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Bresnan Takes WorldGate Digital

Bresnan Communications last week became the first U.S. MSO
to publicly commit to rolling out Internet access via digital set-top boxes, amid signs
that many other industry players are preparing to follow suit.

"I think it's a very exciting concept to be able
to link into the Web via the digital set-top boxes we're installing today,"
Bresnan CEO William Bresnan said. "The service rides right on the infrastructure we
have in place, and it can be easily bundled with the digital-TV package."

Benefiting from the digital deployments already under way
in systems it acquired in February from Tele-Communications Inc. (now AT&T Broadband
& Internet Services), Bresnan chose WorldGate Communications Inc. to supply headend
gear and system software for Internet services to be delivered over a 6-megahertz channel
in MPEG-2 format, without additional hardware in the home.

WorldGate's service will launch this summer in St.
Cloud, Minn., and it will be expanded across the St. Cloud regional cluster and beyond,
pending successful early results, executive vice president Michael Bresnan said.

The company will offer WorldGate at no charge for up to two
hours of monthly use, and at an hourly usage rate with a flat-rate ceiling for additional
hours, he said. "We want to see how the product helps to drive penetration of digital
service, as well as how much incremental revenue it adds," he noted.

While WorldGate has long offered an analog set-top version
of its system -- which is currently operating commercially in several Charter
Communications systems and a handful of others -- MSOs seem more interested in a digital
version with the capacity of delivering data at much higher speeds.

"There's tremendous interest in the analog
version outside of the United States. But domestically, MSOs are more inclined to wait
until they've sorted out their digital strategies," WorldGate CEO Hal Krisbergh

A case in point, he noted, is Comcast Corp., which has been
testing the analog version for some time, but which chose not to deploy the analog version
once it decided to move aggressively into digital. Now, that MSO and many others are
weighing the addition of Web-access service over the digital platform, Krisbergh said.

"I'd expect several digital announcements very
shortly," he added.

WorldGate's analog system uses a headend-based server
consisting of several personal computer boards to deliver data signals over the
vertical-blanking interval of the NTSC (National Television Systems Committee) signal.

The digital system, using many of the same techniques as
the analog system, formats and compresses the incoming Internet data at the headend into
MPEG frames, allowing a full 6-MHz channel to be used for delivering the data feed.

At $45,000 to $50,000 per headend, the digital system costs
about 25 percent more than the analog version, which translates into a per-subscriber cost
of about $35 to $40, assuming 1,300 to 1,400 subscribers per headend unit, Krisbergh said.

WorldGate has had the market mostly to itself as a provider
of Web access to analog set-tops. But it faces several competitors targeting the digital
tier, all capable of delivering data over current digital boxes without waiting for
advanced terminals with cable-standardized modems built in.

"The issue isn't whether the concept is the right
thing for the market at this point," Krisbergh said. "The only issue is: Can
WorldGate hold on to our lead as this market gets more crowded?"

Operators can expect a flurry of new product developments
and a confusing array of claims and counterclaims to sort through over the next few weeks,
as vendors seek to capitalize on rising demand for the low-cost TV-Web-access option.

For example, newcomer Peach Networks Ltd., an Israel-based
firm that just launched a U.S. arm, has added several capabilities to the system it
introduced at last year's Western Show in preparation for rollout at the National
Show in June.

Another start-up, MoreCom Inc., is bringing new innovations
to market, as well, CEO Ami Miron said. Most significant, the company has developed its
own browser to reside on set-tops, which will enable simultaneous viewing of TV and
Internet data on split screens over existing digital set-tops.

"Other providers will have to wait for the advanced,
OpenCable type of terminals to offer split-screen viewing of the Web and TV," Miron
said. "We think this capability is very important to deriving the benefits everybody
talks about with regard to hyperlinking between TV and the Web."

MoreCom's system is about to go commercial over the
cable systems of Israeli MSO Golden Channels, which has 650,000 subscribers.

Vendors appear to have addressed most of the technical and
cost concerns surrounding the Web-to-digital-set-top model. But there is still a problem
surrounding conflicts with operators' high-speed-data providers.

Bresnan will be "throttling down" the access
speed for WorldGate to 128 kilobits per second, per user, rather than letting users access
its content at whatever the contention levels allow, Michael Bresnan said.

Bresnan's affiliation deal with @Home Network requires
that @Home be the exclusive provider of services accessed at rates above that data rate.

WorldGate, which has no desire to be a service provider
itself, has had discussions with @Home and other providers on this issue, Krisbergh said,
noting that even at peak levels, the average WorldGate user would get service at rates of
500 kbps or higher without the imposition of a throttle.

"We'd like to see operators being able to charge
$7 to $12 per month for the service, whereas with @Home's fees, the cost to the
operator alone is $14 or so," he added.Added Bresnan: "There's definitely a
place for high-speed Web access to the TV, no matter whether households have PCs or not.
We look at this as a complementary service."