News

MDU Supplier WSNet Branches Out

10/21/2001 8:00 PM Eastern

WSNet Inc., a wholesale provider of digital programming to multiple dwelling units and rural cable systems, is launching a new service that it hopes will allow it to branch out to include large MSO customers with a substantial rural presence.

WSNet has used analog technology to deliver programming to operators and MDUs. Chief operating officer Stuart Lefkowitz said that the company is in the midst of switching to digital technology — using Blonder Tongue Inc.'s quadrature amplitude modulation (QAM) equipment — that would allow operators to offer up to 200 channels of digital video and music programming for a relatively low cost.

"In rural cable areas, this is really the answer to being competitive with DBS," Lefkowitz said. "It's a relatively small investment compared to building out plant."

WSNet raised about $30 million in a second round of private financing to roll out the technology.

Rural operators have been caught in a dilemma: They've been hit hard by direct-broadcast satellite providers that can offer hundreds of channels at relatively low prices, but the small amount of revenue they can extract from their systems isn't enough to justify the cost of the upgrades needed to compete with DBS.

But with the WSNet solution, operators not only can offer additional channels at a lower cost, they now have an advantage over DBS in that they can provide local channels as well.

"Obviously there is competition there," Lefkowitz said. "But we found that in rural markets, the customer likes to deal with a known entity."

BUFORD ON BOARD

Buford Media LLC CEO Ben Hooks said he plans to test the WSNet service in a 550-subscriber system in Greers Ferry, Ark., over the next few weeks. Hooks said the WSNet solution offers a substantial savings for small operators.

Hooks estimated that upgrading a 500-subscriber cable system with 330-megahertz plant to digital could cost several thousand dollars per subscriber. In contrast, the WSNet solution would cost roughly $642 per subscriber.

The WSNet technology is not for everybody, said Hooks. Ideally, it's is suited to operators with no available channel capacity who don't want to shell out the money for a complete rebuild.

"Where WSNet gets attractive is where the bandwidth is used up to the point where there is no more capacity," Hooks said. "If you don't have room, you have to create bandwidth and the only way to do that is to remove some core services. WSNet has those core services digitized."

With WSNet, an operator could expand a 35-channel analog system to more than 200 channels without having to rebuild their system, Hooks added.

To offer WSNet's system, operators must spend between $10,000 and $15,000 for headend equipment and to install new digital boxes in each home and for each television set. While digital set-tops can cost around $250 each, that's still less than a full-blown rebuild, Hooks said.

The downside is the relatively high cost of programming: about $12.25 per month, per subscriber, compared to $8.50 per month per customer from rural cable cooperatives.

Hooks said he is still negotiating with WSNet regarding programming costs.

"The application fits in some cases and not others," Hooks said. "The programming costs are fairly high, but it works when you're faced with a rebuild and you're out of capacity. If a system has several choices from a margin standpoint and has additional bandwidth, this would not be the choice."

Hooks said it will take about 30 days to evaluate the WSNet system in the Greers Ferry test, adding that it is unlikely that he will use the service for all of his 6,800 subscribers in Arkansas.

Lefkowitz said WSNet also is widening its scope to include major MSOs with a rural component. Although Lefkowitz would not name names, that strategy would seem to be aimed at Cox Communications Inc. and Charter Communications Inc.

WSNet also has a connection to another rural MSO — Galaxy Telecom Inc. Galaxy, which recently said it reached an agreement to swap 97 percent of its equity for debt, is controlled by Romulus Holdings Inc., a New Rochelle, N.Y.-based investment company that specializes in distressed firms. Romulus had been buying up Galaxy bonds at low prices and according to sources will end up with most of Galaxy's equity.

Romulus also is one of WSNet's largest shareholders. Lefkowitz would not comment on Galaxy or Romulus.

He said WSNet has already signed on one "major" MSO, but declined to identify it.

March