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Wireless Cable Steps Up Digital Deployment

Digital-wireless cable took another step forward last week,
when CS Wireless Systems Inc. began the commercial rollout of its first digital system in
the Dallas/Fort Worth, Texas, market.

The company had been testing the digital-MMDS service there
for well over a year, but it did not receive a commercially viable set-top box from
General Instrument Corp. until early last month, according to Frank Hosea, senior vice
president and chief operating officer at CS Wireless.

The company is using GI's model DWT-1000 -- a
digital-wireless terminal that offers enhanced channel capacity, improved video and audio
quality and interactive services such as electronic programming guides and impulse
pay-per-view, according to the vendor. By the end of the year, the box will also offer
Internet-over-television capabilities, said Glenn Altchek, director of digital-wireless
systems for GI.

Because the set-top box shares much of its technology with
digital-cable boxes, GI is able to keep costs down, Altchek said. But GI's focus on
deploying digital-cable boxes also delayed the availability of the digital-wireless

Digital wireless wasn't GI's first priority
because the potential volume isn't anywhere near what it is for digital cable,
Altchek said.

CS Wireless has agreed to purchase 200,000 digital set-tops
from GI over the next three years.

Hosea said he doesn't expect all 200,000 boxes to be
deployed in the Dallas area, which has about 1.5 million line-of-sight homes. The company
is also looking to launch a digital-wireless service in San Antonio later this year, and
it could add Cleveland to its digital lineup next year if there are enough digital boxesavailable to support the launch.

Wireless cable companies are making the move to digital in
select urban markets where they need the expanded channel capacity to compete and where
there are enough LOS homes to justify the investment.

The challenge for most companies is finding the funding to
make the switch from analog to digital. The industry has fallen out of favor with Wall
Street, and several companies face restructuring, partnerships or buyouts if they are to
avoid bankruptcy.

Part of the industry's perception problem comes from
its failure to produce the kinds of subscriber numbers that attract Wall Street to its
well-heeled competitors.

The industry had slowed down on signing up new analog
customers because it was waiting to go digital, said John Mansell, an analyst with Paul
Kagan & Associates Inc. Now that some of those companies are breaking into digital,
they're moving slowly again, because digital is a new business for them.

John Hartman, vice president of business development and
marketing for BellSouth Entertainment, which is deploying MMDS systems in the South, said
digital and analog wireless are completely different businesses. Entry into a
digital-wireless business requires more capital, but it also offers more revenues because
the service is no longer aimed at the most price-conscious consumers.

"There are those of us -- including myself -- who
believe that there is a market for this," Altchek said. He predicted that there would
be 10 to 15 cities deployed with digital-MMDS service within the next year.

Altchek added that the MMDS industry must prove the
viability of a digital-wireless business model.

"Assuming that it's successful, it will take all
of a year for Wall Street to look at this again," he predicted.

A handful of companies across the country are already
testing or offering digital-wireless-cable services. Pacific Bell Video Services launched
the first such service about a year ago in Los Angeles, but its parent, SBC Communications
Inc., wants to sell that modest system. PacBell uses digital set-tops from Thomson
Consumer Electronics.

BellSouth Corp. introduced its first digital-wireless
service, using Zenith Electronics Corp. set-tops, this past fall in New Orleans. It plans
to launch another service in Atlanta this summer, and it will add digital wireless to
Orlando, Daytona Beach and Jacksonville, Fla., by the end of the year, with Miami planned
for 1999.

GTE Corp. launched its first digital-wireless service on
the Hawaiian island of Oahu earlier this spring, and it said it will offer the service
islandwide starting today (June 1).

People's Choice TV Corp. is testing digital MMDS in
Phoenix. Mike Whelan, the company's vice president of finance and acquisitions, said
PCTV has not yet determined whether it will launch the digital-video service to consumers.

In Dallas, CS Wireless plans to convert its 600 test
subscribers -- at apartment complexes and commercial businesses -- to paying customers,
and it hopes to deliver the digital-wireless service to its first single-family homes
within the next week or two.

An expanded-basic package, with monthly equipment rental,
costs $39.95 per month for more than 100 channels, including digitized local-broadcast
stations and 40 audio channels. The company will also bundle a high-speed Internet-access
service with the video service.

"We're priced a little higher than TCI
[Tele-Communications Inc.]," Hosea said.

Instead, the company will tout its all-digital lineup and
picture quality.

Hosea added that the delay in receiving digital set-top
boxes hurt CS Wireless because the local TCI system was able to launch its digital
upgrades before CS Wireless came to market.

Some MMDS companies are moving away from video altogether
in favor of data services, but CS Wireless is hedging its bets.

"Video is what the masses know and use every
day," Hosea said. He predicted that video services might become a loss-leader for the
more profitable data services.