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Britain Races Ahead Down The Data Superhighway


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BRITAIN RACES AHEAD DOWN THE DATA SUPERHIGHWAY

As U.S. phone companies wrestle with regulatory problems and begin to noodle with the ins and outs of video programming, they might do well to take time out for a trip to London's run-down borough of Lewisham. There, above a bowling alley, past a receptionist seated behind bullet-proof glass, down a corridor of temporary room dividers, behind which sit a beehive of telephone sales workers with heavy cockney accents, is what the Americans are hoping someday to accomplish. In a large office with floor-to-ceiling banks of computers and recorders downloading TV shows from satellites, a technician sits nearby, wolfing down french fries.

This is the nerve center for Videotron Corp., a unit of Montreal's Le Groupe Videotron, the second-largest cable-TV operator in Canada and the owner of cable franchises cutting a half-moon-shaped swath from northwest to southeast London. It may not be fancy, but Videotron is definitely on the cutting edge. Its communications network, developed with BCE Inc., the parent of Bell Canada and owner of 31% of Videotron's British operation, offers the futuristic services that media moguls in the U.S. only dream about.

Europe as a whole may be lagging behind the U.S. in the drive to create new information highways. But throughout deregulated Britain, a rich mix of Baby Bell telephone companies, cable-TV operators, media companies, long-distance carriers, and technology boutiques are installing networks to carry video, voice, and data to British homes and businesses. No other country has liberalized telecommunications as much as Britain has. Since 1991, the government has allowed both TV and telephone on the same network, making the costly investment in fiber optics worthwhile. Says Richard Callahan, president of U S West International: "In many ways, we're further along in Britain than we are in the U.S."

"MAD BAD REMIX." In a few years, beneath just about every major street in Britain, gleaming fibers will carry gobs of digital data, pictures, or voice messages into living rooms. "What we're doing here is providing the most advanced infrastructure anywhere in the world," says Eugene P. Connell, president of Nynex CableComms, a subsidiary of Nynex Corp. "This is the path we'll pursue in the U.S." Baby Bell executives already are rotating back to the U.S. to apply what they have learned in Britain. Those lessons also could be applied throughout Europe and perhaps Japan.

In technical terms, Videotron and other operators in Britain are building a fiber-optic, high-bandwidth, fully switched, digitized network that can carry interactive voice, data, and video signals. That means they can offer both cable TV and telephone over the same network, allowing some 500,000 current subscribers to receive two-way programs, such as home shopping. Six of the operators have formed London Interconnect, a consortium of hybrid cable-plus-telephone companies to negotiate with three film studios to provide a pay-per-view movie channel. The same group is also about to fund its own local news show.

At first, these fledgling operators relied totally on telephone companies Mercury, a unit of Cable & Wireless, and British Telecommunications to switch their telephone traffic. But now, they are installing their own switches, the devices that route voice signals to their destinations. Once installed, the switches will reduce the companies' reliance on rival carriers, and they'll be able to keep more of the revenue from each call. That also will dramatically expand the kinds of services they offer.

Videotron viewers, for example, will be able to watch a soccer game and choose camera angles or instant replays when they want, using an early form of interactive TV. Children can select from a variety of interactive games and do their own "mad bad remix," where the sound effects and pictures of television shows are jumbled up the way they want. Gourmet cooks will even have their own interactive channel, allowing them to watch those pastries puff again or call up a recipe for the evening meal.

You don't have to be a rocket scientist to hook up the Videotron service, called Videoway. A computer sits on top of the TV set and sorts out the signals coming into the home. Patricia Ann Wright and her three sons learned within minutes how to use Videoway and its interactive games. "There's a bleep thing that bounces around the screen," Wright says, trying to explain how one game works. While she would like her sons to use the chess, math, and other mind-challenging selections, the boys prefer the action-packed video games.

The cost? Customers pay about $50 a month for both telephone and the basic package of cable-TV services. There is no additional charge for Videoway, but premium movie channels cost extra. Most subscribers save so much money on the telephone service, compared with what they would be paying domestic telephone giant BT, that the cable service is virtually free.

BUILDING IN BERLIN. In comparison with Britain, there are mere pockets of experimentation throughout most of the rest of Europe (table). While Britain deregulated its telecom market in 1991, the Continent will remain shackled at least until 1998. That's because European Community ministers this spring decided to let state-owned telephone companies retain monopoly rights to voice services until then. The ruling knocks the wind out of any economic justification for cable-TV or other competitors to challenge the dominant state-owned giants. "Nobody's going to build a superhighway if they can't provide voice and other services on the back of it," says Richard Woollam, director of the Cable Television Assn.

The emergence of more sophisticated Europewide highways will depend on experiments such as the one that Europe's national carriers will start next year. The 17 telephone companies, with their often incompatible systems, will practice switching picture and data signals for two years and will use equipment that ultimately could create the backbone of a European digital network. A separate series of projects, backed by the European Community, will be testing broadband services, which will probably include financial, academic, and other applications.

One of the single most sophisticated experiments has been under way in Berlin since 1986. DeTe Berkom, a joint project of the city of Berlin and Deutsch Bundespost Telekom, has tested such services as TeleMedicine for physicians and TelePublishing for personalized electronic newspapers. When the project installs an advanced switch this fall, it will complete a superhighway that reaches throughout Berlin. Meanwhile, DeTe Berkom, IBM, Hewlett-Packard, Digital Equipment, Siemens-Nixdorf, and others recently struck an accord on a protocol for the exchange of multimedia information between different computers. "We hope this will be a basic standard to build future multimedia applications on--not just in Europe, but for the world," says DeTe Berkom President J urgen Kanzow.

But clearly the biggest push toward the future is in Britain, where the separation between the cable-TV and telephone markets is rapidly blurring. Nynex has sunk $300 million into its grand plan and intends to spend $3 billion over the next four years. It has the largest subscriber base so far. TeleWest, a joint venture between U S West and Tele-Communications Inc., each with a 50% share, isn't far behind. Southwestern Bell and Cox Cable, Comcast and Singapore Telecom, and Bell Canada and Jones Cable also have joint ventures, and they're all busy digging up the streets of Manchester, Birmingham, and Liverpool.

"THE PERFECT LAB." Altogether, these operators have invested about $2 billion in just three years and plan to spend $10 billion more laying their own fiber-optic networks and installing switches. They are gaining invaluable experience. "We already knew how to run a telephone company. Now we're learning how to own and run a cable network service," says Ernie J. Carey, director of Network Operations & Planning at Southwestern Bell's Woking office.

The British government has encouraged this competitive furor by adopting such an open regulatory regime. "There are no rate regulations, no content restrictions, no limits on what we can send over the network. It's the perfect laboratory," says Louis Brunel, who is Videotron's group managing director.

Full-fledged multimedia won't develop, however, unless customers are willing to obtain most of their current information, communication, and entertainment services from one provider. Since mid-1992, some 200,000 Britons have taken their first steps down the multimedia fast lane by ordering telephone service from the cable company--and telling British Telecom to take back its equipment.

But whether customer demand will materialize in sufficient strength is one question that dogs the upstart competitors. Another is: When will the mighty British Telecom counterattack, as it surely will. BT can't offer entertainment over its phone network until 1998 at the earliest, when regulators will review the scene.

But BT hasn't been twiddling its thumbs. It still has 90% of the domestic telephone market, despite the Baby Bells' invasion. BT isn't talking, but sources say the company is considering asking regulators to let it offer one-to-one services, such as videos on demand, in conjunction with Rupert Murdoch's BSkyB. BT officials will argue that such services are not exactly broadcasting, since any video would go to a single customer. Such a move would be sure to set off a mad scramble among the existing competitors.

It may be the next century before Europe puts all the new technologies together into one massive network. But the telly-crazed British consumer is likely to give the giants of the industry their first clues as to whether the world wants--and is willing to pay for--dazzling multimedia services sent out along costly new information roadbeds. So to see what the future holds, keep your eye on Britain.EUROPE'S

SUPERHIGHWAYS

EUROPEWIDE

--DIGITAL NETWORKS Europe soon will begin a two-year trial to tie together 17

incompatible telephone networks.

--BROADBAND SERVICES A European Community program this fall will test services

such as financial, medical, and computer-aided design applications.

BRITAIN

--CABLE-PLUS-TELEPHONE Nynex, Southwestern Bell, U S West, Singapore Telecom,

and Bell Canada, along with cable operators Tele-Communications Inc., Jones

Intercable, Cox Cable, and Comcast, are laying fiber optics in most

neighborhoods.

FRANCE

--FIBER-OPTIC NETWORKS France Telecom has begun four pilot projects to test

high-capacity systems to homes and

offices.

--INTERACTIVE CABLE TV Plaisance Television soon will launch two interactive

cable-TV channels that will carry home shopping and video games. Users will

press the telephone touchpad to shop at home or play video games.

--INFORMATION SERVICES Minitel's nationwide videotext system provides home

banking and shopping.

GERMANY

--DeTe BERKOM PROJECT Berlin and Deutsch Bundespost Telekom are testing many

services, including one that will allow physicians to videoconference over

patient X-rays and medical histories.

DATA: BUSINESS WEEK

Paula Dwyer in London, Jonathan B. Levine in Paris


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