General Instrument cranks out first 10,000 digital set-top boxes.

PHILADELPHIA - General Instrument Corp. said 10,000 digital set-tops cruised off its Taiwanese manufacturing line last week, opening a digital floodgate of new applications and revenue opportunities to MSOs in waiting.

"The plan is to get to 50,000 units within 60 days," said Ed Breen, president of GI's Eastern Operations Division, during the manufacturer's "digital deployment day" here last week.

In May, GI locked down orders with Tele-Communications Inc. for 1 million set-tops, with Cox Cable Communications for 350,000 units and with Comcast Corp. for 300,000.

At the time, a beaming Breen described the windfall as having "birthed the elephant," referring to the heft of the orders and the fact that elephants gestate for two years before entering the world.

By the end of the year, GI will birth "a couple hundred thousand" of those elephants, as it starts to fill a four-year, 3.5 million-order backlog.

Last month, the company added 78 small cable operators to its order list, with nods for another half-million set-tops.

GI is still seeking manufacturing licensees to augment arrangements with Scientific-Atlanta Inc., Zenith Electronics Corp. and Hewlett-Packard Co., none of which have yet built a set-top that includes GI's licensed property.

In addition, those three licensees may not be in a position to respond quickly as second suppliers to GI's customers due to existing project loads - S-A is considered a front-runner for Time Warner Cable's "Pegasus" set-top design; Zenith is grappling with a $1 billion order from Americast Inc.; and H-P wavered earlier this year on whether or not it will actually build its "Kayak" digital set-top.

Breen said discussions are under way with four Pacific Rim manufacturers. "We've been aggressively pursuing additional licensees, and I think it's safe to say that news will be breaking soon in that area," he said.

Notably, none of the components within GI's end-to-end digital video system that comes off the manufacturing line will include the words "DigiCable" or "DigiCipher," executives here said.

The DigiCable and DigiCipher brand names were promulgated before GI decided to embrace open standards, like MPEG-2, Dolby audio and quadrature amplitude modulation, said GI's Carl Vassia, product manager for digital products.

"Clearly, this system is not proprietary, and the former names were associated in people's minds as a proprietary system, so we changed it," Vassia said.

The new name: the GI MPEG-2 Digital System.

Also during last week's daylong briefing here, GI matched reporters with a dozen digital application providers, spreading the word that "digital is now."

Among them: TCI's Head-end In The Sky, Wink Communications Inc., WorldGate Inc., StarSight TeleCast Inc., Music Choice Inc., CableSoft Inc., Prevue Networks Inc., TVN Inc. and ACTV Inc.

The service providers walked attendees through a bonanza of new services, from interactive channel guides to TV-based Internet access, which could earn operators anywhere from $7 to $15 per customer, per month in additional revenues.

That doesn't include predicated gains in pay-per-view models, when MSOs can take advantage of compression to offer 40 or more movie choices, every half hour, to consumers.

"We think PPV is really going to hit its stride in an environment like digital. You can expand your shelf space and offer more products, and do it at the touch of a button," said Jon Radloff, an account representative for TCI's HITS service.

Breen said his customers are loading up their orders with service options as a sort of insurance policy that also gauges consumer interest.

"It'll take the first year of deployment for operators to figure out which features they want in the box and, until then, you'll see deliveries that are fairly loaded up from a features standpoint," Breen said.

This means that operators could wind up spending about $530 per set-top, using a baseline price of $400 and about $130 in "options."

Which of those services MSOs take remains to be seen. Wink Communications, which offers a low-cost suite of interactive applications "that barely perturbs the price point of the [set-top] box," is close to a win with one top-five MSO, said Mike Capuano, senior marketing manager.

Still, GI executives explained, the transition from analog to digital is affordable on a per-channel basis. "If you look at the headend requirements for an analog headend system, it's about $326,000, but that same 36-channel system could fit in one rack and cost about $43,500 in the digital configuration," said Lindsay Allen, marketing manager of the digital network systems group.

"The thing that comes with digital compression is that it's inherently a more cost- and space-efficient way to deliver signals," he said.