Broadband Week Direct

Today's report from Web Editor Susan Rush

• OpenTV snaps up ACTV, Wink

• EarthLink makes deals

• CableLabs stamps 9 more modems for DOCSIS 1.1

• Nortel tumbles on weak outlook

• Court green lights Williams-SBC agreement

• Draft bill in Congress paves way for TV's digital era

• Broadband briefs

OpenTV snaps up ACTV, Wink

To widen the scope of the audience for its interactive TV software, OpenTV has gone on a buying spree. The interactive TV platform provider has acquired ACTV Inc. and Wink Communications Inc.

Under the terms of the ACTV stock-for-stock deal, ACTV common stock will be exchanged for a fraction of an OpenTV Class A ordinary share equal to $1.65 divided by the then average market price of the Class A share, under certain conditions. As of Aug. 31, ACTV had roughly $59 million in cash and cash equivalents.

OpenTV will fork over $101 million in cash to Liberty Broadband Interactive Television Inc. for Wink. Liberty did not hold on to Wink for long. The company just completed its $100 million buy of Wink last month. Liberty Broadband is a subsidiary of Liberty Media Corp. and in May, Liberty Media scooped up a controlling interest in OpenTV for $185 million in cash and stock. The Wink deal is not subject to shareholder or regulatory approval, and is expected to close in the next few weeks.

The acquisitions will give OpenTV some much needed financial muscle. Once the transactions are complete, OpenTV will have roughly $160 million in cash, no debt and a worldwide footprint in excess of 35 million homes with one or more of its iTV products or services, according to the company.

"ACTV and Wink have invested significant amounts of capital in developing cutting-edge technology to enable targeted advertising, interactive commerce, enhanced and multiplexed programming and related technologies and other services offered primarily to the U.S. cable and satellite industry," OpenTV Chairman Peter Boylan said in a statement. "Integrating these technologies with OpenTV's middleware business and international distribution should enable us to offer a much broader array of products and services to the global pay television industry," he said. Boylan also is CEO of Liberty Broadband.

Related stories:
Liberty Broadband completes Wink buy, 8/23/02
OpenTV revenue drops sharply, 8/9/02
Liberty to control the votes at OpenTV, 5/8/02

EarthLink makes deals

Internet service provider EarthLink Inc. has inked a series of deals to give itself a boost in several markets.

On the high-speed Internet front, Office Depot Inc. has agreed to sell EarthLink's high-speed Internet services in its retail stores nationwide. In stores where EarthLink offers area coverage, Office Depot will have manned kiosks will offer all three of EarthLink's broadband packages, including cable, DSL and two-way satellite.

The kiosks will provide potential subscribers with service information, qualification and order placement. The services also will be promoted through Office Depot's Web site, catalogs and mailings. EarthLink has roughly 604,000 high-speed Internet access subscribers.

In the land of wireless, the ISP has forged an alliance with GoAmerica Inc. The companies will work together to develop enterprise and consumer wireless data services.

Although financial terms were not disclosed, as part of the deal GoAmerica will sell a portion of its customer base to EarthLink. Specifically, GoAmerica will sell the ISP its cellular digital packet data-networked subscribers and a portion of its Cingular and Motient network subscriber base. EarthLink will supply billing, customer service and network services for GoAmerica.

GoAmerica it will rely on its partnerships with EarthLink, and others to support its technology, rather than pursue new funding. The partnerships will help GoAmerica reduce its cost structure.

Lastly, in the dial-up sector, EarthLink has extended an existing relationship with Level 3 Communications. The companies have signed a new customer agreement giving EarthLink more access to Level 3's dial-up infrastructure in hundreds of cities in the United States. They also extended a contract for managed modem services.

Related story:
AT&T Broadband launches EarthLink in Seattle, 7/15/02

CableLabs stamps nine more
modems for DOCSIS 1.1

CableLabs said nine new cable modems made the grade for DOCSIS 1.1 following certification wave 23, increasing the number of 1.1-certified modems to 42.

CableLabs also has qualified a total of 18 cable modem termination systems (CMTS) for DOCSIS 1.1 thus far, including qualification during the most recent wave of Terayon Communication Systems’ BW 3500, a CMTS powered by silicon made by Terayon spin-off Imedia Semiconductor.

Following the most recent wave, which concluded Sept. 20, CableLabs handed out the coveted 1.1-certified label to modems made by Arris, Askey, Belkin, Castlenet, Fujitsu, Hitron, Linksys and Thomson, which makes RCA-branded cable modems. Com21 Inc. also received 1.1 re-certification for its DOXport 1110XB model.

Equipment based on the QoS-sensitive DOCSIS 1.1 specification will serve as the underpinnings of PacketCable, a platform that will usher in advanced packet-based cable applications and services such as IP telephony.

As part of wave 23, CableLabs said it concurrently performed three “parallel practice” certification runs for gear based on CableHome 1.0, PacketCable 1.0 and DOCSIS 2.0, an advanced specification designed to triple cable’s upstream data path. CableLabs said results from the practice run will be used to refine products that eventually will be submitted for official certification waves based on those specifications.

On the DOCSIS 1.0 front, chip giant Broadcom Corp. said two cable modems based on its new DOCSIS 2.0-based silicon were certified following wave 23. That chip, the BCM3348, supports both of DOCSIS 2.0’s advanced physical layer schemes: A-TDMA (advanced time division multiple access) and S-CDMA (synchronous code division multiple access).

CableLabs is expected to kick off certification wave 24 on Oct. 14, and release results on or around Dec. 19. The organization in August announced plans to lower some testing fees and to simplify and streamline its testing processes by combining its DOCSIS certification tests with those tied to PacketCable and CableHome.

CableLabs also got the green light from the DOCSIS board on Aug. 14 to move ahead on "eDOCSIS," a new specification effort tied to broadband equipment with “embedded” DOCSIS capabilities such as set-tops and residential gateways.

- Jeff Baumgartner, CED

Nortel tumbles on weak outlook

Nortel Networks' shares took a beating in morning trading, as the network gear maker followed in many of its rivals' footsteps and lowered its third-quarter forecast.

The company expects its third-quarter revenue to be roughly 15 percent lower than the numbers posted in the second quarter. This is down from a previous forecast calling for revenue to be up roughly 10 percent from the second quarter. The company posted revenue of $2.77 billion in the second quarter.

This is the second time in about a month that Nortel has revised its third-quarter outlook. At the end of August, the company revised an earlier forecast calling for revenue to be relatively flat compared to the second quarter. In conjunction with August's revised forecast, Nortel said it planned to cut 7,000 more jobs. Nortel expects to close out 2002 with roughly 35,000 employees.

Nortel's stock tumbled nearly 19 percent, trading at 52 cents a share as of 11:16 a.m. EDT. This drop in value marks a new 52-week low for the company's stock, which was previously at a low trading point of 61 cents a share.

Despite the revised outlook, Nortel's President and CEO Frank Dunn said the company's restructuring efforts will result in lower cost structure for the third quarter. "Despite the continued challenging market environment, our top priority remains to return to profitability by the end of June of 2003," Dunn said in a prepared statement. "We are progressing well in our restructuring plan, and we will continue to monitor the market and the spending environment and take additional actions, as appropriate, to achieve our profitability goals."

Hoping to boost the value of its stock, Nortel will propose a reverse stock split to its shareholders early next year. Depending on shareholder and regulatory approvals, the move would reduce the number of Nortel shares and bump the stock's value up to between $10 and $20 a share, according to Nortel.

Ciena Corp., JDS Uniphase and Alcatel SA recently announced plans to lay off staff and have revised their quarterly outlooks.

Related story:
Nortel tumbles on cuts, revised outlook, 8/28/02

Court green lights Williams-SBC agreement

Williams Communications Group came one step closer to emerging from Chapter 11 proceedings yesterday when a bankruptcy court approved its deal with SBC Communications Inc.

A U.S. Bankruptcy Court for the Southern District of New York approved an agreement between Williams and SBC that resolves legal issues between the two. Williams filed for bankruptcy protection from its creditors in April. SBC had wanted to end their existing telecom-services agreement, stating that Williams had allegedly violated change-in-control provisions. Williams had asked the court to block SBC from ending their agreement because it would negatively affect its ability to reorganize by jeopardizing its proposed $150 million restructuring deal with Leucadia National Corp.

Under the terms of the ruling, SBC will not terminate the contract. SBC, Williams' largest customer, accounted for 40 percent of its $1.18 billion in revenue last year.

In a statement, SBC said the companies and their operating affiliates have agreed to resolve outstanding issues regarding their strategic relationship.

Williams said the companies are committed to a mutually beneficial relationship.

Draft bill in Congress paves way
for TV's digital era

Carolyn Lochhead

Congress took its first tentative step Wednesday toward mandating that all television sets by 2006 include technology to foil piracy of digitized movies and television shows.

Draft legislation explored at a House Energy and Commerce Committee hearing would make all current television sets and videocassette recorders obsolete within four years by requiring that they recognize a "broadcast flag" that would prevent copying of televised content.

The bill, crafted by committee Chairman Billy Tauzin, R-La., and John Dingell, D-Mich., would also shut off all analog broadcasts by Dec. 31, 2006.

The draft legislation is ultimately aimed at promoting the long-awaited transition to digital television, which would not only vastly improve television quality and interactivity, but also free an estimated $70 billion worth of spectrum that Congress gave away for free to television broadcasters.

The large swath of freed spectrum is expected to be used for advanced wireless services, including emergency communications.

Tauzin declared that the draft legislation was "designed to demonstrate what Congress just might do if we can't, very soon, reach an agreement" among the many powerful industries -- from consumer electronics manufacturers and retailers to broadcasters and cable companies -- whose fighting is stalling the transition to digital television. Tauzin vowed that "either collegially or legislatively, Americans will have a smooth transition to the digital age. That is our commitment."

But several committee members wondered whether Congress should carry through with any plan that would send some 300 million existing television sets and VCRs to the landfill. "If on New Year's 2007, consumers turn on their TVs and see only snow, that could also be the end of many congressional careers," said Rep. Eliot Engel, D-N.Y. "I don't think anyone is interested in that."

The rollout of digital television has been hampered by the lack of digitized content that consumers want, but Hollywood is loath to produce for fear that it can be copied and redistributed for free over the Internet.

But the new bill is raising alarms among consumer advocates as well as many in the computer and consumer electronics industries worry that it sets a precedent for government to dictate the design not only of televisions but also personal computers and other electronic devices.

Consumer groups also argued that a broadcast flag also threatened consumer "fair use" rights, established by the Supreme Court in the 1984 Sony Betamax case, that allow home recording and other personal manipulation of copyrighted material.

Tauzin said the draft bill tried to reconcile consumer fair use rights with "robust" copyright protection.

"The problem is, nobody on any side of this debate, technologists, consumers or Hollywood, knows of a technology that can do so," countered Joe Kraus, co-founder of Digitalconsumer.org, based in the Bay Area. "It is our belief that this bill will dramatically impact how consumers watch, record and enjoy digital television, and cedes control of devices in the family room to Hollywood."

Rep. Anna Eshoo, D-Atherton, also objected to the "must carry" demand by television broadcasters that cable providers set aside the same amount of space on their systems for over-the-air broadcasts, even though digital broadcasts will take far less room, calling the idea preposterous.

Rep. Chris Cox, R-Newport Beach, said the fight boiled down to Hollywood's waging a fight against the Internet and losing money doing it.

Television broadcasting, Cox said, "was based on a different world" left in the 20th century. The Internet allows distribution of content to millions of people for free, Cox said, "and yet a whole lot of content people and broadcast companies and status quo groups are all organized to prevent free distribution. . . . The model is the movie theater, and the broadcasters want to be the projectionists. Not everything in the 20th century model ought to apply in the 21st century."

Broadband briefs:

• Arescom secures $20 million

Arescom Inc. has received $20 million in funding from the issuance of private stock. The company provides high-speed Internet access equipment and related services to the hospitality, residential property, telecom and ISP markets.

Separately, Arescom announced the appointment Cheng Wu as Chairman of the Board and named Eric Van Zele to its advisory board.

• Former WorldCom expected to plead guilty

David Meyers, WorldCom Inc.'s former controller, is expected to plead guilty to two felony charges, according to a Wall Street Journal report.

Meyers was charged with securities fraud last month.

• USurf America to acquire NeighborLync

Fixed wireless broadband product developer USurf America Inc. has signed a letter of intent to acquire NeighborLync LLC. Financial terms were not disclosed.

NeighborLync provides video and data services to multiple dwelling unit properties in Denver.

Earlier this week, USurf snapped up Internet service provider High Plains Internet.