PrimeOnes Tele-TV Challenges L.A. Ops

Los Angeles -- While most communities now have competition
from the sky, and a few from the ground, operators here are fighting off a challenge from
an operator somewhere in between.

Consumers from Hollywood to Riverside, Calif., have a
choice from one of the country's faster-growing digital-wireless systems.

It began life as Pacific Bell Video Systems, but it is now
marketed through the region as Tele-TV, the brand name Pacific Bell inherited after the
demise of a joint video venture between the West Coast telco, Nynex Corp. and Bell
Atlantic Corp.

Pacific Bell and the rest of the telcos bolted their
experiment, and a traditional cable operator -- Austin, Texas-based PrimeOne -- took

While the telcos approached quietly, soliciting business
only by direct mail, PrimeOne has come to the market with media guns booming. Ads run
across all broadcasters during varied dayparts, hawking Tele-TV's digital-basic, premium,
digital-music and pay-per-view channels.

Incumbent cable operators are loath to talk about the
competitor's impact on the market, citing either internal company reasons (many of Los
Angeles' franchises are changing hands in the mega-merger wave, and system-level employees
don't want to raise their profiles just now), or because they don't want to provide
PrimeOne with competitive information.

A few offered general responses. For instance, to respond
to Tele-TV's packaging, MediaOne Group Inc. plans "more aggressive premium
offers" in the region as part of its summer acquisition campaigns.

"We've seen a lot of [marketing] activity but
it's hard to measure their impact," MediaOne regional vice president of marketing
Scott Tenney said, adding, "Many factors impact churn besides erosion to

Although executives were quiet on the subject of the
competitor, a close look by consumers showed not-so-subtle changes.

For instance, upon completion of their fiber rebuilds,
systems such as the former Marcus Cable properties (now owned by Charter Communications)
quickly added handfuls of stations that very closely matched the lineup offered by
Tele-TV. Previously, Marcus had only added channels that were part of must-carry deals.

Los Angelenos are not unfamiliar with wireless technology.
In fact, in the 1980s, there were two purveyors: SelecTV and ONTV.

The two services, however, only made slight inroads,
picking up customers mostly in areas unreached by cable at the time. Both were hampered by
the fact that they were single-channel premium services.

ONTV further hurt its chances of viability by cutting a
then-unprecedented deal to carry Los Angeles Lakers home National Basketball Association
games. It was great for selling to sports fans, but it angered customers who paid for
daily service, then found themselves without a viewing alternative on nights when Lakers
games were programmed.

Both wireless services went bankrupt, leaving some
consumers with a bad image of over-the-air providers.

Tele-TV doesn't have that problem. The Lakers are now on
Fox Sports West, which is carried as part of the basic package. Nonsports fans have dozens
of other channels from which to chose for their monthly fee.

Further, the commercials don't dwell on the technology. In
fact, some early subscribers didn't understand that Tele-TV was not a cable company.

"They don't need to know that it's not
hardwired," said Jim Waldo, senior vice president and general manager of Los Angeles
operations for PrimeOne. "The spots are technology-neutral. If we have good
packaging, they'll come. They love the idea that it's all-digital, all the time, including

The wireless technology has one distinct benefit in this
broadcast-rich market: It is not subjected to must-carry rules. Tele-TV has chosen to
carry the network affiliates, the most popular independents, two PBS stations and very few
other broadcasters.

Tele-TV uses its superior digital-broadcast reception as a
selling point against digitally upgraded systems, which still deliver the local stations
via analog technology.

However, not all Tele-TV is created equal. The former Cross
Country Wireless system, servicing Riverside County communities, is analog, and consumers
there get 32 basic channels for $21.95 per month. Four premium channels are also

At the moment, there is no scheduled date for a digital
upgrade -- PrimeOne has focused on building the Los Angeles-Orange County market first.

PrimeOne, which bought Tele-TV late last year, has made
operational changes that executives anticipate will strengthen the product, Waldo said.

Pacific Bell is now part of SBC Communications Inc., and
the telco remains a minority partner in Tele-TV.

When it was operated by PBVS, Tele-TV offered consumers the
option to pay virtually nothing upfront for installation of the service. The $100 charge
for installation of the rooftop antenna and wiring each set was payable in three monthly

The installation deferment was one of the first policies to
go, Waldo said. Because customers were not "qualified" through large upfront
payments, Pacific Bell's churn rate was "significantly higher than acceptable in the
cable industry," he added.

Now, even when installation is discounted (some acquisition
campaigns offer installation as low as $19.95 for the moderately labor-intensive job),
consumers must pay $50 or more in advance to get the service. Churn is currently well
within expectations, he said.

PrimeOne has also improved its distribution system.
Initially, signals were delivered piggybacked on frequencies licensed to educational users
throughout the Southland area. The video broadcasts are distributed from towers on Mt.
Wilson in the San Bernardino Mountains and from Mt. Majeska in Orange County, both of
which were initially 15-watt facilities. The output made it impossible to reach into some
deep shadow zones, or neighborhoods with heavy vegetation.

Both towers have been upgraded to 100 watts. Tele-TV can
reach 4 million homes with the increased power, Waldo said.

With the stronger service area, PrimeOne decided to do more
intensive marketing. Besides the pervasive TV campaign, the operator is advertising in the
Southland editions of Time, U.S. News & World Report and Los Angeles

Waldo said the TV ads have especially been effective.
"We can tell because every time the ads run, the phones at the call center light
up," he added.

As part of the founding telco's continuing participation in
the service, contract SBC employees handle service calls.

To respond to the increased demand for the service, Tele-TV
now has three field operating centers: in Santa Ana for Orange County, and in El Monte and
Torrance for Los Angeles County. A fourth operating center in West Los Angeles is being
considered to serve the many multiple-dwelling units Tele-TV hopes to access.

Customer-service functions are handled in-house, but
subcontractors do many installations.

Tele-TV currently serves 65,000 customers. Waldo said the
company would be ecstatic if it could capture 8 percent to 10 percent penetration.

The future of the system is unclear, however. Sources said
PrimeOne is negotiating a sale of the wireless operation to MCI WorldCom, in the belief
that MCI will use the California system to provide a "last-mile" connection
between its own long-distance and Internet services and customer premises.

Local cable operators said that scenario "will be good
news for us," since they believe cable modems are the superior product. However, if
MCI stays in the video business, it would bring a powerful brand identity into the