USDTV Targeting 2 Million Subscribers Within 5 Years

USDTV’s product plans lay dormant for nearly a year before being revived this fall with the injection of $25.75 million from 6 broadcasters. Those plans come as USDTV expands its service into the Dallas market, where 28 local channels and 12 digital cable channels are being transmitted. The service, which carries a $19.95 monthly fee, also is available in Albuquerque, Las Vegas and Salt Lake City, where USDTV leases spare DTV capacity from local broadcasters to deliver a mix of HD cable networks and local programming.

The new STB will be manufactured by Hisense, which built USDTV’s first-generation model, and features 2 USB 2.0 ports and a slot for inserting the optional hard drive, COO Richard Johnson said. Hardware and installation will continue to be free, but the storage option -- for future on-demand music and movie service offerings -- will carry an additional $5-$10 monthly fee, Johnson said.

Pricing for the transcoder, which attaches to the current STB through a dongle, will be less than $25, Johnson said. The transcoder contains an Analog Devices 600 MHZ DSP chip, he said. Lab tests have shown that use of MPEG-4 technology with the USDTV service will result in a 60% improvement in bandwidth efficiency, Johnson said.

In expanding the service, USDTV expects its subscriber acquisition costs (SACs) to average $300-$325 over 5 years, with average monthly revenue per user (ARPU) of $32, Lindsley said. Churn is expected to be in the 2- 2.5% range, he said. The infrastructure cost of installing the service in a given market is about $100,000, which doesn’t include lease fees for broadcast spectrum, Johnson said. Local broadcasters receive a share of the $19.95 monthly fee, he said. “Once we're in a given market, it’s difficult to draft us because we've picked up most of the available spectrum from broadcasters for our service,” Johnson said.

Retailers also will qualify for a share of the revenue, but Lindsley wouldn’t provide specifics. The service is sold through about 40 Wal-Mart stores in the USDTV’s 4 markets, including 29 in metropolitan Dallas, Johnson said. Wal-Mart’s participation will expand to 48 stores in the Dallas market in “the next several months,” he said. USDTV also is selling the service through R.C. Willey stores in Las Vegas and Salt Lake City, Johnson said.

In adding services such as VoD and storage options, Lindsley conceded that USDTV is balancing a low-cost alternative for receiving DTV against finding new revenue streams. “The opportunity for us is to provide a low-cost alternative,” Lindsley said.

But USDTV’s financial backers also want a return on their investments, said Johnson, among the few speakers representing a privately held company at a conference dominated by those traded publicly. Investors want USDTV to broaden its reach in the financial markets, although there are no immediate plans for an IPO, Johnson said.

UBS Conference Notebook…

RCN expects to reach an agreement on the sale of operations in L.A. within the next 1-2 months and also has put its business in San Francisco on the block, CFO Michael Sicoli said. The 2 markets combined account for about 20,000 of the competitive local exchange carrier’s (CLEC) 400,000 subscribers, with most of those in San Francisco, he said. RCN will weigh its options for the Chicago market, where it has 77,000 customers, as it sharpens focus on its core market in the northeast U.S., company officials said. The sell-off of some businesses comes as RCN moves to deliver on plans for generating $25 million in savings in 2006, partly through a 5-10% reduction in its workforce of 2,000 employees, Sicoli said. Combining some operations, RCN is closing its former Princeton, N.J., hq, which has 120 employees, in 2006, and shifting operations to a Herndon, Va., facility. That move is expected to trim 30-40 jobs, Sicoli said. Other savings will come from renegotiations of RCN’s retransmission agreements with programmers, 150 of which have been completed year-to-date including those with major networks, CEO Peter Aquino said. At the same time, RCN this week announced plans to buy Consolidated Edison’s communications subsidiary for $32 million cash. The acquisition give RCN access to 560 fiber miles in the N.Y. area and 10 river crossings, allowing the CLEC to extend its reach into northern N.J., White Plains, N.Y., and Stamford, Conn., Aquino said. The N.Y.-based Consolidated Edison operation, which has 75 employees, generates about $40 million in annual revenue and had a negative $7.8 million in earnings before interest, taxes, depreciation and amortization (EBITDA) the first 9 months of this year, company officials said. Among the Con Ed unit’s major customers are 2-3 investment banking firms that use its fiber network for trading, Aquino said. RCN also is weighing its options for a 48% stake it owns in Mexico’s Megacable, which has about 600,000 subscribers and passes 2.1 million homes. RCN has owned a stake in Megacable about 10 years, but only took a hard look at it after emerging from bankruptcy protection in Dec. 2004, Chmn. James Mooney said. Megacable has annual revenues of about $200 million, he said. “We're looking at all our options from exiting to partnering to make sure we're maximizing shareholder value from it,” Mooney said. In generating high per-user revenue, RCN has focused on selling triple play packages of video, telephony and broadband. About 67% of its customers are triple subscribers, up from 62% a year ago. The average revenue generating unit per customer rose to 2.13 units in the 3rd quarter from 2.04 a year earlier.

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AT&T has chosen a market and will begin testing its Project Lightspeed IPTV service in early 2006, said Daniel Maloney, pres. of Motorola’s Connected Home Solutions Div., which supplying set-top boxes for the service. Maloney declined to identify the market involved in the test. Motorola also is the exclusive supplier of STBs for Verizon’s FiOS IPTV service that formally launched in Keller, Tex. and Herndon, Va. and is being tested in other markets. Meanwhile, Motorola is conducting a test of its iRadio service with 600 subscribers in the Washington, D.C., and Southern Cal. markets en route to an expected national rollout in 2006, Maloney said. The planned Internet radio service is designed to allow users to store music on select Motorola cellphones and is expected to debut in the first quarter with more than 500 channels. Motorola is negotiating with a range of Internet radio services including Yahoo, AOL and Radio Free Virgin. The service is expected to cost $5.99-$6.99 a month, although those involved in the test aren’t being charged, spokeswoman said. The iRadio software resides on a PC, enabling the user to download a music playlist from up to 6 channels. The content will be transferred to a USB- connected cellphone. The service has been demonstrated with Motorola’s ES80 cellphone, which features a Secure Digital card slot that can handle up to 2 GB cards, a stereo headphone jack and a 1.2-megapixel camera. The ES80 sells for about $250.

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The board of Virgin Mobile rejected a $1.42 billion takeover approach from U.K. cable operator NTL, saying it undervalues the company. Virgin Mobile is 72% owned by Richard Branson, who had already agreed to swap his holdings for NTL stock and some cash if a deal proceeded. NTL approached Virgin Mobile, the U.K.’s 5th-largest mobile operator, with a cash or shares buyout offer on Mon., aiming to create a TV, Internet, fixed-line and mobile phone powerhouse under the Virgin brand. “The board has concluded that the potential offer materially undervalues Virgin Mobile,” that company said in a statement. The board’s decision came a day after NTL Chmn. James Mooney touted the proposed acquisition at the UBS conference (CED Dec 8 p2), maintaining that the cellphone could be part of a “quadruple play” of services that includes TV, fixed-line telephony and broadband.