Digital television: satellite versus cable

By Peter Heap

New York, Dec. 4 - Top officials from two leading companies, one operating a satellite system, the other a cable network, offered opposing views as to who was best positioned to provide customers with a new array of digital television services - and why the other transmission method could not compete.

Charter Communications Inc. said it is already deploying video on demand services that it claims satellite systems cannot match.

But Pegasus Communications Corp. said the cable networks it competes with are unable to offer the latest services and are likely to become financially weaker over time.

The competing views were offered by company executives at the UBS Warburg Media Week Conference in New York City.

Cable operator Charter Communications is already supplying video on demand to 290,000 customers in 10 markets and plans to be able to offer the service to two million homes by the end of the year, the company's chief technology officer Steve Silva told the conference.

Subscribers to video on demand can choose from a library of 300 movies for a total of 900 hours. While watching the DVD quality programming, they can pause, rewind and fast forward, he noted.

By comparison, using current satellite capacity, direct broadcast operators could only offer 49 movies starting every five minutes, Silva told the conference.

"It still is a great digital television product," commented Carl Vogel, Charter's president and chief executive officer. "But it's only a digital television product. It still has limited interactivity."

Video on demand, Silva added, is just one example of the new services being offered. The success of broadband operators, he told the conference, will depend on their ability to provide multiple applications in the home. To the extent that they meet customer expectations, their businesses will succeed, Silva said.

As far as interactive services are concerned, satellite still has a long way to go and the technology is not yet proven, Vogel added. "The two-way solution isn't ready for prime time."

Vogel also noted that in markets where Charter has introduced video on demand its churn rate has fallen and customer satisfaction risen.

Indeed, the market where it has highest penetration, Los Angeles at 68%, was one of the first to receive digital services, Vogel said. Overall, Charter manages 30% penetration, the highest in the industry, he added.

Charter will continue to push new technologies, Vogel said, subject to them offering an acceptable return on invested capital.

He noted that Charter is looking at internet telephony but does not yet see that it offers adequate returns.

However another strategy emerged from Pegasus Communications, which said it has technological superiority over cable in its markets, which are mostly rural America.

"In most of the communities where we operate, satellite is the only way to get digital television," said Pegasus executive vice president Howard Verlin said.

Competing for the 20 million homes in rural parts of the U.S. pits Pegasus against mostly small cable operators.

Verlin noted that 50% of all cable subscribers are served by 279 head-end systems, which are big enough to offer digital television and two-way services. But Pegasus mostly competes against cable head-ends with 5,000 subscribers or less, of which there are 8,600 with 7.5 million customers.

Mostly these systems don't offer digital television, don't have fiber networks and don't offer high-yield cable access, Verlin said.

"We expect the majority of them are actually going dark," he told the conference. "We see no stop in the decline of rural cable. In fact, given the state of the financial markets, the decline in rural cable has if anything increased."

In five years, Verlin forecast, satellite will have more than 50% of all multi-channel subscribers in rural America, double the current proportion, with Pegasus taking two-thirds of that. In metropolitan areas, he also expects satellite to gain but that cable will remain dominant.

Risk aversion in the capital markets has prevented Pegasus from aggressively pushing broadband, Verlin added. But, he noted: "It's still very very early. The opportunity remains ripe for the picking."

Pegasus has not seen any increase in digital subscriber line or cable modem use in rural areas.

Longer term, Verlin sees digital storage prices continuing to fall and anticipates set-top boxes will soon include 100 GB hard drives.

As that happens, asynchronous transmission will become the main means of delivery for content except for time-sensitive items such as news and sports. When new pay-per-view movies are released, for example, they will be downloaded to the subscriber's box in the first 45 minutes, he explained. They will then be available for watching at any time.

End

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