Americast, the television venture formed by four regional telephone companies and Walt Disney Co., agreed Thursday to purchase $1 billion worth of digital set-top boxes from Zenith Electronics Corp., whose stock price jumped 50% on the news.
The 3 million boxes will be put to use the middle of next year, when the first of Americast's partners, BellSouth Corp., starts to bundle phone and digital television services for sale to its customers in New Orleans in competition with cable operators. Roll-outs by Americast's three other partners, Ameritech, SBC Communications and GTE Corp., will follow.
"There has been talk about the telephone companies abandoning their video strategy, but this is evidence that they are not--at least not our partners," said Stephen A. Weiswasser, chief executive of Americast, which is based in Los Angeles. "This is the keystone of Americast's delivery."
On Wall Street, Zenith shares jumped $5.50 to $16.875, the most actively traded issue on the New York Stock Exchange.
Analysts say the announcement Thursday helps allay fears that the telephone companies are halfhearted in their intentions toward television.
"They were suffering a loss of faith," said Boyd Peterson, an analyst at the Yankee Group in Boston. "This helps legitimize their strategy, showing programmers they are trying to do business with that they are serious players."
Still, some analysts say the orders could easily be canceled and that the Americast partners have not been aggressively applying for licenses needed to compete in the television business.
Last spring, the regional Bell companies divided into two camps--Tele-TV and Americast--to devise video strategies in anticipation of telecommunications reforms. New federal laws passed in February eliminated barriers blocking the telephone and cable companies' entry into each other's businesses.
Tele-TV began with a blast, hiring former CBS Chief Howard Stringer as its head and placing a $1-billion order for digital boxes from Thompson Consumer Electronics on behalf of partners Nynex, Bell Atlantic and Pacific Telesis.
But mergers and shifting priorities among the Tele-TV partners have since dampened the momentum. Earlier this summer, Tele-TV's budget was slashed and its plans for offering interactive television were scaled back after Nynex and Bell Atlantic announced plans to merge and Americast partner SBC said it would acquire Pacific Telesis.
Pacific Telesis, the parent of Pacific Bell, is still set to be the first of the Baby Bells to offer digital television to its customers early next year in Los Angeles, but the possibility that its parent, SBC, might pull it out of Tele-TV set in motion fresh rumors that the Bell video ventures might merge. That conclusion seemed even more inevitable when Southern New England Telecommunications recently signed up with Americast, even though Tele-TV had a clear head start in signing deals with cable channels and for the boxes. Bell Atlantic and Nynex are on board to follow Pacific Telesis' roll-out next year.
Unlike Tele-TV, whose partners have committed to using a microwave technology to deliver television service to the home, Americast partners have not adopted a single approach. For instance, while BellSouth is using microwave signals to deliver television in New Orleans, Ameritech is so far concentrating on laying cable wires in certain Chicago suburbs to start television delivery. The approaches of GTE and SBC are less clear. As a result, the boxes ordered from Zenith must accommodate a variety of technologies, including cable, direct-broadcast satellite and microwave.
"Our partners from the beginning have protected the rights to use different platforms," Weiswasser said, noting that Americast and Tele-TV were actively talking about ways to work together and cross-license products, short of merging.
Zenith has not registered an annual profit since 1988, struggling against an onslaught of competition in its core business of manufacturing TV sets. Its stock has been slipping for months, but it was buoyed by the promise of a big paycheck from Americast.