News

Black Rock Goes OVS

5/16/1999 8:00 PM Eastern

The city of Bellingham, Wash., awarded a franchise last
week to a former cable company preparing to reinvent itself as a provider of open-video
systems.

By a 5-1 vote, the city granted Black Rock Cable a
preliminary franchise for an OVS network that it will offer to unaffiliated parties
seeking to deliver cable, Internet and telephone services in the Bellingham area.

Meanwhile, the Federal Communications Commission approved
Black Rock's request for an OVS license spanning three counties that include 26
mostly small communities between King County, Wash., and the Canadian border.

Unlike traditional OVS operators -- which lease two-thirds
of their channel capacity to content providers and reserve the rest for their own purposes
-- the company has no plans to get back into the video-services business.

Instead, Black Rock president John J. Kehres said the
company will build the networks, then strike "arm's-length" agreements with
cable operators, cities, long-distance companies, competitive local-exchange carriers and
Internet-service providers. Each will be able to use a share of the network to get into
the local markets.

Kehres said Black Rock would also be willing to build
networks that could be used exclusively by a single company to serve a specific community.
"They would have 100 percent of the capacity, and we would simply hold the
license," he added.

For example, in Bellingham, where the city is considering
building its telecommunications network, Black Rock has given local officials the option
of using its system to deliver high-speed-data services.

"They could use it to offer cable television, if they
wanted," Kehres said.

The lure for private companies is a Fifth Circuit Court of
Appeals decision that found that only operators of OVS networks are subject to local
gross-revenue and utility taxes, and not unaffiliated companies using the network to
deliver services.

"That's going to give them a tremendous advantage
in terms of profitability," Kehres said.

Black Rock sold off its 1,000 local subscribers in the area
in 1996, rather than competing against dominant local operator Tele-Communications Inc.
(now AT&T Broadband & Internet Services).

"We didn't see much opportunity for growth,"
Kehres said. "Trying to get in there and compete with TCI was going to be
difficult."

Kehres said the next step would be to contact the 25
remaining communities where Black Rock is authorized to operate. His plan is to acquire
franchises in each location in order to build a string of rights-of-way agreements
stretching to the Canadian border. After that, it's a matter of waiting to see if
there are any service providers interested in pursuing his idea.

"We've got to get out that we want to build
pipelines for people," he said.

Bellingham city officials will hold a second reading on
Black Rock's franchise this week. The deal was approved subject to modifications that
will bring it in line with the city's agreement with AT&T Broadband.

The incumbent MSO pays the city a 3 percent franchise fee,
which will also be required of Black Rock. Under the modified agreement, if AT&T
Broadband's franchise fee jumps to a more traditional 5 percent, so will the OVS
operator's.

The city also wants the ability to increase Black
Rock's liability-insurance requirements in the future, based on an assessment by its
risk manager.

"Under the 1996 Telecommunications Act, we had to make
sure that everything was competitively neutral," Bellingham city attorney Les
Reardanz said.

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