Cable Industry Waits for Wired-School Test Results
Cable companies are jumping into the education market, but the outlook is murky and profits are far off
Prodded by government officials, the cable TV companies are wiring the nation's schools for information-age education -- and for information-age revenues.
The latest move came last month when the Washington-based National Cable Television Association announced its plans to install high-speed communications links to more than 3,000 schools by the end of 1996. The plans will "put America's students in the fast lane of the information superhighway," according to a statement released by the association at a July 9 press conference attended by Vice President Al Gore and Federal Communications Commission Chairman Reed Hundt.
However, "it is at least five years before there is any chance of making money" from the industry's school-wiring plans, which may yet be upset by the appearance of rival communications networks, said John Mansell, a consultant with Paul Kagan Associations Inc., a consulting firm based in Carlsbad, Calif.
The new cable school-wiring program is called Cable's High Speed Education Connection. According to a statement from the association, "Local cable companies will equip at least one site in every consenting elementary and secondary school passed by cable with a cable modem providing high-speed access to the Internet." The cable modems will move data at speeds of up to 10,000 kilobytes per second, which is much faster than the 128 kilobytes per second now available from the phone companies' integrated services digital network links.
Despite the generous rhetoric, the cable TV plan "obviously is a business venture," said Liz Laszlo, a spokeswoman for the association. "It's basically providing something that the customer will pay for," she said.
Laszlo declined to say how much the new plan would cost the cable industry, which is already installing and upgrading high-speed networks through the nation's suburbs. She also declined to give the revenues expected from schools using cable modems.
But the cost of the plan is likely very low, said Mike Roberts, vice president at Educom, a non-profit, education-technology consortium based in Washington. The cable companies are already wiring the nation's 110 million households and 50 million businesses, so it doesn't cost much more to extend the cable networks from the curbside into 3,000 of the nation's 70,000 school sites, he said.
One significant benefit of the plan for the industry is better relations with the White House, said Roberts. "They are trying to keep up good relations" by sharing with the vice president the good publicity generated by the July 9 education announcement, said Roberts.
Those good relations are needed because the landmark telecommunications deregulation act passed in February requires the gradual lifting of price caps on cable TV rates, Roberts said. During negotiations last year over the act, Gore opposed removal of the price caps, which had been imposed by a Democratic-controlled Congress, despite a veto by President George Bush.
Also, industry executives and officials in the FCC are negotiating the details of the "e-rate." The telecom reform act requires cable and telephone companies to offer schools and libraries cheap communications rates, dubbed the education rate or e-rate. Industry officials are leery of the e-rate plan, saying it will create unneeded government regulation of the infotech market.
And President Bill Clinton and Vice President Gore have made much political headway by calling for greater use of information technology in the nation's schools. However, the administration has declined to ask for increases in the federal budget for school-based information technology, now running at roughly $1 billion per year.
Despite the industry-led hoopla of the school-wiring plan, observers are skeptical that the cable TV industry can quickly earn much revenue from wiring the nation's schools.
"The cable guys have to have deep pockets and wait for a while," before any profits are realized, said Charles Blaschke, president of Education Turnkey Systems Inc., a consulting company in Falls Church, Va. The cable companies must offer attractive electronic education products, such as software and video programming, and must wait for Congress to decide how the products can be freely sold and widely used, yet also be protected from piracy, he said.
Congressional efforts to write a new law governing the use and protection of software and video programming have stalled for this year, partly because telecommunications firms don't want to police their networks for software pirates.
Also, much of the education software on the market is designed for consumers' PCs and must be modified for the Internet or the cable companies' networks, said Roberts.
Moreover, the software companies want as large a piece of the pie as they can get. For example, several software companies including Microsoft Corp., Redmond, Wash., have teamed as the Lightspan Partnership Inc. to develop education-related software. This partnership is also hoping to forge links between schools and parents.
"True reform will come about when you have... a link between the school and the home," said Ilene Rosenthal, general counsel for the Lightspan Partnership, Carlsbad, Calif.
Another hazard facing the cable TV industry is competition from the phone companies and upstart wireless companies.
A consortium of phone companies are rushing to complete development of the asymmetrical digital subscriber line technology, which is designed to multiply by 100 the communications capacity of a normal telephone line. Also, several companies are trying to sell new wireless cable technology -- very high-capacity wireless networks that may cost less than $200 per house to install, said Mansell. Both rivals threaten the cable companies greatest advantage: their ownership and monopoly over the nation's network of high-speed cable links.
Before they can provide education services to the schools, cable companies must also spend extra money to allow their high-capacity cable networks to handle the two-way communications required for Web browsing, said Roberts. Tele-Communications Inc., the nation's largest cable company, has established @Home, which is intended to create a Web service on its cable networks. @Home has been delayed by technical problems, but is now scheduled for rollout late this year with a test program in Sunnyvale, Calif.
TCI will also supplement its @Home service with @School, which will link schools to the Web.
Another problem for cable companies is the likely dominance of content providers, said Roberts. Declining communications costs will cut profits and consumers will use the Web to pick and choose which companies' networks or products they want to buy, he said.
This change will revolutionize the communications industry within 10 years, and put the content providers -- the software and video producers -- in the driving seat, he said.
However, many cable companies such as TCI or Turner Educational Services, Atlanta, are trying to offset this trend by continued investment in TV programming and education-software companies.
Cable companies may be helped if the low-cost, Web-browsing computers are a success. The computers, which are being designed without storage disks and other elements to keep costs at about $500, are touted by companies such as Oracle Corp., Redwood Shores, Calif.
Also, cable companies hope to leverage their cable links to schools and homes by encouraging parents to monitor their childrens' education via the Internet. For example, ETC w/tci, TCI's Washington-based education venture, hopes to use this home-school link to sell educational software to parents, or to show advertising-supported education programming to children.
Given the competition, uncertainties and options, few executives will confidently predict the education market's future. "Everybody wants it to be profitable, but they are all trying to figure out how," said David Byer, an education specialist at the Washington-based Software Publishers Association.