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Leading the cable charge

Cable operators, hungry for new revenue streams, will need to roll out their products quickly while keeping prices down.

ANAHEIM, California--Cable operators, hungry for new revenue streams envisioned through the introduction of new technologies, will need to roll out their products quickly while keeping prices down, industry experts said today.

Cable operators are conscious that any drastic price hikes to pay for technology upgrades necessary to provide digital services--such as high-speed Net access, IP telephony, and set-top boxes-- are risky, since fee increases have hurt the industry in the past in the eyes of consumers and regulators.

"We must restrain prices in the months ahead," Decker Anstrom, chief executive of the National Cable Television Association, said at the California Cable Television Association's 31st annual Western Show in Southern California. "Price restraint must be our top priority."

NBC chief executive Bob Wright said since advertising income alone cannot support expensive high-quality programming and data services, the industry should be careful not to price consumers out of many services.

Consumers will pay much more than they do today, however, for state-of-the-art service tomorrow. Wright said he expects many customers to spend hundreds of dollars a month on cable-related services--after buying expensive next-generation television sets and set-top boxes.

"I think most services are going to come on a pay-for basis," he said. "Hopefully they [consumers] can afford a TV in five years."

Others agree the industry needs to be sensitive to pricing.

"I think one of the great dangers is that the world moves almost completely over to a fee-based system," said Barry Diller, chief executive at USA Networks.

NBC's Wright said that, with all the new opportunities for cable, one of the main challenges for the industry is prioritizing resources for new initiatives.

Although there are many exciting opportunities for the cable industry to leverage against its hybrid fiber optic-coaxial cable networks, companies must not lose their focus, executives said.

"As we gather here this week full of confidence, eager to seize leadership in television and telecommunications, now is the time to temper our enthusiasm and maintain our focus and perspective," Anstrom said. "Excessive self-confidence can bring us down faster than a cable modem can download the Starr report."

Nipping at their heels
Cable leaders also are facing challenges from local telephone providers, as well as wireless and satellite operators to deliver the so-called "last mile" connection to homes or offices. Analysts warn that cable must be quick to roll out these new connections to beat out industry competition. Increased acceptance of ADSL technology, the growing digital broadcast satellite market, and new offerings from the Baby Bells are all expected to keep cable on its toes.

"I worry about when the RBOCs (Regional Bell Operating Companies) get into long distance," said Gordon Crawford, a cable analyst and senior vice president for Capital Research and Management. "It's going to be much tougher to pick off their customers when they offer an integrated package [of local and long distance voice services]."

Crawford said cable's core analog business has matured, and growth will slow in the next five years. But he envisions new digital services leading the charge for revenue growth, and adds that local telephone service may even become a business three times the size of cable.

Leo Hindery, president of Tele-Communications Incorporated, one of the largest cable operators in the country, knows new digital services are the key to his company's future.

Hindery said he envisions that after the year 2000, some 80 percent of his customers will subscribe to digital video services, 30 percent will sign on for IP telephony, and 20 percent will use a high-speed data-over-cable service.

"In three to five years 60 percent of my revenue will come from services I don't do today," he said.

But Hindery warned rolling out the technology behind these new services will be a daunting task. And, he added, most consumers probably will not sign up for cable television, local phone service, and high-speed Net access all at once--meaning more installation headaches for the companies, and consumers.

"Ideally I'd come to your home once and convince you that you need all these services, but you're probably going to come to those decisions sequentially," Hindery said. "It's going to take lots of trucks and lots of visits."