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Allen's "wired world" starts to come together

In a move to combine a series of high-speed cable acquisitions and investments, Paul Allen's Vulcan Ventures creates a joint venture to push interactive TV services.

Paul Allen has finally begun connecting his wired world.

Allen's investment company, Vulcan Ventures, today made a $1.65 billion equity investment in RCN, a competitive cable company, and formed a new joint venture to create a high-speed portal service for set-top boxes.

Allen's moves aren't so different Allen takes Charter to new heights from the leading cable companies, which are increasingly moving to offer advanced services over their high-speed cable networks. Competitors like AT&T, following a string of multibillion-dollar acquisitions, have embraced cable with telephony in mind and are planning to offer packages of phone, wireless, and Internet services.

Allen's own vision--his "wired world"--rests more in interactive TV-based consumer services that take advantage of new interest in high-speed Internet technology, although Allen's Charter Communications does plan to offer its own cable phone service in certain areas.

"I think people have been waiting to see what his strategy was going to be," said Zia Daniel Wigder, an industry analyst at Jupiter Communications. "I think this is a much more cohesive strategy and one that is more likely to meet with success than simply having a bunch of bits and pieces strewn together."

"Everyone in the cable space is trying to become more vertically integrated," she said.

Today's news follows a string of cable- and Internet-related investments in the past year, including stakes in RCN, cable modem service provider HSA, Web content network Go2Net, and cable company Charter Communications.

Through a number of acquisitions, Charter has quickly become the No. 4 cable operator in the nation and is expected to price its initial public stock offering, one of the largest ever, later this month.

The Broadband Partners joint venture will create an interactive TV-based broadband portal, which is expected to be available late next year, according to Vulcan president Bill Savoy. Vulcan will be the majority owner of the joint venture. Separately, Charter and RCN also will team to offer cable-based telephone service in Los Angeles.

The companies will make the service available over digital set-top boxes as well, expanding its user base beyond just PC owners.

"We're bringing the best of the communications element of the Internet to the television to make the TV a device you use more proactively rather than reactively," Savoy said. "You're far better off to deliver an experience to a device that's in 99 percent of the homes and is on six or seven hours a day than to a device that's in 50 percent of the homes and is turned on for an hour each day."

While specific details remain unclear about what the broadband service will offer, Russell Horowitz, chief executive of Go2Net, said his company will focus on services for TV set-top boxes, such as video or games on demand.

"Entertainment activity on demand will absolutely be a part of a key offering going forward," Horowitz said.

With the creation of Broadband Partners, Go2Net will provide high bandwidth content to subscribers of Charter Communications, RCN, and other Vulcan broadband services.

The joint venture also hopes to sell its service to other cable operators. But Excite@Home and Road Runner already have alliances with most major cable operators, and many Net portals have developed different versions of their Web sites for broadband users. Yet questions surrounding future business plans for Excite@Home and Road Runner could make more room for Allen's new interactive TV service.

Some industry observers suggest Allen's desire to sell broadband portal services to other operators could pit him against some of cable's largest names.

"He is now competing against his fraternal partners in the cable industry which may not be viewed that well and could have repercussions," said Bruce Leichtman, a cable industry analyst at The Yankee Group.

Broadband Partners will first focus on deploying its service on Charter and RCN systems before shopping it to other cable companies, Savoy said. High Speed Access has already formed a separate alliance with Road Runner, he added.

Allen is an investor in CNET, publisher of News.com.

News.com's Jim Hu contributed to this report.