July 27, 1993|By Elizabeth Sanger | Elizabeth Sanger,Newsday
* Intel, the leading maker of computer chips, teamed up in April with Microsoft, the leading software company, and General Instrument Corp., a maker of cable controller equipment, to produce a next-generation converter box. This box, which would let televisions translate huge flows of digital programming, may turn out to be basically a hand-held personal computer.
* That possibility hasn't been missed by the computer makers. Apple's joint venture with IBM, known as Kaleida Labs, has in turn teamed up with Motorola and Scientific-Atlanta to develop software and hardware for delivering interactive and multimedia services to homes.
* Tele-Communications Inc., the nation's largest cable system, is creating new programming with 20th Century-Fox and invested $100 million in Carolco Pictures to ensure access to first-run movies for pay-per-view.
But as corporate wedding notices fill the business pages, some fear that not all the alliances are made in heaven.
"People are racing to get deals in place before society wakes up and understands what's going on," said John Sculley, chairman of Apple Computer, which has made its share of alliances. What's going on, in Mr. Sculley's view, is that the world's biggest businesses are teaming up to create effective monopolies that will dictate the shape and scope of the Information Revolution.
This could "inhibit the benefits of these breakthrough technologies for literally decades," he said.
But that view is countered by Nathan Myhrvold, a Microsoft executive who helps forge strategic alliances.
"An open, widely accessible system is essential to success," he said. "Anybody who tries to win with a closed proprietary system which limits the ability of entrepreneurs to create new products and services will lose in the competitive marketplace."
The marketplace, in fact, has turned into a strikingly fluid dance of competition and cooperation, with cable and phone companies setting the pace. Partners in one arena may try to trip each other up in another arena.
rTC That's because phone and cable companies are assessing their strengths city by city, choosing mutually beneficial alliances in one place and declaring war in another.
"What will appear across this country is a patchwork of different companies providing different services in a different way," said Ray Smith, chief executive officer of Bell Atlantic, the Baby Bell serving the mid-Atlantic and parent of Chesapeake & Potomac Telephone Co. of Maryland.
Mr. Smith said consumers will benefit from having "two robust service competitors" in most markets.
"It will be very difficult five years from now to say who is the telephone company, who is the cable company and who is the information company," he said. "Everyone will have a choice."
Phone company pragmatism
Bell Atlantic exemplifies the pragmatic phone company approach. It's working with Sammons Communications, the cable operator in Northern New Jersey, to provide video services; farther south, in Dover Township, it's competing against Adelphia, the dominant provider, through an alliance with FutureVision, an outside cable programmer.
And finally, by starting its own programming operation, it is preparing for the day when it can offer TV in its own area.
More than anything else, what's driving the phone companies into alliances with cable companies is the federal ban that prohibits phone companies from providing video programming directly to subscribers in their own service areas.
US West, for instance, can't operate cable in its 14-state region, but it can own or invest in a cable system (such as Time Warner's) -- elsewhere.
St. Louis-based Southwestern Bell tried another approach, buying two cable systems near Washington, D.C.
As for the cable companies, they want to benefit from the phone companies' leading-edge computer technology. Powerful computers, known as switches, will be the building blocks of interactive television, allowing thousands of viewers to make spur-of-the-moment choices all at once.
Cable companies fear that if phone companies could provide cable in their own service areas, they would set artificially low prices, subsidized by local phone service, and push cable companies out of business.
But first the federal ban on phone companies providing local cable service would have to be lifted. That could happen in court or Congress in the next few years.
ABOUT THIS SERIES
Yesterday: Television, telephones and computers converge to form an information revolution
Today: Companies join forces, seeking a fortune in information technology
MA Tomorrow: Will information revolution strip users of privacy?
