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Telcos wary of NC giveaway

Oracle CEO Larry Ellison predicts that telecommunications firms will give away the NCs for free. But the phone companies themselves aren't so sure.

Oracle's (ORCL) soothsayer and chairman Larry Ellison has been widely touting the idea that telephone companies give away NCs to snap up new customers. That may be a good idea for Oracle and a good idea for customers, but telephone companies aren't so sure it's such a good idea for them.

In a news conference yesterday, Ellison predicted that large deployments of NCs are as little as six months away and that telephone companies would adopt a business model similar to that of the cellular phone industry: giving away the devices for free and making up revenue through service charges.

But a number of telephone companies, including British Telcom, France Telcom, and Bell Atlantic are more cautious. In fact, they are dubious that a cell-phone model will work.

Bill Heilig, business development manager with Bell Atlantic, said there is a big difference between the profit margins needed to support a cell-phone business model and one that would support a Network Computer giveaway. "I think the payback in an Internet environment that is concentrating on a $19.95 all-you-can-use service really doesn't pay off quickly enough to warrant the telcos giving these NCs away," he said.

Others also have their doubts. "The United Kingdom is the most liberated telco market with 150 licensed operators offering service, so one has to be careful in giving something away for free with the expectation that they would use your network service," said Chris Gahan, data solutions manager for British Telcom.

Then there is the critical-mass issue. Unlike the cellular phone companies that need a critical mass to make their network of cell sites cost-effective, the phone companies already have their networks in place and don't need a wave of NCs to lay down more phone lines.

"You also have a huge embedded base of PCs that don't need an NC for Internet access. Starting this fall, you'll see Internet TVs serving part of the market that you want to reach with NCs," Heilig said.

But he doesn't rule out the possibility altogether. After all, France Telcom has given away 6 million "dumb terminals" known as Minitels to customers seeking information on news, local services, and other content from online service providers since 1983.

"If history repeats itself, we may see some telcos embrace the Minitel concept and give these devices away to stimulate an Internet-based business," Heilig said.

But France Telcom is a government-owned agency that doesn't have to worry about answering to shareholders. And even France Telecom officials are now confused about which direction they'll go with Network Computers.

"It's a very hard call," said Benjamin Epstein, vice president of business development for France Telcom.

The French telcommunications giant broke even last year after having amortized the terminals for more than a decade. Customers interested in picking up a terminal must now either rent a Minitel terminal from France Telcom for $6 a month or pay $200 to $400 to buy one retail, Epstein said.

France Telcom generates about $1.2 million annually from its online service providers, which provide the company with 40 percent to 50 percent of its revenues from customers. But even aside from the question of whether the business model would work, some telephone carriers said they still aren't sure how they will use the NCs.

"Our approach is to monitor what is happening and support the devices as they roll out in the marketplace," he added. "We have not determined a specific application for them yet," Heilig said.

France Telcom is talking to a number of companies that want to sell their Network Computers. "Even though we have the Minitel, we're confused on how we want to use NCs. It's harder for us to determine because we have this tremendous installed base," Epstein said.

Make no mistake: The telephone companies are intrigued by the idea of the Network Computer and think the wide availability of such devices will help drive new users to their networks. They're just not sure how large a role they want to play in their distribution.

While they figure it out, they are testing the devices and tinkering with deployment strategies for various markets, including the enterprise, home, or vertical-market customer. The one thing they aren't doing is committing themselves.

Gahan said Network Computers in the United Kingdom will likely be first tried out on local area networks, which tend to be faster and cheaper than wide area networks. He said he expects that next year will reveal the performance and functionality of the NCs. He noted that he expects it will be 1998 before there is a serious deployment of the systems, if ever.

Bell Atlantic, meanwhile, will also stage some limited trials in the next six months to a year.

"I hope to have a few NCs in our possession and deployed within a year for testing purposes, but it's not clear when the vendors will be ready," Epstein said. "I've seen a few prototypes out there, but it's not enough for someone like us to be playing with them yet."