WideOpenWest Wrangles Place as Cable Competitor

11/04/2001 7:00 PM Eastern

As many competitive broadband providers scale back their operations, WideOpenWest LLC is readying for a fourfold expansion. The Castle Rock, Colo.-based company, started by a core of expatriates from RCN Corp. and AT&T Corp., is planning to take over four cable systems run by SBC Communications Inc.'s Americast cable unit, even as it continues a buildout in the Denver metropolitan area.

The Americast deal, valued between $200 million and $300 million, is set to close later this month. It will give WOW about 310,000 subscribers in Detroit, Chicago, Cleveland and Columbus, Ohio, in addition to those signed up in Denver.

WOW has already obtained all of the 115 municipal cable-franchise transfers needed to take over Americast, company officials said.

Going from one system to five may seem like an ambitious expansion of operations, but WOW CEO Mark Haverkate said that was nothing new for his corps of executives, most of whom have been in the cable TV industry for 15 to 20 years.

"The people who are managing the systems are used to running 100,000-subscriber systems," Haverkate said. "So it is back to normal for us, really."

WOW managers have been out in the Americast territories since May, preparing for the takeover. Their teams include both new hires and Americast employees.

Plans are to ramp up the roster numbers as WOW assumes ownership.

In Chicago and Denver, WOW faces competition from AT&T Broadband. It will line up against Comcast Corp. in Detroit, Time Warner Cable in Columbus and Adelphia Communications Corp. in Cleveland.

Given that mix, managers in each market will have some flexibility with respect to pricing and offerings, tailoring them to best match up against their competition.

"To the extent that something makes a lot of sense in a Comcast system, but it may not make as much sense in an AT&T competition area, we are not going to force uniformity across the board, necessarily," Haverkate said.

The rival cable operator's offerings "might make a difference on the order of things and the pricing and packaging, possibly," he added.

Although the Americast plant sports a two-way, 750-megahertz architecture and recently rolled-out digital TV service, there are no Internet or telephony offerings. Those service plans were shelved when SBC inherited the cable systems through its merger with Ameritech Corp. That will change under WOW's watch.

"We're planning to introduce high-speed Internet service and our broadband voice service next year as part of our expansion of those properties," Haverkate said.

To bring its Americast properties into the cable-modem age, the systems will need cable modem termination system (CMTS) controllers, a supply of modems and ramped up marketing and installation services.

Initially, WOW will go with DOCSIS 1.0 modems and CMTS units, Haverkate said. Decisions on vendors will come soon.

Then there is the Denver high-speed-data rollout, which uses switched Ethernet rather than cable-modem delivery. Using Orem, Utah-based SwitchPoint Networks Inc.'s Ethernet technology, the service delivers a symmetrical 100 megabits-per-second service to each hub.

Customers access that service directly, via a network interface card installed on the computer and an Ethernet link to a switch located at the cable drop.

"It's still relatively new, and we are hoping that emerges as the new standard, but time will tell," Haverkate said. "It's completely bidirectional. Cable modems are pretty fast coming downstream, but going back up it is pretty limited."

In the Americast systems, the Ethernet-based Internet service may prove a viable add-on as a high-speed Internet upgrade.

"There's a huge demand for high-speed Internet service," Haverkate said. "But I do think that the Internet phone-based product has a lot of potential. We like what we see here in Denver and we hope to expand that to our new markets next year."

Unveiled this fall, the Denver voice-over-Internet protocol telephony offering uses Gemini Broadband Voice technology. WOW is offering WideOpenTelephone long-distance service bundled with broadband Internet access and digital cable service. It will offer a flat $35 monthly fee for 1,000 minutes of intrastate and state-to-state calling, with plans to add international calling by the end of the year.

WOW has differed from its cable competitors in offering other ISPs access to its broadband pipes right from the start. But there haven't been many interested takers: The economic downturn has significantly thinned the ranks of potential ISP partners.

"We stand by our policy position, but right now we are focused on our own business, and if they want to come on our networks they certainly can," Haverkate said. WOW has had preliminary conversations with large and small ISPs, and "eventually we'll get around to working on something," he said.

The economy also has dealt setbacks. Weaker capital markets prompted WOW to shelve a planned buildout in Fort Worth, Texas; construction on the Denver system has also been slowed.

In Denver, WOW has about 13 franchises and has been building at "a steady pace," Haverkate said. "How long it takes for us to finish it is obviously determined by the capital markets."

Sour capital markets are one reason the Americast deal will be a big boost for WideOpenWest, said The Yankee Group analyst Imran Khan.

"Given the current economic environment, it is much more viable to do it that way as opposed to building networks from scratch," he said. "This would allow them to have a steady revenue stream coming in while they decide what to do with the other franchises that they have."

But building up that cable-modem plant may present some serious problems for a fledgling operator.

"That's the real downside of it," Khan said. "To be able to do so, they are going to have to make some capital investments in making this network high-speed-data capable, as well as [adding] any IP telephony ability."

While it is still too early to tell if WOW will survive in rough telecom waters, Khan predicted the company will somewhat shift its focus.

WOW initially positioned itself as a provider of bundled voice, video and data, but with the Americast acquisition, Khan sees the company becoming more video-centric — and that isn't necessarily a bad thing.

"With this video-centric focus, they are essentially going to be more competing with the cable companies than the phone companies," he said. "Now they are more focused on one segment, and taking on one set of providers, as opposed to trying to be everything for everybody."

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