Cable operator seeks competitive service edge via fiber

Aug 1st, 1996

Cable operator seeks competitive service edge via fiber

BEN HARRISON

An advanced fiber-optic cable-TV system from Adelphia Communications in Coudersport, PA--the seventh-largest cable-TV company in the United States--is expected to provide customers in Toms River, NJ, with expanded cable-TV services and local telephone service in competition with Bell Atlantic, by the end of this year or early 1997.

The horsepower behind Adelphia`s competitive strategy is a $33-million rebuild of the company`s Ocean County, NJ, 750-MH¥cable-TV system, which is located in Dover Township, Bell Atlantic`s video battleground. This rebuild is nearing completion and is expected to provide 100 channels of analog and 200 channels of digital-television capacity (see figure). It is also expected to drive fiber to 180 home nodes, according to Jim Rigas, vice president of strategic planning at Adelphia. These services are coming over hybrid fiber/coaxial-cable (HFC) network lines and have switched-digital and video-on-demand capabilities.

Joel Jakubson, vice president of Ryan-Hankin-Kent in San Francisco, observes, "We are seeing the first major head-to-head competition where an incumbent cable operator is defending itself against the local telephone company. Adelphia is reacting not only by providing improved service quality through the use of HFC architecture, but also by providing enhanced services such as telephony and Internet access.

"In particular, while Adelphia can offer high-speed Internet access by using off- the-shelf cable modems, Bell Atlantic must wait for its fiber-to-the-curb vendor, BroadBand Technologies, to complete its announced joint development with Intel in order to provide similar service," Jakubson says (see Lightwave, July 1996, page 1).

Adelphia`s Rigas says the company is installing Synchronous Optical Network (Sonet) rings totaling approximately 3000 fiber-miles through its subsidiary, Hyperion, in New Jersey and other mid-Atlantic states and New England. These installations are expected to be completed by the end of this year.

State regulatory barriers

The New Jersey regulatory environment may be the major barrier remaining to local cable-TV service telephony provisioning. Rigas observes that the state has not been aggressive in opening the local loop. "It`s fair to say that New Jersey has been at the back of the pack," he says.

Michael Rigas, Adelphia`s executive vice president of operations, adds, "Adelphia has been testing in Toms River and other places where technologies enable high-speed data and telephone service over cable TV. As soon as New Jersey regulators lay the necessary groundwork for cable-TV companies to compete in the local telephone market, we`ll finalize our business and marketing plans."

According to Vern Mackall, senior analyst for Northern Business Information in New York City, "Adelphia`s buildout to 750 MH¥is a defensive move against Bell Atlantic, whose broadband network in Dover Township is one of the most technically advanced systems in the nation." He says Bell Atlantic`s system is based on a switched-digital video platform from BroadBand Technologies and is capable of supporting high penetration of advanced services.

Targeting specific areas

"We will increasingly see cable-TV companies targeting specific geographic areas for upgrades in order to meet immediate competitive threats," says Mackall. "For example, TCI has been upgrading its San Francisco Bay Area systems to meet the threat from Pacific Bell, and US West and Cox have been [openly competing] in Omaha. People lucky enough to live in one of these competitive hot spots will have excellent service choices at attractive rates."

Mackall observes that the increasing competition cable companies are seeing reinforces the importance of putting more fiber into their networks. This will enable them to pass larger numbers of potential customers with the HFC architecture necessary for expanded service offerings.

Another industry analyst, Ronald O. Brown, in Melrose, MA, says, "Adelphia has an excellent opportunity to penetrate the local market with this implementation. Hence, when the [Toms River] project is successful, it will give Adelphia and the cable-TV industry favorable visibility.

"The issue for Adelphia is to provide a level of service equal to Bell Atlantic`s--at a lower price," he adds. For example, Adelphia`s basic service should offer all that Bell Atlantic`s does, plus high-speed Internet access, at the same price as Bell Atlantic`s narrowband basic service. "Adelphia must avoid the trap of using value-based pricing...At the same time," he adds, "Adelphia`s widely deployed Sonet rings have made it clear that it intends to be a player throughout its service territory in the local service arena."

Gary Kim, senior vice president at Probe Research Inc. in Cedar Knolls, NJ, contends, "Adelphia could have real problems with one of its competitors, FutureVision, [which is] claiming a 60% to 80% [subscriber] switchover to its services. Toms River is going to be a real dog fight and may be a disaster for Adelphia." Although Adelphia is well-known for its advanced technology and widespread fiber deployments, a 30% switchover is typical, Kim points out. To date, Adelphia has lost 525 customers to FutureVision.

Advanced HFC cable-TV networks such as Adelphia`s Toms River system support two-way communications. Adelphia has completed successful technical trials of telephony service in Toms River, using cable-TV technology from Tellabs Inc., Lisle, IL.

Tellabs` sources indicate that Adelphia, with its two-way active cable systems, plans to offer local telephone service to one million of its existing cable-TV subscribers within the next three years. Presently, Tellabs and Adelphia are negotiating a three-year supply contract valued at $50 million.

The pending agreement focuses initially on deployment of residential telephony service in select franchise areas during 1996. According to Jon C. Grimes, vice president and general manager of the Tellabs Network Access Systems Division, "Adelphia has one of the most fiber-rich network architectures we`ve seen, and that will facilitate the deployment of reliable telecommunications services."

The resulting accord will represent the culmination of a cooperative effort aimed at validating the technology and the network for delivery of reliable residential "lifeline" telephone service. Earlier this year, Tellabs and Adelphia successfully completed a technical trial for the delivery of residential telephony service in Adelphia`s Dover Township, NJ, franchise. According to Dan Liberatore, vice president of engineering at Adelphia, "This was a technical infrastructure test, not a telephony platform test."

Adelphia`s strategy reflects that of mul- tiple system operator Jones Intercable. Last year, Jones said its Alexandria, VA, system was a technological hotbed and its response to upcoming video competition from Bell Atlantic.

However, Bell Atlantic and Jones Communications (the name Jones Intercable goes by in the mid-Atlantic states) have recently filed an interconnection agreement with the Virginia State Corp. Commission--one of the first to be filed under the 1996 Telecommunications Act. This agreement sets the terms for direct connection of the two companies` facilities in Virginia, allowing Jones to provide both residential and business telephone service using its own digital switching and HFC cable-TV network.

Commenting on this move, Roy Neel, president and chief executive of the United States Telephone Association (Usta), says, "The Usta and its members have a common objective with the National Cable Television Association`s--to further facilities-based competition as quickly as possible. Many cable companies are trying to figure out how to work together for the benefit of all consumers rather than trying to stifle the competitive process already under way."

Video battleground

Unlike Alexandria, which has seen limited video-on-demand trials by Bell Atlantic, Toms River is a battleground between Bell Atlantic and Adelphia for basic cable-TV customers. Jack Kane, a principal of Kane-Reece Associates, a consulting firm in Metro Park, NJ, says Toms River is one of the nation`s most exciting locations in terms of converging technologies and competition.

"Adelphia`s Toms River facility has been upgraded to enhance its services and become a competitive force for Bell Atlantic," Kane observes. He believes the regional Bell operating companies will focus on long-distance service opportunities and will not be as interested in multichannel video as are the multiple system operators.

Besides Tellabs, other companies joining Adelphia in this expanded services venture in Toms River are Allied Telesyn International; ANS, an America Online company; Cabletron Systems; Cisco Systems; FTP Software; General Instrument; LANcity and Silicon Graphics. q

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