R-888-MF
`
`Novem ber ‘I971
`
`
`
`INTERACTIVE TELEVISION
`
`Prospects for Two-Way
`Services on Cable
`
`Walter S. Baer
`
`
`
`A Report prepared under a Grant from
`
`THE JOHN AND MARY R. MARKLE FOUNDATION
`
`SANTA MONICA, CA. 90406
`
`Petitioner ARRIS Group, Inc.’s
`
`EXHIBIT
`
`ARRIS883IPRI0000843
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`

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`ARRIS883IPRI0000844
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`

`
`R-888-MF
`
`November 1971
`
`INTERACTIVE TELEVISION
`Prospects for Two-Way
`Services on Cable
`
`Walter S. Baer
`
`A Report prepared under a Grant from
`
`THE JOHN AND MARY R. MARKLE FOUNDATION
`
`SANTA MONICA, CA. 90406
`
`ARRIS883IPRI0000845
`
`

`
`Bibliographies of Selected Rand Publications
`
`Rand maintains a number ofspecial subject bibliographies containing abstracts of
`Hand publications in fields 0/"wide current interest. The following bibliographies are
`available upon request:
`
`Aerodynaniics o Africa - Arms Control. Civil Defense
`Combinotorics . Communication Satellites - Communication Systems
`Communist Chino - Computer Simulation . Computing Technology
`Decision.ma}aing - Delphi . East-West Trade - Education
`Game Theory 0 Health-related Research . Human Resources
`Latin America - Linguistics - Maintenance . Middle East
`Policy Sciences . Pollution . Population
`Privacy in the Computer Age - Program Budgeting - Public Safety
`SIMSCRIPT and Its Applications - Southeast Asia
`Space Technology and Planning - Statistics - Systems Analysis
`Television - Transportation - Urban Problems - USSR/East Europe
`Water Resources 0 Weapon Systems Acquisition
`Weather Forecasting and Control
`
`To obtain copies o/‘these bibliographies, and to receive information on how to obtain
`copies ofindiuidualpublications. write to: Communications Department, Band, 1700
`Main Street, Santa Monica, California 90406.
`
`Published by The Rand Corporation
`
`ARRIS883IPRI0000846
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`

`
`PREFACE
`
`The technology of cable television is advancing rapidly. Of
`
`prime importance to cable television in the 1970s will be the develop—
`
`ment of two-way interactive communication services on cable systems.
`
`This report describes that development;
`
`the technical, economic, and
`
`regulatory forces that influence it; and the public policy issues that
`it raises.
`
`This report has been written for several distinct groups of read-
`
`ers.
`
`Those concerned chiefly with broad policy questions may wish to
`
`read only the summary,
`
`the introduction, and the final section on
`
`policy issues posed by the evolution of two~way services on cable.
`Readers who want a more detailed description of potential services,
`
`including the "subscriber response services” that seem most likely to
`
`be feasible in the next five years, should also read Sections II and
`
`III.
`
`Those interested in the near—term economics of this group of ser~
`
`vices should focus on Section IV. Finally,
`
`readers interested in the
`
`present status of two—way cable television will find a discussion of
`recent field tests and demonstrations in Section V.
`
`The research on which this report is based has been conducted
`
`under a three—year grant
`
`to Rand from The John and Mary R. Markle Founda-
`
`tion for the study of communications policy issues.
`
`The initial phase
`
`of this research was also supported by The Ford Foundation as part of
`
`a broader study of the feasibility of cable television in Washington,
`
`D.C.
`
`The Rand work in Washington was undertaken in close cooperation
`
`with The MITRE Corporation, McLean, Virginia.
`
`ARRIS883IPRI0000847
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`ARRIS883IPRI0000848
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`SUMMARY
`
`Discussions of
`
`the future of cable television often present glowing
`
`pictures of potential two~way communications services on cable. Extensive
`lists of new services have been compiled. Commercial services such as
`
`remote shopping, and computer-to-computer data
`security alarm monitoring,
`transmission are typically cited as important
`to the economic success of
`
`cable television in cities.
`
`In addition, it is claimed that non-commercial
`
`services, such as interactive educational television in the home and
`
`direct citizen feedback on local political issues, would be of great
`
`the Federal Com-
`Impressed with these possibilities,
`public benefit.
`munications Commission has recently proposed that two—way transmission
`
`capacity be installed in all cable systems in the hundred largest U.S.
`television markets.
`
`As is often the case with emerging technologies, however,
`
`the pro-
`
`times been oversold. Although
`two~way services on cable has at
`mise of
`most proposed new services are technically feasible, many will not be
`economically feasible for at least a decade. Others can probably be
`best accommodated on the telephone network or by other means.
`Some may
`
`not be desirable at all.
`
`The value to society of, and the commercial
`
`demand for, various new cable services is,
`
`in general, unknown at the
`
`present
`
`time.
`
`Meeting the FCC's proposed requirement for two-Way transmission
`capacity will add between 15 and 30 percent to the capital cost of a
`single cable, one—way distribution plant. Transmitting two—way signals
`at different frequencies on the same cable, or using separate cables
`for signals in each direction, are the principal techniques that will
`be used.
`Providing two—way capacity is, however, very different from
`
`The latter requires a considerable invest-
`providing two—way services.
`ment in equipment at a central facility and at each subscriber's location.
`Subscriber terminal equipment will in fact represent the bulk of added
`
`capital costs for all large two—way systems. Eventually, programming
`and other software costs will be greater than hardware expenditures if
`
`two-way cable services prove successful.
`
`ARRIS883IPRI0000849
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`

`
`This study groups proposed cable services according to their tech-
`
`nical requirements and the estimated capital costs to provide them.
`
`Inter-
`
`active services are separated into four categories:
`
`0 Subscriber response services, such as opinion polling
`or alarm monitoring,
`in which individual subscribers
`
`(or equipment installed at their locations) send short
`
`data responses to queries from a central point.
`
`Shared voice and video services, such as instructional
`television with voice feedback,
`in which individuals
`
`share return channels to a central point.
`
`Subscriber initiated services, such as catalog ordering
`
`or ticket sales,
`
`in which individuals can request infor-
`
`mation or service from a variety of sources.
`
`in which one subscriber trans-
`Point~to—point services,
`mits Video, voice, or data information directly to another.
`
`On the basis of the projected cost for subscriber terminal equipment
`
`alone, subscriber initiated and point-to-point services appear too costly
`for mass home audiences in this decade, although some business and in~
`
`stitutional uses may be feasible.
`
`Formidable problems in developing
`
`computer software for subscriber initiated services can also be expected.
`
`Subscriber response services, perhaps with shared voice return
`
`channels, seem more likely candidates for home use in the next five
`
`years.
`
`The investment cost for the basic two-way equipment required
`
`would amount to roughly $150-$340 per subscriber, over and above the
`
`$125 per subscriber calculated for conventional one—way cable service.
`
`Two—way services that could be provided with this equipment include
`
`audience counting for advertisers and programmers,
`
`remote shopping,
`
`interactive entertainment and instructional programming, opinion pol-
`
`ling, and selection of subscription or limited access channels. Other
`
`response services such as meter reading, fire alarm monitoring, and
`environmental monitoring would require additional equipment. More
`
`sophisticated and costly services such as information retrieval and
`
`computer—aided instruction could be added to the basic response system
`
`as they prove feasible.
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`ARRIS883IPRI0000850
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`
`with this capital investment and reasonable assumptions about
`
`operating costs, a cable operator would need additional monthly revenues
`of between $4.50 and $13.00 per subscriber to break even on two-way
`
`response services. This means doubling or tripling his present monthly
`revenue from one—way television distribution. Most of
`the added revenue
`
`would have to come from increased monthly subscriber fees, although ad-
`
`vertisers, business firms, utilities, schools, and government users would
`
`pay for services of benefit to them. Expected revenues from specific
`services cannot be estimated at the present time, since no real field
`
`experience or evidence of consumer demand is yet available. Providing
`a mix of response services supported by home subscribers, business, and
`
`government users appears to be a better strategy for the cable operator
`
`than supplying a single service alone.
`
`Several cable systems began field tests of
`
`two—way transmission in
`
`1971. These tests indicate that two-way transmission on a single cable
`
`is indeed feasible but will require greater attention to system design
`
`and construction than has been the industry practice to date. Tighter
`
`standards for system components and installation procedures will be
`
`necessary. Moreover, building two—way capability into a cable system
`
`from the beginning is considerably easier than retrofitting an existing
`
`one—way system.
`
`Even without an FCC requirement, most large cable
`
`operators are likely to include two—way capability in new urban systems.
`
`The FCC's proposed rules,
`
`then, would make uniform an industry
`
`trend toward provision of
`
`two-way capability in major market cable
`
`two—way cable services will
`Since the widespread acceptance of
`systems.
`require step—by—step development over a number of years,
`the Commission
`and other concerned parties have time to consider the several policy
`
`issues raised by this new technology.
`
`These issues include the develop-
`
`ment of technical standards, protection of individual privacy, and
`
`definition of the role of
`
`the cable operator as common carrier or direct
`
`provider of
`
`two—way services.
`
`The wisest policy today would be to let two-way cable services
`
`develop in the marketplace under the FCC's proposed rules. Cable systems
`should be relatively free to experiment with a variety of service offerings
`
`ARRIS883IPRI0000851
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`

`
`—Viii—
`
`and customer charges. Additional regulatory constraints can be imposed,
`
`if necessary, when the economic and social importance of these services
`becomes better known. Moreover,
`there are at present no convincing argu-
`
`ments for widespread public subsidy of
`
`two—way cable services. But some
`
`public support for field tests of community services, such as interactive
`
`instructional programming and direct citizen response, would be worth-
`
`while in order to help determine what public benefits can be expected
`
`from two—way cable technology.
`
`ARRIS883IPRI0000852
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`

`
`ACKNOWLEDGMENTS
`
`The author greatly benefited from discussions with W. F. Mason,
`
`J. J. O'Neill, S. Polk, F. R. Eldridge, K. J. Stetten, and M. E. Harman
`
`of The MITRE Corporation of McLean, Virginia on the technology and applica-
`
`tions of two-way cable television. Others personally involved in the
`
`development of two—way cable services have been most generous with their
`
`time and expressions of interest in this study.
`
`They include J. Beck of
`
`Video Information Systems; E. J. Callahan of American Television & Com-
`
`munications Corporation; R. T. Callais of Hughes Aircraft Company; C. R.
`
`Herring and M. Nolte of Telecable Corporation; A. Mende, private con—
`
`sultant; W. Osborn of CAS Manufacturing Co.; T. H. Ritter of TelePrompTer
`Corporation; E. J. Schulz of Sterling Communications; J. R. Thompson of
`Electronic Industrial Engineering, Inc.; and W. Vivian of Vicom Manu-
`
`facturing Company.
`
`Finally,
`
`the author wishes to thank Leland Johnson, Manager of the
`
`Rand Communications Policy Program,
`
`for his encouragement and helpful
`
`comments throughout this study. He also acknowledges the able assistance
`
`of Harriett Porch in preparing the report, and the constructive comments
`
`on earlier drafts by Rand colleagues R. E. Park, N. E. Feldman, J. A.
`
`Farquhar, and J. E. Koehler.
`
`ARRIS883IPRI0000853
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`

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`ARRIS883IPRI0000854
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`

`
`OTHER RAND REPORTS ON CABLE TELEVISION
`
`This is one of a series of publications in Rand's Communications
`
`Policy Program. Previous reports include:
`
`Leland L. Johnson, The Future of Cable Television:
`of Federal Regulation, RM46l99-FF, January 1970.
`
`Some Problems
`
`Richard A. Posner, Cable Television:
`RM-6309—FF, May 1970.
`
`The Problem of Local Monopoly,
`
`fmgortumities and Problems in
`N. E. Feldman, Cable Television:
`Local Program Origination, R-570-FF, September 1970.
`
`Rolls Edward Park, Potential lgpact of Cable Growth on Television
`Broadcasting, R-587-FF, October l970.
`
`Leland L. Johnson, Cable Television and the Question of Protecting
`Local Broadcasting, R—595—MF, October 1970.
`Rolla Edward Park, Cable Television and UHF Broadcasting, Rr689~MF,
`January 1971.
`
`Leland L. Johnson, Cable Television and Higher Education:
`Contrasting Experiences, R—828—MF, September 1971.
`
`Two
`
`Michael R. Mitchell, State Regulation of Cable Television, R—783—MF,
`October 1971.
`
`Rolla Edward Park, Prospects for Cable in the 100 Largest Television
`Markets, Rr875—M, October l97l.
`
`Information on these and other Rand publications may be obtained
`
`by writing to:
`Communications Department
`The Rand Corporation
`1700 Main Street
`Santa Monica, California 90406.
`
`ARRIS883IPRI0000855
`
`

`
`OTHER RAND REPORTS ON CABLE TELEVISION
`
`This is one of a series of publications in Rand's Communications
`
`Policy Program. Previous reports include:
`
`Leland L. Johnson, The Future of Cable Television:
`of Federal Regglation, RMF6l99-FF, January 1970.
`
`Some Problens
`
`Richard A. Posner, Cable Television: The Problem of Local Monopoly,
`RM—6309—FF, May 1970.
`
`N. E. Feldman, Cable Television: Qppprtuities and Froblems in
`Local Program Origination, R—570—FF, September 1970.
`
`Rolla Edward Park, Potential Igpact of Cable Growth on Television
`Broadcasting, R—587-FF, October 1970.
`
`Leland L. Johnson, Cable Television and the Question of Protecting
`Local Broadcasting, R-595~MT, October 1970.
`
`Rolla Edward Park, Cable Teleyision and UHF Broadcasting, R—689—M,
`January l97l.
`
`Leland L. Johnson, Cable Television and Higher Education:
`Contrasting Experiences, R—828—MF, September 1971.
`
`Two
`
`Michael R. Mitchell, State Regulation of Cable Television, R-783-MF,
`October 1971.
`
`Rolla Edward Park, Prospects for Cable in the l0O Largest Television
`Markets, R—875—M, October 1971.
`
`Information on these and other Rand publications may be obtained
`
`by writing to:
`Communications Department
`The Rand Corporation
`1700 Main Street
`Santa Monica, California 90406.
`
`ARRIS883IPRI0000856
`
`

`
`ARRIS883IPRI0000857
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`

`
`CONTENTS
`
`PREFACE.
`
`SUMMARY.
`
`ACKNOWLEDGMENTS.
`
`.
`
`.
`
`...
`
`.
`
`.
`
`.
`
`.
`
`.
`
`.
`
`.
`
`OTHER RAND REPORTS ON CABLE TELEVISION .
`
`LIST OF TABLES
`
`LIST OF FIGURES.
`
`Section
`.
`.
`.
`.
`.
`.
`.
`.
`.
`I.
`INTRODUCTION .
`.
`.
`.
`.
`.
`.
`Cable Growth in Cities .
`The Broadband Communications Network .
`
`II.
`
`III.
`
`IV.
`
`V.
`
`VI.
`
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`THE SPECTRUM OF NEW SERVICES FOR CABLE .
`Some Technical Parameters for Two—Way Cable Communications
`Categorizing New Cable Services.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`Projecting the Near-Term Development of New Cable Services
`
`NARROWBAND SUBSCRIBER RESPONSE SERVICES.
`Audience Counting.
`.
`.
`.
`.
`.
`Direct Viewer Response ,
`Special Channel Selection,
`Sensor Surveillance.
`.
`
`.
`
`.
`
`.
`
`THE ECONOMICS OF SUBSCRIBER RESPONSE SERVICES.
`Two—Way Transmission Costs .
`.
`.
`.
`.
`.
`Headend and Subscriber Equipment Costs
`Total Equipment Cost
`.
`Operating Costs.
`.
`.
`.
`Revenue Requirements
`Financing Two—Way Equipment.
`
`.
`
`.
`
`.
`
`.
`
`SOME RECENT TWO—WAY EXPERIMNTS ON CABLE SYSTEMS
`Two—Way Transmission Tests .
`.
`.
`.
`Tests of Two~way Subscriber Services .
`
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`POLICY ISSUES.
`The FCC's Proposed Requirement for Two—Way Capacity.
`Technical Standards.
`.
`.
`.
`.
`.
`.
`.
`Privacy.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`The Role of th Cable Operator
`A Need to Experiment
`.
`
`ARRIS883IPRI0000858
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`

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`ARRIS883IPRI0000859
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`

`
`LIST OF TABLES
`
`Some Proposed Interactive Services for Cable Television.
`
`Categories of New Cable Communications Service
`
`Added Cost of Two—Way Transmission for a 200 Mile Cable
`System .
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`
`Added Equipment Costs for Narrowband Subscriber Response
`Services .
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`
`Annual Maintenance Costs for Communication Systems and
`Terminals.
`.
`.
`,
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`
`Annual Costs and Breakeven Revenues.
`
`Revenue Sources for Narrowband Response Services .
`
`Two-Way Experiments on Cable Television Systems in 1971.
`
`ARRIS883IPRI0000860
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`

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`ARRIS883IPRI0000861
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`

`
`LIST OF FIGURE
`
`Communication Network Configuration.
`
`Frequency Division and Time Division Multiplexing.
`
`.
`
`.
`
`Schematic for Two—Way Transmission on a Single Cable .
`
`Central Computer Facility for Subscriber Response System
`
`Subscriber Terminal Costs for New Cable Communications
`Services .
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`
`.
`
`6.
`
`7.
`
`Subscriber Terminal for Subscriber Response System .
`
`.
`
`Added Hardware Cost for Two~Way Services as a Function
`of Penetration .
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`.
`
`Frequency Multiplexing Schemes for Two-Way Transmission.
`
`ARRIS883IPRI0000862
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`

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`ARRIS883IPRI0000863
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`

`
`.
`
`INTRODUCTION
`
`Cable television has evolved over the past two decades as a dis-
`
`tributor of conventional television programming. While information
`
`on the cable now flows one way —— from the antenna or "headend" to the
`
`home -— cable system operators and others have talked for years about
`
`interactive,
`
`two—way communications services over cable networks.
`
`The
`
`technology to provide such services is here today.
`
`But despite much
`
`rhetoric and enthusiastic projections of future broadband communica-
`
`tion systems, very little has happened. At present, probably fewer
`
`than fifty of the more than 5.5 million cable television subscribers
`
`in the United States are equipped for any kind of interactive services.
`
`CABLE GROWTH IN CITIES
`
`The emergence of two-way communications over cable systems will
`
`be closely related to the growth of cable in the major U.S.
`
`television
`
`markets.
`
`Up to now, cable television has been most successful in places
`
`where over~the~air reception is poor, and in towns and rural areas where
`
`only a few broadcast television signals are otherwise available. There
`
`has been little penetration of cable into the large cities.
`
`The regulatory policy of
`
`the Federal Communications Commission,
`
`which has to date forbidden cable operators in the lOO largest markets
`
`from distributing signals brought
`
`in from other cities, has been con~
`
`sidered the chief barrier to cable growth in urban areas.l The Com-
`mission,
`in its long—awaited proposed rules for cable, announced
`
`on August 5,
`
`l97l that it would somewhat relax these restrictions on
`
`distant signal importation. But as part of the rulemaking package,
`the Commission stated:
`
`After studying the comments received and our own
`engineering estimates, we have decided to require that
`there be built into cable systems the capacity for two-
`way communication. This is apparently now feasible at
`
`Some Problems
`lLeland L. Johnson, The Future of Cable Television:
`of Federal Reoulation, RM—6l99—FF, The Rand Corporation, January 1970.
`
`ARRIS883IPRI0000864
`
`

`
`a not inordinate additional cost, and its availability is
`essential for many of cable's public services.
`Such two-
`way communication, even if rudimentary in nature, can be
`useful in a host of ways —— for surveys, marketing ser-
`vices, burglar alarm devices, educational feed-back,
`to
`name a few.l
`
`Thus a two-way Communications capability for cable systems in
`
`the largest markets will be required if the FCC's proposed rules are
`
`adopted.
`
`It also may turn out
`
`to be a commercial necessity for the
`
`success of urban cable systems.
`
`For even if cable systems are allowed
`
`to carry distant signals, it is not at all clear how much this will
`
`stimulate demand for cable in cities where several television channels
`
`already are available and reception is tolerably good.
`
`A recent Rand
`
`report suggests that only 20 to 35 percent of households in the top
`
`lOO markets would subscribe to cable under the rules for distant signal
`importation proposed in the FCC Letter.
`
`Some observers look to local program origination and the sale of
`
`local advertising by cable systems as a key to the successful pene~
`tration of cable in major cities.3 Yet
`few cable operators today
`share that view. Except for sports and other special events programs,
`operators see local origination as a net drain on their cash flow
`
`rather than as a primary source of new subscribers and revenues.
`
`So
`
`local program origination has not provided significant earnings
`far,
`for cable operators outside major market areas.
`
`Letter from Dean Burch, Chairman of the Federal Communications
`Commission,
`to Senator John Pastore, Chairman of the Senate Communica~
`tions Subcommittee, August 5, l97l, p. 31. Henceforth referred to as
`the FCC Letter.
`
`2R. E. Park, Prospects for Cable in the 100 Largest Television Markets
`_____i________________._..__.____,________.__________
`R—875—MF, The Rand Corporation, October 1971.
`3
`.
`the cable television industry
`Some recent proprietary studies of
`take this point of view.
`See also the Comments on Mandatory Origina-
`tion and Maximum Public Benefit from Cable Services, Central ACCESS,
`Inc., FCC Docket No.
`l8397, 1970.
`.
`.
`4
`-
`.
`N. E. Feldman, Cable Television: Opportunities and Problems in
`Local Program Origination, R—595—MF, The Rand Corporation, October
`1970; and D. Anderson, "Experienced Perspective on the.Origination
`'Bug',” Ty Communications, March l97l.
`
`7
`
`ARRIS883IPRI0000865
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`

`
`-3-
`
`The other stimulus to demand for cable television in cities would
`
`be the development of two—way communication services.
`
`A broadband cable
`
`obviously can transmit other information besides television signals.
`
`With its tremendous potential capacity, cable operators hope to satisfy
`
`growing needs for information in business, government, and the home.
`
`Extensive lists of interactive services that could be provided by cable
`
`television systems have been compiled. Table l presents some of these
`
`potential applications —— unsorted as to social usefulness and economic
`
`feasibility on cable systems.
`
`Such lists could be extended nearly
`
`indefinitely.
`
`Development of these new services, or any significant subset of
`
`them, could stimulate the rapid and profitable growth of cable systems
`
`in cities.
`
`Individuals who would not subscribe for marginally better
`
`television reception and program variety might well pay for home
`
`security surveillance,
`
`remote shopping, and other special services.
`
`Business and government users might subscribe to services tailored
`
`specially for them.
`
`The result, according to the chief executive of
`
`the largest cable television operator in the country, will be that
`
`"Five years from now we'll be getting less than 25 percent of our
`.
`.
`.
`1
`cable revenue from the services we're providing today."
`
`Yet
`
`today,
`
`consumer demand for these services is completely unproved in the
`
`marketplace.
`
`The question of cable system profitability in cities is important
`
`to others besides entrepreneurs and stockholders. Much has been said
`
`and written about
`
`the public benefits to be derived from cable com-
`
`munications.
`
`The commentators generally believe that city dwellers,
`
`particularly low—income city dwellers, can be the principal benefici-
`aries of cable technology. High—capacity cable communication systems
`
`could provide low—cost channels for dissemination of job information;
`
`information on health care, welfare, and other city services; preschool
`
`llrving Kahn, Chairman of TelePrompTer Corporation, quoted in
`J. Kronenburger, “Cable:
`Shape of Things to Come?” Look, September 9,
`1971, p. 66.
`
`ARRIS883IPRI0000866
`
`

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`ARRIS883IPRI0000867
`
`

`
`education programs; and instruction of all sorts.
`
`They might help
`
`city governments be more responsive to individuals while performing
`
`more efficiently. Most important,
`
`in their view, new communication
`
`systems might contribute to a sense of community identity and community
`
`in a sociological sense,
`participation, "a means...to rebuild,
`.
`.
`.
`.
`.
`2
`crowded inner core of major cities.” Without debating the value of
`
`the
`
`community services or programming distributed by cable, obviously no
`
`public benefits can accrue until the community is wired to receive them.
`And unless large public subsidies become available to wire urban areas,3
`cable will be installed only when the system operator believes he can
`
`(at least in the long run)
`
`turn a profit.
`
`THE BROADBAND COMMUNICATIONS NETWORK
`
`Providing the limited two—way capability required by the FCC's
`
`proposed rules is only the beginning of possible new uses for cable
`‘communications.
`Further on is the vision of cable “information
`
`utilities” bringing picture, voice, and text material
`
`to the home at
`
`1H. S. Dordick, L. G. Chester, S. I. Firstman, and R. Bretz, Tele-
`communications in Urban Development, RM—6069—RC, The Rand Corporation,
`July 1969; and Committee on Telecommunications, National Acadenw of
`Engineering,
`ommunications Technology for Urban Improvement, Report
`to the Department of Housing and Urban Development, June l97l.
`2
`.
`.
`.
`.
`.
`.
`Ad Hoc Committee of the Industrial Electronics Division, The
`Future of Broadband Communications, Electronic Industries Association,
`the IED/EIA response to the Federal Communications Commission Docket
`l8397, Part V, October 1969, p. 4.
`3Several
`forms of public subsidy to accelerate cable growth in
`low—income areas have been discussed in recent months.
`These include
`direct Federal agency grants,
`low—interest government
`loans or loan
`guarantees, and the issuance of tax free municipal or state bonds.
`However, one facet of the debate over distant signal importation has
`been the cable industry's insistence that cable systems in major mar-
`kets would thrive if restrictions on signal importation were removed.
`It is thus difficult to justify any public subsidy for them. Rather,
`the industry seems to have convinced public officials that cable system
`operations will be a lucrative source of tax revenue for hard-pressed
`city governments.
`In the short run at least, both industry and govern-
`ment expectations may be overly optimistic.
`
`ARRIS883IPRI0000868
`
`

`
`-6-
`
`the individual subscriber's request.1 Cable systems could evolve into
`a nationwide,
`interconnected,
`two—way communications network independent
`
`of the present
`
`telephone system ~— the "broadband communications net-
`
`work” outlined by the Electronics Industry Association (EIA), or the
`"wired nation.”2 To use the ElA's words,
`this would be "a revolution
`in communications which will produce a profound change in the way
`.
`.
`.
`.
`3
`society is structured and in the way we live."
`
`PURPOSE OF THIS REPORT
`
`But will it happen? Or, how do we get
`
`from here to there?
`
`Two-
`
`way services on cable television systems may not be commercially suc-
`
`cessful for many years.
`
`As one company president put it recently, “I
`
`don't know of a single CATV community where a cable operator can afford
`
`to build a complete two—way headend-to—home communications system today
`and make it pay off."4 Moreover,
`the true community benefits from two-
`way cable services may be small or negligible in the next several years.
`
`Although the long—term potential of communications technology may be
`
`enormous,
`
`the short—term social benefits certainly have been oversold
`
`in some quarters.
`
`This report,
`
`then, explores the likely evolution of cable tele-
`
`vision systems toward a broader communication capability and suggests
`
`some probable first steps in the next five years. Section II looks
`
`more closely at two-way communications via cable, discusses the technical
`
`requirements for potential new services, and focuses on a group described
`
`as "narrowband subscriber response services.‘
`
`Section III discusses
`
`lSee, for example, The Information Utility and Social Choice,
`H. Sackman and N. Nie (eds.), AFIPS Press, Montvale, New Jersey, 1970.
`
`Ralph Lee Smith,
`"The Wired Nation," The Nation, May l8, 1970.
`The Future of Broadband Communications, p. 23. Of course, any
`such "profound change" would involve costs as well as benefits to society.
`A national, fully interconnected broadband communications network would
`pose questions of access, privacy, and control far beyond those discussed
`in this study for the more rudimentary services likely in the next
`few
`years.
`
`2 3
`
`the 1971 National Cable Tele-
`4G. M. Nathanson, paper delivered at
`vision Association convention, Washington, D.C., July 5-9,
`l97l (pro-
`ceedings to be published).
`
`ARRIS883IPRI0000869
`
`

`
`__7_
`
`four such services —— audience counting, direct viewer response, special
`
`channel selection, and sensor surveillance —— that would be possible
`
`with a narrowband response system. Section IV discusses the economics
`
`of subscriber response services in more detail.
`
`It examines the cost
`
`of providing these services and the added revenues necessary to support
`
`them but does not try to estimate the consumer demand for them. Section
`
`V discusses the very limited experience to date with two—way cable tele—
`
`vision services.
`
`Some policy issues are outlined in Section VI, along
`
`with a recommendation for larger scale field tests of interactive services
`
`to better understand their potential importance.
`
`ARRIS883IPRI0000870
`
`

`
`_8_
`
`II.
`
`THE SPECTRUM OE NEW SERVICES FOR _<_:_AELE
`
`The term ”two—way communications“ applied to cable television
`
`systems encompasses a tremendous range of possible uses and services.
`
`This section considers the many proposed new services listed in Section
`
`I and attempts to distinguish those with common technical requirements.
`
`Six broad groupings are developed:
`
`0
`
`one~way broadcast services
`
`one—way addressed services
`
`subscriber response services
`shared voice and video channels
`
`subscriber initiated services
`
`0
`
`point*to—point services
`
`Subscriber equipment costs for each group are estimated and compared.
`
`On the basis of subscriber equipment cost alone, one—way broadcast
`
`services, subscriber response services, and shared channel services
`
`appear more feasible in this decade for mass home audiences than the
`
`other service groups.
`
`In particular,
`
`information retrieval and other
`
`subscriber initiated services must await the development of low—cost,
`
`reliable terminals before they become attractive to home subscribers.
`
`Some difficult system design and software problems must also be over—
`come before subscriber initiated services can be offered on a mass
`
`basis.