THE WIRED CITY

(A background piece on the proposed acquisition of Ottawa Cablevision Limited by SDL to form the first integrated wired city operation in Canada. The intention was to offer such online services as in-the-home banking, shopping, education and information retrieval  – this proved to be a bit premature as the Federal Government subsequently turned down our application to acquire a cable company.)

We at SDL are excited with the potential of the Wired City concept and what it holds for companies like ours that are involved in information technology. In fact, we believe so much in the future of this concept that we are proposing to spend upwards of $11 million dollars to buy one of Canada’s leading cable companies in order to put us at the forefront in gaining an understanding of, and developing the products and services that will be a part of the future Wired City.

WHAT IS THE WIRED CITY CONCEPT?

Basically, it is the reality in future years of being able to deliver a broad range of information services into homes, industries, and institutions, affording the user convenience, choice, and participation in an audio visual dimension. The delivery vehicle for these future services and, in fact, the catalyst in the evolution of the Wired City concept, is the cable television system known as CATV. Rapid advances in CATV technology (indicated by write-off periods for CATV electronic equipment of five year or less) have resulted in an enormous growth in the potential of CATV from an original 12-channel concept into upwards of 30 deliverable channels. Couple this advancement in technology with geographical isolation in North America, and an unquenchable thirst for more and more choices of video material, and you have one of the fastest-growing industries in North America. Consider the following. that in Canada, with a population of 23 million people and 4,500,000 TV sets, cable subscribers number today 1,700,000, or 38% of the TV viewing market. The annual growth rate of cablevision subscribers is over 7%, which means that some 30% of all Canadians have this powerful conduit of information now in their homes and growing at a very substantial rate. In the United States, in a population in excess of 200 million people, there are 75,000,000 TV sets, and 8,000,000 subscribers, resulting in a penetration of 11%. The annual growth rate in the United States is much faster than Canada, exceeding 10%, resulting in some 15% of all Americans having this conduit for information in their homes. CATV, in its basic form, is an outgrowth of the master antenna idea and still offers, however, little more than a greater choice of stations and a better quality picture. The CATV industry itself does not really understand the powerful vehicle that they now possess; however, others very clearly do. The Bell Telephone Company (and AT & T) have already reacted by trying to define the limits of use that CATV companies can make of the Bell facilities that they rent. Also, in Canada, Bell Telephone has announced its desire to be a provider of cable services in competition with, and as an adjunct to, the present CATV offerings. The federal governments, however, have most certainly understood the potential of the CATV system and, through the Federal Communications Commission in the United States and the Canadian Radio-Television Commission in Canada, these governments have acted quickly to.

1. gain absolute jurisdiction over CATV

2. dictate interim policy designed to maintain the status quo, while settling future policy direction

3. to fund projects to learn about the advantages and disadvantages, benefits and problems associated with the blossoming CATV industry and with North America’s rapid growth towards the Wired City

4. limit foreign ownership of CATV and CATV associated companies

5. to “trial balloon” projected policy

The result has been confusing, to say the least. The CATV companies have found it difficult to make and carry out their fiscal plans with the governments waffling on decisions, being unclear in stating policy, and injecting new demands on the companies, demands which are either uneconomic or unfeasible, or both.

WHAT ARE THE CONCERNS OF THE GOVERNMENTS?

Is the broadband potential of the CATV cable itself a threat to the communications authority of a Bell Telephone company? To some degree.

Is the local distribution of distant television/radio signals infringing on the rights of native broadcasters and disturbing the business economics of the individual broadcaster? There are examples of these symptoms.

But, the real impact, the real concern, is much more significant than these. The concern is.

1. the quality of services to the general public

2. the protection of individual rights (privacy, security, freedoms re: race, colour and creed)

3. the quality of distribution throughout the nation

4. protection of national interests

5. disruption in the economics of related industries

By discussing the problems associated with the industry, and the great concerns being shown by the two major governments, I hope to underline the tremendous potential that this Wired City concept holds.

Now, let’s look at the types of services that one can envisage in the Wired City.

First of all, one has to look at an evolving CATV technology. The technology evolves through the following stages:

One-way service: This is simply a TV set, possibly with a converter to give it expanded capacity and offering up to 30 or more channels of information services.

Subscriber Response Systems: This contains a two-way cable operation, operating through a standard TV set, with a small response terminal, probably with not more than twelve function keys for subscriber response

Electronic Information Services: At this stage, we envisage a television set with a rather expansive keyboard and a two-way system, capable of very substantial two-way interaction between the user and the service.

Each of these stages involves substantial capital investment by the cable company in upgrading its plant facilities. For example, a simple amplifier upgrade, plus some re-wiring, may cost as much as $2-3 million dollars and take as long as two years to complete. When one talks of having a two-way cable system capability, this involves another substantial capital outlay plus associated technologies to make the capability functional. This could include, for example, frame grabbing technology, which allows the user to freeze information on the face of the television screen in order to examine it and interact with it. Each of these stages, as well, presents a more complex interface between the man and the system. These human interactions with electronic systems of this type require extensive research to understand human behavioural patterns and response expectations. To give you an example of the complexity of this research activity, a group of experts at MIT have been working in a “man-machine laboratory” for in excess of five years now, studying the man-machine interface problem. They use automatic and electronic means to research group discussions and behavioural patterns within those, and to check out such things as the use of cable television for remote diagnosis of patients by doctors from a central location. A multi million dollar project to test out various concepts of the Wired City was just completed in Reston, Virginia, financed by The Mitre Corporation, and Gulf & Western Company.

Consequently, the time horizon over which we view this development is subject to.

1. the technological state of the art

2. the economics of provision

3. the user rate of acceptance

In concert with this technological development, we envisage a development of services to accompany it. These services would use the enhanced technological capability as they evolve, and as we learn more about their development. Some of the criteria that would govern the development of these various services would be…

1. service economics

2. user acceptance

3. limits of viability

However, one thing is clear. that a number of services will be provided to the user at his convenience, subject to his choice and allowing for his optional participation. The audio visual medium will keep him very much involved. The user in this context may be an individual, a company, or an institution.

One can identify in excess of 180 different applications that can be married to the cable technology. These span a lot of areas, including education, law enforcement, medical care, unemployment, traffic,

and utilities management. Put yourself in a dream world and think about catalogue shopping in-the-home, presenting a whole new vista for merchandisers. Or, consider your utility meters, water, gas and oil, read automatically by the local supplier. Or, consider delivering banking and credit services into your living room.

Let’s now try and put this technological and application or service development in some perspective, by viewing some specific examples.

First of all, let’s look at the field of education. One can envisage offering the following broad range of products:

1. Elementary and secondary classroom instruction, either on a group or individual basis.

2. College and University degree courses in the “Open University” concept.

3. Job training and re-training.

4. Specialized training for the handicapped, the gifted, the slow learners, prisoners, professionals and the unemployed.

Why Should These Products Have a Market? The answers are fairly straightforward.

1. Advancing technology is obsoleting or changing job training requirements continually.

2. People change jobs regularly today and the old concept of a career for a lifetime is virtually dead.

3. There is an increasing amount of leisure time, a void that society must fill.

4. The high level of education that we are handing to our young people today leads to a thirst for more knowledge and an interest in on-going education.

5. There is a need to translate the formal education process into the real world’s needs, that is, the formal schooling we get to the age of, say 25, is really inadequate preparation for a lifetime of fulfilling career objectives and personal pursuits.

Some of these educational offerings have been offered in a very limited way, using the one-way concept. For example, in Toronto, Ryerson Polytechnical Institute offered degree courses using FM-radio, an optional set of books, and classroom time on weekends.

The course was offered to:

1. those interested in just listening to the programs

2. those interested in listening to the programs and receiving the texts

3. those interested in completing the entire degree process

While that particular experiment has not been an economic success, certain behavioural patterns have been observed, and it is believed that this could be extrapolated into quite a broad-scale offering.

The problems in bringing education into the home, office, or institution, through CATV, are many. First of all, the individual has differences in the level of education, commitment, motivation and sophistication.

Secondly, the CATV system itself has many shortcomings:

1. the channel capacity and its ownership

2. limited cable penetration to date

3. an inadequate demography

4. the quality of current cablecasting

Thirdly, educators themselves pose a problem.

1. faculty resistance

2. legal and copyright on programming

3. pricing inequities

4. the need for non-traditional education, a field in which we do not have a great deal of experience

Finally, the producer of the service, the prime contractor, if you like, has to be able to “put it all together.” He is looking at the following decision criteria:

1. whatever product or services offered must contain a profit for all

2. the product or service must be acceptable to the CRTC or the FCC, or the other regulatory bodies

3. the product must be deliverable within the state of the art, that is, we must have resolved to that point the man-machine interface problems.

4. the product must be packaged to be exported to other CATV companies in North America in order to get the broadest market possible and increase the profitability of the venture.

5. there should be some outside funding sources when one considers the enormous capital investment costs in launching such a service. In terms of capital investment dollars, we are probably talking in the order of $5-6 million dollars. An example to put this capital investment into some perspective is the forthcoming experiment by The Mitre Corporation in Stockton, California, where an initial 2-3 year venture in education to 1,000 selected participants, will cost the American taxpayer, through government funding, close to $5 million dollars.

When one examines the vastness of the undertaking of developing and providing services in Education, one is staggered by the potential of service offerings that span merchandising, utility meter management, group discussions across the country without the limitation of geography, remote medical diagnosis, the monitoring of urban developments to assist the Departments of the Police, local Health units, and fire protection. How do we at SDL see ourselves fitting into this big picture?

Well… as information processors, as people involved in the information industry, we hope to be architects of computer-based systems that will provide the capability to deliver the service, or interface the service, with the CATV system. We wish to act in the role of the prime contractor, developing and coordinating the total service offering using the experience and know-how of the educator and retailer, and translating that into computer-controlled systems that will distribute, through the CATV vehicle, these products and services to homes, industry, and institutions.

Obviously, everyone in the piece has to make a profit, and everyone in the piece has to have a motivation for being involved.

We think it is clear that there is motivation and profit for all, and that the market and its implications are too great to ignore.