SoftNet Slashes ISP Channel Operations10/22/2000 8:00 PM Eastern
Citing a post-consolidation dearth of small cable systems, SoftNet Systems Inc. last week said it trimmed the work force at its ISP Channel unit by 33 percent and will shift resources to support SoftNet's wireless-broadband data efforts.
ISP Channel's original business strategy was to peddle turnkey high-speed cable-modem services and localized content to small- and mid-sized cable operators.
As part of its business plan, ISP Channel also absorbs a portion of the capital and operating costs associated with cable-modem service deployments in exchange for a revenue-sharing agreement with the operator. The company currently serves about 33,000 cable-modem customers involving 90 systems.
SoftNet said it would complete a restructuring at ISP Channel by the end of the year. ISP Channel's founder, Ian B. Aaron, resigned as president in August.
SoftNet chairman Lawrence Brilliant said in a statement that cable consolidation made it difficult for ISP Channel to achieve economies of scale and remain profitable.
"When the Internet-over-cable industry began, the marketplace was remarkably different," Brilliant said. "In 1998, there were thousands of small cable systems, which, in the aggregate, comprised nearly 25 million homes passed."
But 1999 marked a change in the company's business landscape, as MSOs snapped up independent cable operators.
"Without these economies of scale, the current business model will not lead ISP Channel to profitability," Brilliant said.
ISP Channel's remaining resources will focus on Aerzone, a new wireless-broadband subsidiary that has forged development deals with United Airlines Corp. and Delta Air Lines. Aerzone will use the Institute of Electrical and Electronics Engineers "IEEE 802.11" technology to deliver two-way speeds as high as 11 megabits per second.
There are questions about how ISP Channel plans to support existing cable-modem customers and operator affiliates. SoftNet recently forecasted no revenue for ISP Channel in fiscal year 2001, and said it would spend about $30 million on the restructuring of the subsidiary, which will be "cash neutral" by the first quarter of 2001. SoftNet estimated Aerzone would will take in $19.4 million next year.
SoftNet officials were unavailable for additional comment by press time.
Mediacom LLC cut an exclusive 10-year deal with SoftNet in 1999 that involved access to more than 750,000 potential cable-modem subscribers. As an "anchor tenant," Mediacom also obtained a 13.7-percent stake in SoftNet, and Mediacom chairman Rocco Commisso became a SoftNet director.
Commisso was not immediately available to discuss the ISP Channel matter and the effect, if any, it would have on Mediacom's high-speed plans. As of June 30, Mediacom reported it had 250,000 data-ready homes passes, 3,600 cable modem customers and 4,100 dial-up subs.
ISP Channel isn't the first company with a similar turnkey strategy to encounter problems. One of the first, Community Networks Inc., was folded by parent company BTG Inc. in 1997.
Charter Communications Inc.-backed High Speed Access Corp. has complemented exurban efforts with a service model that builds on larger cities and systems, notably the Insight Communications system in Columbus, Ohio, and Charter's Birmingham, Ala., and Long Beach, Calif. properties, an HSA spokesman said.
As of June 30, HSA reported 41,000 residential-cable modem subscribers, 6.6 million homes under contract and 2.9 marketable households.