This Isn't The Response Tv Answer Expected

The interactive-TV outfit irked the FCC, and rivals are gaining

Back in his hometown of Monterrey, Fernando Morales' friends sometimes refer to him as the Steve Jobs of Mexico. The 45-year-old Morales has a slew of innovations to his name, including a system to synchronize traffic lights by radio signals. So after he got a U.S. patent in 1986 for a wireless network that would let television viewers talk back to their sets, he had no trouble raising $80 million for it. He headed north, established TV Answer Inc. in Reston, Va., and recruited two Washington insiders to the board: former Federal Communications Commission Chairman Mark S. Fowler and George A. Keyworth, President Reagan's science adviser.

Morales has an enticing vision for "interactive" TV. By pointing a zapper at a TV-top box, viewers would respond to polls, order products, and play games against other viewers across the country. Signals would go from the receiver box to a local relay station and then via satellite to TV Answer. The company would collect fees from advertisers or, in some cases, from viewers. The plan is to begin operation in early 1993. By building a nationwide wireless network, Morales says, "what we're doing is inventing an industry."

But the tale of the Mexican inventor who makes good in the U.S. has developed some plot complications. Morales' first plan--to get the FCC to award him a national allocation of radio frequencies for his system--fell flat. Plan B is to get people across the country to apply for licenses, then become TV Answer franchisees. But it ran into static in April, when FCC commissioners questioned TV Answer's recruitment methods.

STRETCHED THIN? These setbacks--coming just as TV Answer is asking companies such as Hewlett-Packard Co. and Sony Corp. to put up some of the $200 million needed to launch the system--have raised questions about Morales' leadership. On the eve of a June 19 meeting, directors were considering whether to reduce his day-to-day duties. Tomas Milmo, TV Answer's chairman and a major shareholder in the $1.7 billion Cementos Mexicanos, says he felt the technically savvy CEO was stretched too thin and needed help. Other directors wanted Morales to quit as CEO. Morales, who thinks he has done a good job, said he had no intention of stepping down but would like to lighten his workload.

Morales' first stumble was underestimating what it would take to get onto the airwaves. With Fowler and Keyworth on board, he figured it would be a cinch. Wrong. Instead of granting TV Answer one nationwide license for the necessary spectrum, on Jan. 16 the FCC decided to hand out two licenses for each of 734 markets around the country. Worse, it chose to speed things up by allocating licenses by lottery rather than by judging applicants on their merits.

That vastly complicated the job of putting together a nationwide service and prompted Morales to dream up his recruitment campaign. In full-page ads in national publications, he encouraged average Americans to enter the lotter and--if they won--to become the TV Answer franchisees for their areas. The ads trumpeted the lottery as the "business opportunity of a lifetime," akin to the cellular lotteries in the 1980s that produced overnight millionaires.

TOLD HIM SO. Former FCC Chairman Fowler says he warned Morales that his old agency might look askance at the ads, which failed to point out how remote the chances of winning were. But Morales went ahead anyway. Sure enough, the FCC is now preparing to warn consumers that the lottery--which costs $1,400 to enter--is far from surefire. Morales withdrew the ads, which had drawn thousands of calls, but says he still believes they were accurate.

Morales' lottery plan has another flaw: Winners may not choose to ally with TV Answer. NBC Inc., for instance, has expressed interest in the same spectrum for unspecified purposes. Meanwhile, plenty of heavyweights--including IBM, Time Warner Inc., and other cable companies--are gearing up versions of interactive TV that don't require airwave licenses.

TV Answer, like the other players, is still trying to come up with compelling ideas for interactive programming. Customers will be asked to pay $700 for a converter box and zapper that will allow home banking, bill-paying, interactive games, and electronic polling. But those services, already offered on personal-computer networks such as Prodigy Services Co., have not taken America by storm. "This is a classic example of technology looking for a market," says Gary H. Arlen, a consultant who has done work for a rival interactive-TV company. Even TV Answer directors are cautious. "It's either a big business or no business at all," admits Keyworth.

Still, TV Answer has wealthy, patient Mexican backers. Morales and three investment groups--one headed by Milmo, another by Mexican investment bank Invworld, and another by a Coca-Cola Co. bottler--control 90% of the stock. Their support and Morales' technological expertise make it hard to dismiss TV Answer. But the history of high-tech communications is littered with novel ideas that couldn't find a market. That leaves a lot of questions about TV Answer.

Before it's here, it's on the Bloomberg Terminal.