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They Multicast Cable Nets in Utah

Cable operators last week argued that their broad array of programming choices — as well as bundled offerings like high-speed data — will beat back any threat from a new wireless cable company that plans to compete on price.

Newcomer U.S. Digital Television Inc. has done a soft launch of its startup multicasting service — available for $19.95 a month in Salt Lake City, Utah, where it is faces rivals like Comcast Corp., DirecTV Inc. and EchoStar Communications Corp.

Using digital bandwidth it is leasing from TV stations, USDTV is hawking a package that encompasses local TV stations, five local HDTV broadcast signals and less than a dozen cable networks.

Cable services included so far: Disney Channel, Toon Disney, ESPN and ESPN2, Lifetime Television, Lifetime Movie Network, Home & Garden Television, Food Network, Discovery Channel and TLC.

CHASING 'NEVERS'

Subscribers to USDTV have to buy a $99 digital set-top — a receiver with an HDTV tuner — at outlets like Wal-Mart or R.C. Willey in Salt Lake City.

USDTV's subscribers also need an antenna to receive the service, and must sign a yearlong contract — requirements that cable operators claim will be major drawbacks to consumers.

Another caveat for USDTV's service is that if a consumer cancels before the end of the annual contract, they must pay a $150 fee for each set-top they have.

USDTV chairman and CEO Steve Lindsley said that's the trade-off for the low cost of the service, and represents the actual cost of each set-top, which retails for just $99.

According to Lindsley, USDTV is trying to apply the strategies of two low-cost airlines — Southwest Airlines and Jet Blue — to the cable business. Southwest got non-flyers to fly, while Jet Blue differentiated itself "to the low-end segment with a twist" by putting TVs at each seat, Lindsley said.

"USDTV is going after both a new market, meaning the cable-nevers, and also the low-end market, the basic or expanded basics who might have tried digital cable, [but] they don't see the value for it, so they're churning out," Lindsley said. "And our twist for our company is HDTV."

Of the more than 300 subscribers USDTV has signed up in Salt Lake City over the past month, about 60% are cable-nevers who already use over-the-air antennas, with the remainder mostly basic or expanded-basic customers and some direct-broadcast satellite subscribers thrown in.

USDTV is slated to make a formal announcement about its plans next month, unveiling information about its partners and rollouts, and possibly deals proffering some premium services, subscription video on demand and digital video recorder technology.

USDTV is looking to launch its wireless multicasting service in 30 DMAs, with Las Vegas one of the next set to go. USDTV's effort is being bankrolled, to the tune of $15 million, by Chinese HDTV manufacturer Hisense Co., which is putting up money for 100,000 set-tops.

USDTV's plans were reported in the Jan. 12 issue of Broadcasting & Cable, a sister magazine to Multichannel News.

CUSTOMERS WANT MORE

Officials at Comcast of Utah, where the MSO giant has 240,000 subscribers, said they have been aware of USDTV's plans for more than a year. Both Comcast and DirecTV maintain the wireless company's strategy of offering a low-priced, bare-bones package will not be compelling to consumers.

USDTV's very limited program lineup flies in the face of what subscribers want, according to Barb Shelley, executive director of communications for Comcast of Utah.

"Our customers and our focus groups are telling us they want many, many more channels," Shelley said. "They don't want less channels."

Comcast is close to completing a $350 million fiber-optic upgrade in Utah, and in those rebuilt areas subscribers can get more than 280 channels, with video-on-demand on the way.

Comcast subscribers in that market can already sign up for high-speed Internet service.

In its upgrade area, Comcast charges $40.95 for its standard-cable package. Moving up to the digital classic brings that price to $50.90. Digital subscribers can get 11 HDTV channels by paying $5 a month for an HDTV-enabled digital set-top.

"We compete every day for every customer on every level — products, features, customer service, customer convenience, ease of use and price," Shelley said. "We feel very confident. Our customers are telling us they want convenience, they want reliability, they want more channels, more services, and that's what we're bringing them."

Cox is the operator in Las Vegas, one of USDTV's next markets, but it doesn't view the wireless service as a competitive threat.

"We question if their small collection of cable channels would attract enough consumers to build a viable business," Cox spokesman Bobby Amirshahi said.

The MSO also pointed a finger at USDTV's use of digital bandwidth.

"Digital spectrum, awarded by the federal government to local broadcasters, was intended to hasten the digital transition, promote localism and operate in the public interest," Amirshahi said. "It's interesting to see that this valuable gift of digital spectrum is being used to distribute national networks into Salt Lake."

At the National Cable Television Cooperative, senior vice president of programming Frank Hughes questioned whether consumers would settle for the "stripped-down" level of cable networks that USDTV is offering.

"It seems to be missing some of the core services that would be important to consumers," Hughes said. "It's going to be difficult for it to get traction."

Lindsley said while USDTV might add a few more cable networks to its lineup, it won't be extensive.

"As you can see by our offering, our plan is not to necessarily take cable head-on, or to take satellite head-on," Lindsley said. "So we don't have 40 channels. We've selected what we think are very strong brands that consumers have already voted for, if you will.

"If you look at the Nielsen numbers, you'll see many of these networks are in the top 10, and certainly in the top 15. We will be adding a selected few more channels, but our goal is to keep the price point low for the customer."

One cable-industry veteran said that USDTV's concept isn't a bad idea.

"It's kind of like a low-cost version of the best of cable," he said. "It's a cream-skimming business, and as cable continues to package and try to bundle services and drive people into higher and higher price points, you'd think there's a potential market for that (USDTV)."

DBS VIEWS

The two DBS providers are aware of their new rival in Salt Lake City.

"We believe our primary competitor is cable, but we're not just dismissing any pay TV service," DirecTV spokesman Bob Marsocci said. He said that competition is ultimately good for consumers, but USDTV has to establish a brand name and track record in customer service and satisfaction.

"We have a 10-year head start on them," Marsocci said.

At EchoStar, spokesman Steve Caulk said, "We believe we'll see a variety of new competitors in the future and we'll have to continue to improve to remain the price leader."