Overbuilds In Progress: Knology's Up, ABI's Down

By LINDA HAUGSTED and JOE ESTRELLA -- Multichannel News, 4/2/2001

A federal court judge in Louisville, Ky., has handed Knology Inc. a court victory, but the overbuilder still can't start construction there.

Judge Thomas Russell of U.S. District Court for the Western District of Kentucky ruled March 20 that Knology has valid legal claims, and granted what was termed "interim relief" on that basis.

"We're very pleased, but we're still studying the decision to see what it really means," said Knology vice president of business development Felix Boccucci. "It's just the first step in a complicated situation."

The legal dispute began six months ago, when Louisville granted Knology a franchise to compete with Insight Communications Co. The incumbent's franchise contains a clause that blocks any overbuilder from starting construction if Insight challenges the new franchisee in court.

Insight filed suit in state court after the franchise was granted, claiming Knology's franchise contained terms that were preferential to Insight's. Knology's federal claim claims that Insight's blocking power violates U.S. telecommunications law.

The state case is still in the pretrial stage, and the federal action-though initially positive for Knology-must still be fully litigated.

Boccucci said the legal uncertainty in Louisville has had no financial effect on his company. He said Knology closed a $93 million round of equity funding in February; the next round would close in April.

"Our performance has been stellar," he said. "We are still able to attract funding."

Other overbuilders have faced capital crunches. American Broadband Inc. last week officially notified Rhode Island that it would not pursue a bid to overbuild Cox Communications Inc. in the state.

Before the pool of capital had evaporated, American Broadband had revealed plans for a $170 million network to provide telephony, video and data to about 80 percent of the state.

In a letter to the state Division of Public Utilities and Carriers, company president Ed Holleran Jr. said the influx of capital to telecommunications competitors has "virtually stopped." The financing agreements the company had in place last year also included clauses that allowed early backers to withdraw if market conditions changed.

As ABI stepped away from the business, WideOpenWest LLC began hooking up beta test subscribers in the Denver suburb of Lakewood, where the overbuilder plans a full launch this week.

"We're going through the process to make sure that everything works," said WideOpenWest spokesman Mike Steinkirchner. "We're trying to make everything perfect, but those beta test customers are receiving the service."

Officials in Lakewood were hoping to resolve the question of a $100,000 letter of credit by late last week, opening the way for WideOpenWest to officially begin competing against AT&T Broadband. The incumbent MSO offers a full suite of enhanced services over its upgraded network there.

WideOpenWest spokeswoman Joan Inman said word of the new entrant had begun to spread among area residents, who have been calling to inquire about the company.

"When we tell them they're going to have choice, they're very happy," she said.

Lakewood is the first link in a planned $500 million network that will cover 13 metropolitan Denver communities and pass some 800,000 consumers.

One of those towns will be Denver, where construction is expected to begin later this year. Local officials said WideOpenWest's launch will help offset last week's news that Tess Communications-a locally based telecom outfit offering video, Internet and phone services in the city's northern suburbs-had filed for Chapter 11 bankruptcy.

"So, it's exciting that WideOpenWest is starting to compete in the Denver market," said Dean Smits, director of the Denver Office of Telecommunications.