News

IVI Demands that Cable Unbundle Data Networks

1/10/1999 7:00 PM Eastern

Internet-service provider Internet Ventures Inc. has opened
still another front in the intensifying efforts of ISPs to make use of cable-industry
facilities.

Like ISPs in Oregon, Denver and elsewhere, IVI is seeking
the authority to offer data services under the provisions of federal leased-access rules.

IVI -- which offers dial-up and high-speed Internet access
in second- and third-tier markets in five states -- has filed an application with
Tele-Communications Inc. of Washington for leased-access carriage of its PeRKInet service
in Spokane, and it is preparing similar actions elsewhere, IVI president Don Janke said.

"We're just the tip of the iceberg," Janke
said. "Based on our discussions with other ISPs, I'd say that there are several
dozen others out there that are about to take similar action."

IVI has taken the initial step toward seeking leased access
in nine markets besides Spokane, and it will soon file applications with Century
Communications Corp. in Ventura, Calif.; Cable One in Modesto, Calif.; and American Cable
Entertainment in Cortez, Colo., Janke said.

Until now, ISPs have sought to gain access to cable
households via local and federal action that would force operators to offer customers a
choice of ISPs. Operators argued that Web surfers using their networks should have to
subscribe to cable-affiliated ISPs, such as @Home Network or Road Runner, in order to get
high-speed-data access.

Janke asserted that his approach -- which would generate
payments to operators under the Federal Communications Commission's formula for
channel-lease rates -- is a more appealing option to operators than the tack pursued by
America Online Inc. and its ISP allies, which would net operators nothing.

"Letting an ISP offer service through leased access
might deliver a lot more to the bottom line than if a cable operator invests in launching
data service itself," Janke said.

But TCI has made it clear that it does not welcome
IVI's initiative.

"We do not intend to approve [IVI's] application,
because we don't believe that the leased-access rules apply to this type of
service," TCI spokeswoman Katina Vlahadamis said. "Leased-access laws apply only
to video programming."

Janke asserted that cable can't have it both ways. On
the one hand, he said, cable argues that its own high-speed business is a cable service
under federal regulations and, as such, it is protected from the open access sought by
ISPs. On the other hand, cable argues that a competitor's offering of data over
leased access is not a cable service.

"If @Home is categorized as a cable service, how can
you argue that someone else's data service isn't?" he asked.

Moreover, Janke added, Section 612 of the Communications
Act specifies that leased access is meant to support the widest diversity of
"information," as well as entertainment services.

Under IVI's leased-access plan, its
"On-Ramp" affiliate would connect to the cable headend much as it does in cable
markets where it is the sanctioned data-service provider. It would provide the headend
signal modulator required to turn one analog 6-megahertz channel into a high-bit-rate QAM
(quadrature amplitude modulation) data stream, allowing for one-way distribution of
Internet feeds to all subscribers on a shared-access basis.

The return path would use subscribers' telephone
lines, which is the mode of return that IVI employs in its cable-affiliated markets.

In Spokane, where TCI serves approximately 90,000
subscribers, a leased-access channel would cost somewhat less than $20,000 per month under
the FCC leased-access-rate formula established in February 1997, Janke said.

Because IVI already has a dial-up ISP operation running in
Spokane, with 6,000 customers, it would not incur other significant costs in putting data
on the leased-access channel. This means that the company could break even on the channel
cost by simply adding another 2,000 customers, or 1.5 percent of homes passed by the cable
system, at a monthly charge of $29.95, he said.

While some operators might fight IVI's approach,
others might find that it makes good economic sense, Janke asserted.

In one case, he noted, a 20,000-subscriber cable system
that IVI is preparing to seek leased access from would generate $10,000 per month from the
leased channel, which would go right to the bottom line.

"If you assume 10 percent profit on your own
cable-data service, that means the operator would have to generate $100,000 in monthly
revenues with its own service to match what it nets by leasing a channel to IVI,"
Janke said. "In this system's case, the operator would have to hit 10 percent
penetration with its own data service [assuming a $50-per-month service rate] to generate
$100,000 in monthly revenues."

Vlahadamis said TCI had not encountered any other instances
of ISPs formally requesting leased-channel access. While any dispute between IVI and TCI
over leased access will be addressed by Spokane franchise authorities, ultimately, she
said, the question is a national issue, which TCI is prepared to pursue at that level if
the local decision goes against it.

Janke declined to name other ISPs that are considering
similar action. Calls to various ISPs didn't turn up anyone who had looked at the
option.

But Whitney Fogt, director of investor relations for Verio
Inc. -- one of a coalition of companies asking the city of Denver to force cable to open
its networks -- indicated that the idea might be of interest, as her company seeks to
expand high-speed services into the consumer market.

So far, she noted, Verio has concentrated on business
users, providing some dial-up service to workers at home, but it now wants to broaden its
base through DSL (digital subscriber line) and cable access.

"One of the reasons why we're getting involved in
this coalition is because we want to provide an option to our customers in the home
environment that offers them the same type of performance that they get from us in the
work environment," Fogt noted.

Leased access is something that Verio would "always be
interested in looking at," she added.

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