ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, April 7, 1996 TAG: 9604050135
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: RESTON
SOURCE: GREG EDWARDS STAFF WRITER
In a commonplace building in this Fairfax County town, a subsidiary of Bell Atlantic Corp. is pioneering what may be the home entertainment and communications service of the future.
To fully grasp what the company is up to, visitors stop first at a simulated American living room, hidden behind a wall to the right of the building's ground-floor reception desk.
The space is furnished - unremarkably - with a couch, easy chairs, lamps and - significantly - a television set. Attached to the TV is what appears to be a standard cable decoder box, the kind familiar to many cable TV subscribers.
But this is no ordinary cable box. Its a key part of a video-on-demand and interactive television service that Bell Atlantic has developed over the past four years. It's also the kind of new service that the telecommunications law passed by Congress in February may help speed to the American public.
The box contains the same electronics to process information as found in an Apple Macintosh computer, explained Larry Plumb, director of corporate communications for Bell Atlantic Video Services Co. "It turns your TV set into a computer monitor."
But there's no keyboard and no mouse. The box is operated by a remote control, which can control a TV set or videocassette recorder as well as to give directions to Bell Atlantic's central-office video equipment.
With the remote, customers can manipulate an on-screen menu and call up videos: full-length feature films, documentaries, health and fitness videos, old TV dramas and children's stories. And once the movies are started, viewers can pause, fast-forward, or rewind them, just as they would with movies rented from a video store.
At any one time, Plumb said, the service offers 200 feature films as well as 500 to 600 other kinds of videos. Each month about a fourth of the choices, which are listed in a monthly magazine, change.
Bell Atlantic Video Services shares the suburban Reston building with Tele-TV, a company jointly owned by Bell Atlantic and two other regional phone companies, Nynex and Pacific Telesis.
Tele-TV will provide a nationally branded package of on-demand and interactive entertainment and educational programming that Bell Atlantic and its partners will sell locally over cable and wireless networks. Tele-TV's chairman and CEO Howard Stringer formerly was president of the CBS Broadcast Group.
Plumb refers to the Reston operation as a "digital factory" or a "university for multimedia," because of the innovative and creative computer work going on inside. The place is peopled by graphic and interactive designers, TV producers, audio and video editors, commercial artists, and script and concept writers.
"Most of these people didn't study to do this in school," he said. |n n| Bell Atlantic has tested the video-on-demand service since May. To its first 1,000 paying customers in Northern Virginia, it is known as Stargazer.
"People that have this have basically quit renting tapes at Blockbuster," Plumb said. "Many of them have done away with premium channels like HBO."
Information collected during the service's first six months showed that customers bought the service at a rate 12 times greater than that of the average pay-per-view system, the company said in a report released in March.
The company also concluded that video-on-demand has the potential to challenge videotape rental as the top revenue producer for Hollywood studios. Bell Atlantic said 73 percent of subscribers said the service's price was better or equal in value to video rentals.
Users of the new service on average purchase 3.3 videos a month, compared with the of renting 3.2 videos per month by households with VCRs. On average, about three-fourths of the subscribers bought some programming each month, Bell Atlantic said.
The service is more convenient than renting videos at a store, Plumb claimed. Its videos are never out of stock, as very popular movies often are in a video store. And customers never have to pay late fees, which make up about 30 percent of a video rental business's revenue, he said.
The trial also showed that the cost of the technology needed to prepare videos for distribution was "just pennies per customer, per video," said Ed Grebow, an executive with Tele-TV. That doesn't include the cost of transmission and license fees for programs, he said.
Bell Atlantic recently began experimenting with a pricing structure for the service that involves a $4.95 monthly subscription fee and per-video charges from 29 cents for short videos to $3.29 for current hits. By comparison, Cox Cable in Roanoke charges $3.95 for a hit pay-per-view movie and more for adult movies and sports events
Kent McCammon, who researches technology stocks for Scott & Stringfellow Inc., a Richmond-based securities firm, was skeptical about Bell Atlantic's ability to market the service competitively.
And as for Bell Atlantic's claim that the service may be more convenient than video rentals, convenience doesn't necessarily translate into more sales, McCammon said. For example, at one time some video stores offered the convenience of home delivery but consumers preferred going to the store, he noted.
Although it's not part of the Northern Virginia trial, Bell Atlantic plans eventually to market the video-on-demand and interactive television services such as home shopping and banking with a cable television service offering hundreds of channels. The new federal law allows phone companies into the cable TV business.
The company's final product will offer the best of cable TV and the best of a video store, Plumb said.
The videos available on the Bell Atlantic service are stored not on tape but on the memory circuits of high-powered computers called video servers in Reston. That means thousands of customers can be watching different portions of the same video simultaneously. The TV picture - at least the one in Bell Atlantic's mock living room - is sharp and free of any visible interference.
In the Northern Virginia test, the company provides homeowners the service along standard copper telephone wires, but won't use existing phone lines for full-scale service, Plumb said.
Although the existing "twisted pair" of wires that runs into most people's homes works fine for carrying phone conversations, it doesn't have the capacity needed to carry the TV signals and the home shopping, banking and data-transfer services that Bell Atlantic plans to offer in the future.
The customers taking part in the Northern Virginia test must live within three miles of the six central Bell Atlantic offices involved in the project. Any farther out and the signal transmitted over standard phone lines loses its quality, Plumb said.
To get the carrying capacity it needs to operate the service, the company will have to rebuild its phone system, a project for which the company could not offer any estimated cost. Fiber-optic cables must be run to connection points within neighborhoods, from which coaxial cable lines, similar to those already used by TV cable companies, will connect with individual homes. Over a single coaxial cable, the company will provide telephone, interactive television and data services.
Bell Atlantic's failed merger attempt with TCI, a large nationwide TV cable company, in 1993 was an effort to speed up its entry into the interactive multimedia services business. TCI could have provided a ready network for widespread distribution of the video-on-demand service.
Within its six-state service area, Bell Atlantic plans to offer the interactive TV and video on demand in six major metro areas - Philadelphia, Washington, Baltimore, Pittsburgh, Tidewater and Northern New Jersey - before it brings the service to smaller communities such as Roanoke.
Philadelphia will be the first area to get the on-demand service over a modernized Bell Atlantic network, Plumb said. That should happen next year
Virginia's Tidewater area, however, will get a first taste of the service this year. Bell Atlantic has invested in the CAI Wireless System, a national wireless television cable company, and plans to offer 100 channels in the that area over a microwave system.
But pure video on demand is not possible on the wireless system that lacks two-way communication. Instead, Bell Atlantic plans to offer what it calls "near video on demand" or a type of supercharged pay-per-view with as many as 40 movie channels.
Although Bell Atlantic already has 283 miles of fiber-optic cable in the ground in the Roanoke Valley, it won't say when it will fully modernize its system so the futuristic video services can be offered here.
"We really can't begin to commit on switched digital video for the Roanoke Valley," said Paul Miller, a spokesman for Bell Atlantic-Virginia.
Meanwhile, several telephone and television cable companies besides Bell Atlantic have been testing interactive video services in other markets. Others include GTE, Pacific Bell, US West, Time Warner, TCI, AT&T and British Telecom. |n n| Bell Atlantic had been chipping away at legal prohibitions against its offering video services even before Congress rewrote telecommunications law this year.
In 1993, the company won a challenge in a federal court in Virginia of a 1984 law that prohibited Bell Atlantic from offering cable television in areas where it already provided phone service. That decision helped clear the way for the Northern Virginia video-on-demand trial. Then, a year ago, the company won permission from U.S. District Court Judge Harold Greene - who oversaw the 1982 breakup of AT&T and its aftermath - to provide video-on-demand services nationwide.
The Telecommunications Act signed into law by President Clinton on Feb. 8 has thrown all aspects of telecommunications wide open to competition. It changed federal law to allow local telephone, long-distance telephone, cable TV and other telecommunications companies to compete in the others' markets.
Jeffrey Reed, associate director of Virginia Tech's mobile and portable radio research group, predicts that telecommunications companies will jump into each others' markets and then package various services such as cellular, long-distance, local phone, cable television and data services and sell them to consumers looking for one-stop shopping.
Some companies may offer unique services, such as a cellular phone that becomes a portable wire-line phone when it's used in or near a consumer's home, Reed said. Another possibility, he said, is the construction of wireless local loops, where wireless phone base stations are situated in neighborhoods to provide local phone service.
Brian Woerner, Reed's faculty colleague, predicts that the coming competition among telecommunications firms will bring prices tumbling. It would be reasonable to expect cellular phone rates to be cut in half in the next two years, he said. The FCC's decision to begin auctioning broadcast spectrum has brought competition to telecommunications as well as the new law, he said.
Still, the rates for some services may go up, Woerner said. For instance, local phone service, which has long been subsidized by long-distance service, may cost consumers a little more, he said.
Andrea Kavanaugh, director of research at the Blacksburg Electronic Village, said she believes the biggest impact of the new law will be in increasing public access to data through such venues as the Internet. People won't change their television and telephone behavior that much, and she doubts that the prices of those services will drop, Kavanaugh said.
But the willingness of consumers to change their behavior is what companies like Bell Atlantic are gambling on.
LENGTH: Long : 204 lines ILLUSTRATION: PHOTO: Bell Atlantic. 1. Computer technicians in Reston createby CNBthe menu screens for Bell Atlantic's new video-on-demand and
interactive tv services. 2. The gateway menu screen for Bell
Atlantic's video-on-demand service. color. 3. Bell Atlantic Video
Services and Tele-TV, a Bell Atlantic joint venture, are in this
building in a Reston office park in Fairfax County. 4. Greg Edwards.
Larry Plumb of Bell Atlantic compares movies converted to digital
format on 8 millimeter tape with the originals from the studios,
sitting on the floor. The magnetic tape is used to load video into
the memory circuits of Bell Atlantic's computers. color.