News

Overbuilders Pull Back in Four States

7/29/2001 8:00 PM Eastern

The overbuilder contraction continued last week as two overbuilders, TotaLINK and WideOpenWest LLC, each brought projects to a halt. Both companies cited money problems as the reason behind their decisions.

WideOpenWest, the fastest-growing overbuilder, said it would delay construction plans in Texas and Minnesota to focus on the 116 franchises it's buying from SBC Communications Inc.'s Ameritech New Media cable unit.

The company received an assist from the Federal Trade Commission last week when the agency said it would allow the early termination of the waiting period mandated by the Hart-Scott-Rodino Act. That should hasten closing its $300-million acquisition from SBC Communications Inc.'s ANM unit.

"They [the FTC] took a look and said, 'Go ahead,' " WOW spokeswoman Betsy Edwards said. "With a company our size, it's unlikely we'd pose a competitive threat to anybody."

Eleven communities in three states have agreed to transfer their ANM cable franchises to WOW, becoming the first local jurisdictions to sign off on a deal that will give the Denver-based startup 310,000 cable subscribers in Michigan, Ohio and Illinois.

Communities agreeing to the transfers include Crestwood, Robbins and DuPage, Ill.; Garfield Heights, Riverlea, Prairie Township, Westlake, Valleyview and Franklin Township, Ohio; and Clinton Township and Utica, Mich.

"These communities are showing their confidence in WOW's qualifications by approving these franchise transfers in record time," WOW president Mark Haverkate said.

With most of the ANM properties already two-way capable, WOW expects to put pressure on incumbent cable operators by immediately rolling out high-speed Internet access.

But the acquisition has forced WOW put a bookmark in its plans for the Texas market.

The company informed 22 local governments in the state — including Dallas suburbs Fort Worth, Arlington and Irving — that difficulty raising capital has cause it to suspend plans to build broadband networks in those communities.

Community officials in Fort Worth were seemingly willing to accept WOW's argument that nervous capital markets make it impossible to both complete the ANM acquisition and build out its franchised areas at this time.

The city will likely rework WOW's franchise to eliminate deadlines that call for 25 percent of its network to be operational later this year.

"We're going to see how we can keep the franchise in place, while taking out that deadline," said Fort Worth assistant city manager Pat Svacina.

Edwards said WOW has also withdrawn its franchise bids in Minnesota, and is currently trying to setup meetings with local officials in the St. Louis area.

Money problems are also behind TotaLINK's decision to back off projects in Dayton, Ohio, and Indianapolis.

The venture, backed by Indiana Gas parent company Vectren Corp. and broadband-network operator Utilicom Networks Inc., said difficulty in raising capital for construction forced it to temporarily shut down its plans to build broadband networks in the two cities.

The company, which informed local officials in both cities of its plans last week, also confirmed that it had furloughed an undisclosed number of workers at both locations.

"Candidly, we haven't seen any improvement in the capital markets. So, like a lot of companies, we're making a prudent business decision," Utilicom executive vice president Don Loftif said. "But we're committed to Indianapolis and Dayton, and we're going to build networks that will be just as strong as the one we have in Evansville [Ind.]"

Loftif said the shutdown and layoffs would not affect TotaLINK's Evansville system, which offers cable TV, dial-up Internet access, cable-modem service and local and long-distance phone service to 25,000 customers.

TotaLINK told Indianapolis officials it had already spent $9 million on the project, and it intends to follow up on that investment.

"It doesn't sound like a company that plans on leaving town anytime soon," said Indianapolis Cable Communications Agency director Rick Maultra. "My personal feeling is that when the markets turn, these overbuilders are going to be right back in business."

Maultra said the city would probably extend the completion date for TotaLINK's buildout from five years to seven years.

The news was a second setback for competition in Dayton, where plans for an American Broadband Inc. network that would have competed for 45,000 Time Warner Cable customers dissolved when the fledgling overbuilder closed its doors earlier this year.

March