from
DirecTv to multiple-dwelling-unit customers in some of its markets. Dodd-Thomas denied
that this bode ill for the digital wireless service.
"It brings credence to the importance of cable TV as a
product that they want to be able to offer," she said. "SBC wants to be a full
provider of telecommunications and video products."
With leasing agreements for other wireless television
spectrum in nearby markets, PBVS could expand its digital wireless service into other
counties, such as Ventura, San Diego, Riverside and San Bernadino. To do so, it would need
to invest in additional towers.
