After pulling the plug on its San Jose cable television project on Thursday, Pacific Bell looked to its Los Angeles-area digital wireless television project as its only available crutch to carry the company into cable television competition.
But even that project - 3,500 customers and a cable lineup of more than 120 stations and 30 digital music channels - may be in danger.
Pac Bell spokesman John Brittan blamed the San Jose closure on technology decisions and losses which the company claims to suffer because it provides telephone service to approximately 7 million California customers "below cost." Brittan said the wireless TV project was more feasible.
Analysts say the motives run a little deeper. When Pac Bell's owner, SBC Corp., halted the hybrid fiber/coaxial cable project in San Jose, it was part of a US$500 million primping effort to prepare the company for an even bigger deal than its recently completed $17 billion takeover of the California-based Bell Operating Company, says Brian Adamik, vice president of consumer research for the Boston-based research firm The Yankee Group.
"The SBC/AT&T negotiations are centered around clearing out ancillary services, and for SBC and other Bells, video is a pretty ancillary service. But the Bells haven't been that aggressive in writing off these projects - until now," said Adamik.
Expect more write-offs to follow, he says, including the closure of the Los Angeles-area wireless project. "[The Los Angeles project] is one they had to keep going because it would be pretty embarrassing to close it down so soon after launch."
But SBC tells a different story. "Those are two very unconnected things," SBC spokesman Dave Senay said of the tie-in between possible AT&T talks and the shutdown of Pac Bell's cable efforts. Senay would not comment on whether SBC was negotiating a merger with AT&T, and he denied that SBC was going to stop the Los Angeles project.
"Our position on [the Los Angeles project] is not expected to change. Our intent is to be a full-service communications company, and we're looking into alternative means [to supply video] - that includes wireless," Senay said.
The Los Angeles television service involves a digital wireless technology called MMDS. Wireless transmitters perched atop mountains along with satellite dishes send digital transmissions of programming to small rooftop antennas at individual homes. At each household, a coaxial cable runs this transmission to a set-top box, where the data is converted to analog and broadcast. With this digital compression, Pac Bell can compress four channels into a single frequency, and thus offer a large choice of programming, Brittan said.
The wireless approach is certainly less expensive to set up. The cost of putting cable into the ground for a single house is $1,100. And if the company is a Bell, it is likely competing with the incumbent cable franchise that has a large installed base from which it must scrape together at least half of that market to stay afloat.
Nonetheless, video endeavors have not proven fruitful for the Bells. The ballyhooed TeleTV, a three-way deal involving Nynex, Bell Atlantic, and Pacific Bell, went south at the end of 1996, partly because of bickering among the companies and also for a technical problem. Neither Bell Atlantic nor Nynex was able to get a line-of-sight to bring reception to enough customers to make the service worthwhile, says Bruce Leichtman, a Yankee Group analyst.
And the numbers for cable are not where they should be to support the number of players. The overall cable market has a 65 percent penetration rate among households, The Yankee group reports.
