HSA Steps Into the ISP Breach

11/19/2000 7:00 PM Eastern

There is a hero in every story. As we turn to the next chapter in the ongoing ISP Channel saga, High Speed Access Corp. has assumed the role of knight in shining armor to rescue a high-speed damsel in distress.

SoftNet Systems Inc., parent company of ISP Channel, said it has given HSA "certain rights" to negotiate with the troubled cable-modem-service provider's affiliates.

ISP Channel has exclusive agreements in place with the majority of its cable partners. This deal erases those potential conflicts for HSA. Financial terms were not disclosed.

The move is tied to SoftNet's $30 million restructuring of ISP Channel. The company has concluded that it would have difficulties achieving the scale required to turn a profit by providing "turn-key" high-speed services to small- and medium-sized cable operators.

Last month, SoftNet announced it had trimmed 33 percent of ISP Channel's work force, and would use its remaining resources to support the company's broadband wireless and satellite subsidiaries, Aerzone and Intellicom.

The deal with HSA "is an important part of our efforts to restructure the ISP Channel," SoftNet president and CEO Lawrence Brilliant said in a press release.

At present, HSA is the only outside provider that has been cleared to negotiate with ISP Channel affiliates, a SoftNet spokeswoman confirmed.

HSA CEO Dan O'Brien said the agreement gives his company the green light to enter negotiations with "any and all" of ISP Channel's current cable customers. O'Brien said talks with ISP Channel got started at last month's Walter Kaitz Foundation dinner in New York, then heated up again about two weeks ago as SoftNet considered the future of ISP Channel.

ISP Channel currently has about 33,000 cable modem customers, 2.4 million contracted homes passed and serves more than 90 cable systems. Its crown jewel and largest MSO affiliate is Mediacom Communications Corp., which already has started to wash its hands of an exclusive, 10-year deal with the service provider.

Earlier this month, Mediacom said chairman Rocco Commisso resigned his board seat at SoftNet effective Oct. 27, and disclosed it is in "ongoing discussions" with other high-speed service providers.

Consider HSA, which just closed a $75 million investment from corporate cousins Charter Communications Inc. and Vulcan Ventures Inc., to be on that list.

"We've begun talks with [Mediacom]," O'Brien said.

O'Brien insisted that HSA will not merely pick up ISP Channel's old turnkey contracts. It will instead try to renegotiate them under a network-services model designed to share costs more equitably between the high-speed provider and the cable operator.

Under the renegotiated deals, the operator would pay for more of the "tier-1" customer-acquisition and connectivity costs.

"One reason why ISP Channel is exiting the business is because the agreements it had in place were not profitable," O'Brien said.

One provider that tried the turnkey approach when it was originally chartered was @Home Solutions, an Excite@Home Corp. division targeting smaller cable operators. That company now cuts deals that more evenly spread expensive tier-1 support costs.

The Excite@Home unit has a cable footprint of about 3 million homes and will have 15.5 million homes passed by digital-subscriber line when it launches that service in the first quarter of next year.

"We'll either ask cable operators to do [tier 1], or we'll do it at cost," @Home Solutions vice president of affiliate operations Dan Donnelly said. "The costs have to be shared across the board."

Donnelly said @Home Solutions is not in talks with SoftNet about transitioning ISP Channel customers, but has fielded calls from the company's cable affiliates. He said "there's some interest in Mediacom," calling it " a large, well-run MSO."

Though HSA has won the legal rights to negotiate with ISP Channel's contract-bound affiliates, at least one operator has already taken action to obtain a new high-speed provider.

San Bruno Municipal Cable TV, an ISP Channel affiliate, will begin negotiations with @Home Solutions immediately. It has 1,160 data subscribers.

Three vendors sought the municipal operator's business: HSA, RCN Corp. and @Home, according to Dave Thomas, general manager of the system. But the @Home proposal was approved 5-0 by the City Council Nov. 14. Negotiations will begin immediately.

"We want to affect this transition before Dec. 31," Thomas said.

There is upside potential for @Home in this market. San Bruno Cable, in the San Francisco Bay area, penetrates 82 percent of the community with its cable product. The system also upgraded in the last year to 750 megahertz with 45 fiber nodes. AT&T Broadband's presence in the region also affords @Home a wide footprint there.

Meanwhile, time is of the essence for ISP Channel's remaining affiliates. The company has already sent letters to some of its affiliates outlining portions of ISP Channel's restructuring plans.

ISP Channel, in one letter obtained by
Multichannel News
, said it would cease operations no later than Dec. 31 "in the absence of a fundamental restructuring of our relationship." A SoftNet spokeswoman declined a request to provide further details.

O'Brien said his company is ready to "move forward quickly" in transitioning ISP Channel customers to HSA, because of the end-of-the-year deadline set by its former competitor is drawing ever closer.

"This will provide [ISP Channel affiliates] with an option, rather than having that service end," he said. "We don't want [consumers] to have a negative experience about cable modem services, so it's important that we have the right kind of transition and move customers over from ISP Channel to HSA."

Not that the process will be all that easy. O'Brien noted that part of the transition could "create a degree of hassle" for ISP Channel's existing high-speed customers.

For instance, HSA and ISP Channel have different electronic-mail formats. ISP Channel uses its own domain and HSA typically uses the cable operator's domain, meaning some technical confusion could surface when those accounts are transferred and then linked to HSA's Network Operations Center.

An even bigger challenge will be to move e-mail archives from ISP Channel's domain and into HSA's without corrupting or losing data.

"We sent our folks out to San Francisco (ISP Channel's headquarters) to figure that one out," O'Brien said.

O'Brien doesn't anticipate that all of ISP Channel's cable affiliates will strike new deals with HSA. "I think about 50 to 75 percent of them might be interested and look seriously at what we offer," he predicted.

A number of deals might not get done because some factors and thresholds, such as system subscriber bases, simply make such a partnership unprofitable for both HSA and the cable operator, no matter the terms of the contract.

"Some system sizes aren't particularly attractive, but we'll look at everything on a case-by-case basis," O'Brien said. "We're here to support them, so we'll make them an offer, but it might not be attractive to them.

"The question is, do they believe that data service is critical to their long-term business?"

As @Home Solutions discovered when it launched, HSA determined about one year ago and SoftNet has finally realized, the turnkey approach just doesn't add up when it comes to providing high-speed services to cable operators.

"This is a wake-up call that says turnkey is not economically viable for an ISP in small systems, and operators have to understand that and think about incurring some of those costs, or exit the business," O'Brien said.

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