THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, April 1, 1995 TAG: 9504010230
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Long : 101 lines
Two Baby Bell phone companies' planned investment in a ``wireless cable'' operator may be a longer-term and more central part of their strategy for getting into the video-services business than the companies are letting on, industry analysts and executives said.
Bell Atlantic Corp. and NYNEX Corp. announced Wednesday that they will pump a combined $100 million into CAI Wireless Systems Inc. of Albany, N.Y. CAI owns wireless cable systems in Hampton Roads and New York City. It has signed deals to acquire operations in Baltimore, Washington, Philadelphia, Pittsburgh and Cleveland.
The phone companies said they might use their investment in CAI to get into the cable-TV business sooner than previously planned.
But John Mansell, an analyst with the Carmel, Calif.-based communications-research firm Paul Kagan Associates, said that there are so many kinks to work out in the telephone companies' grand video-via-phone plans that wireless cable could be the Baby Bells' main cable platform for the rest of the decade.
He pointed out that the phone companies have repeatedly bumped back launch dates for their video services, blaming delays in winning regulatory approvals and in engineering the systems. The earliest Bell Atlantic now expects to deliver cable TV in Hampton Roads is mid-1996.
``If they're serious about providing video services, wireless is the easiest and cheapest way to get into the business,'' Mansell said.
Wireless cable uses microwaves to broadcast a few dozen channels of programming to small antennas on customers' rooftops.
With only about 700,000 U.S. subscribers compared with traditional cable's 65 million, wireless cable hasn't made much of a dent in the industry. But flush with cash from a spate of recent public stock offerings, wireless operators have been aggressively expanding their systems.
CAI, for instance, used proceeds from its stock sale last year to launch its system in Hampton Roads. Since last August, it has signed about 1,000 local customers. Most pay $18.99 a month for 20 channels. That's $4 to $5 a month less than customers generally pay traditional cable operators for 40 to 50 channels.
But ``digital compression'' technologies could let wireless operators squeeze 100 or more channels onto their broadcast spectrum within the next year. That promise is what got Bell Atlantic and NYNEX interested.
The phone companies' investment in CAI greatly increases wireless cable's credibility, analyst Mansell said. Indeed, the stocks of most wireless operators shot up this week. And a CAI phone conference Thursday to explain its deal with the telephone companies attracted dozens of investment bankers and venture capitalists from as far away as Switzerland.
CAI Chairman Jared Abbruzzese told his telephone audience that he has believed for several years that phone companies would warm to wireless cable when reality overtook their rhetoric about making TV interactive.
``I don't think that's going to end up being the gold mine that a lot of people have indicated,'' he said.
Compared with the highly complex computer systems, switching technologies and vast networks of fiber-optic cables necessary to let people shop, learn, play games and watch shows on a hard-wired system, wireless cable is a breeze.
The likely cost to upgrade one of CAI's local systems to 100 channels, Abbruzzese indicated, is several hundred thousand dollars.
Thrust into the telecommunications limelight by the Bell Atlantic-NYNEX deal, he couldn't help gloating last week. Traditionally, the best wireless cable operators could hope for was ``scraps off the cable table,'' he said, but the phone companies' investment will change that.
Mansell, the Paul Kagan analyst, agreed - to a point. He predicted that wireless cable will peak at about 12 percent of viewing households nationwide within the next decade, with the rest split among traditional cable, satellite systems and phone-delivered systems. A big limit on wireless' growth, he said, is that its signals can be blocked from getting to customers' homes by buildings or stands of trees. That eliminates as many as 30 percent of households in a market, he noted.
None of the parties to the CAI agreement have provided much detail on it - other than to say that Bell Atlantic and NYNEX will receive, in return for their investment, warrants for 45 percent of CAI's stock.
Some analysts said that the phone companies likely have rights to take a majority stake in CAI. They said they would not be surprised if other phone companies start snapping up wireless cable properties.
CFW Communications Co., a Waynesboro-based phone company, already owns a large stake in wireless operator American Telecasting Inc. and operates wireless systems of its own in Charlottesville and the Shenandoah Valley. CFW is planning other wireless systems in Richmond, Lynchburg and Winchester, said Rory Falato, corporate marketing manager.
``We want to be the largest wireless cable-TV operator in Virginia,'' he said.
All the phone companies' activities - particularly Bell Atlantic's - are perplexing and troubling to traditional cable operators.
``It's not fully clear what they're doing, other than trying to cover all the bases,'' said Franklin R. Bowers, vice president and general manager of Cox Cable Hampton Roads Inc. ``At some point in time, they've got to focus on a strategy.''
Bowers said his biggest concern is that telephone companies will divert revenues from their phone operations into their video ventures: in essence, cross-subsidize them.
``They're throwing a lot of money at this thing,'' he said. ``You kind of just sit back and say, `Whoa! Where is all this money coming from?' '' by CNB