In addition to its established role as the leading provider of video transmission to the media industry, Vyvx Services in 1997 captured 40 percent of the television ad distribution market. A special store-and-forward network will be deployed in 1998 for these and other applications

Network Applications recorded an operating loss in 1997. A portion of the loss involved $49.8 million of fourth-quarter charges related to the previously announced decision to sell the learning content business, and the write-down of assets and the development expenses associated with certain advanced applications.

Key Points
*Vyvx Services strengthened its role as the nation’s leading provider of video transmission to the media industry, handling approximately 80 percent of the professional sports market and 65 percent of all live televised events in the United States, while capturing 40 percent of the television ad distribution market. In 1997, we deployed receiver sites in London, Paris and Munich for fully automated digital video distribution to those sites via fiber or satellite.

*Global Access Services expanded its role of providing business connectivity through audio- and videoconferencing, business television and broadcast fax. It launched a trial of a desktop videoconferencing system; integrated audio- and videoconferencing services for small group conferences; announced the availability of multipoint videoconferences in Europe; and acquired a Dallas-based company, allowing domestic expansion of its strong international business television unit.

*We are developing a store-and-forward network for new applications that will use both satellite and the Network unit’s ATM infrastructure over fiber. The store-and-forward network, scheduled for deployment in 1998, will distribute advertising, news clips, sports highlights and training videos.

* In the fourth quarter, we announced our decision to sell our learning content business. The sale would support our strategy of pursuing network-oriented solutions, but not developing content. We kept our 50 percent ownership in PBS The Business Channel, with Public Broadcasting Service providing content and Williams delivering the technology and transport. This application will use the new store-and-forward network.

* Vyvx Services developed ChoiceSeat, a stadium-seat mounted computer screen that allows sports fans to view live games from various camera angles, retrieve statistics, play video games, and purchase items ranging from tickets to hot dogs. ChoiceSeat was tested during the 1997 home games of the San Diego Padres and drew great publicity and acceptance at NFL Super Bowl XXXII.

Outlook
Network Applications continues to grow rapidly while investing in development of its customer base, which puts pressure on profitability. However, this business unit should
significantly narrow the gap toward achieving profitability in 1998. This unit offers value-added services that leverage our significant multimedia capabilities and increase awareness of our broad capabilities.

Estimated 1998 capital expenditures for Network Applications are $55 million, primarily for new systems development, implementing the store-and-forward network, and international expansion.

Network Applications will focus its mature Vyvx Services’ video business on improved profitability for 1998 and leverage its customer base into new applications. This new year should be an exciting one for the media business because of the new digital bandwidth given to the broadcasters and the move to a digital infrastructure in the cable access television industry. It should take only minor investments for network applications to participate in the growth expected from those changes.

We will continue to invest in and grow Network Applications’ other businesses, which are still much less developed. Global Access Services’ offerings, such as videoconferencing and teleservices, have exciting growth opportunities, while its audioconferencing business has become the workhorse. Profitability can be significantly improved through automation and cross-selling through Communications Solutions’ large customer base.