ISP Channel in Satellite Data Deal

11/29/1998 7:00 PM Eastern

ISP Channel parent SoftNet Systems Inc. has agreed to buy
Intelligent Communications Inc. (Intellicom) in a deal aimed at creating satellite links
between the Internet provider and cable operators.

For about $10.5 million in stock, SoftNet will buy the
former Xerox Skyway Network, which provides two-way satellite Internet access using
proprietary VSAT (very small aperture terminal) technology. The network was originally
designed to provide broadband links among Xerox Corp. sites and Xerox customer locations.
Intellicom is based in Fremont, Calif., close to ISP Channel's headquarters.

ISP Channel said the VSAT connections to cable headends
should cut infrastructure costs by eliminating telephone-company T-1 connections. As a
result, ISP Channel figures to be able to provide a full suite of Internet services to
cable systems with fewer than 1,000 subscribers each, as well as to individual
multiple-dwelling-unit complexes. "This makes the MDU market a reality," ISP
Channel president Ian Aaron said.

Aaron added that Intellicom already provides
satellite-delivered Internet connectivity to about 50 Internet-service providers and
20,000 end-user customers. He said the new technology will be integrated into the
service's offering before the deal closes.

After the deal announcement -- which drew some national
media coverage last Monday -- SoftNet's share price rose to as high as $21 in heavy
trading before closing at $16.75 -- down $1.13, or 6 percent.

Other turnkey data providers dealing with cable operators
-- as well as some small cable operators -- have also identified VSAT technology as a way
to avoid the cost of telco links to small customers.

"If we can prove it out, it'll be great,"
High Speed Access Corp. president Ron Pitcock said last week.

HSA has been conducting a trial using VSAT technology, and
the company hopes that it eventually will be effective. But for now, there are latency
issues -- delays that accompany the transmission of data to and from satellites -- and
return-path bandwidth constraints, he said.

Windbreak Cable president Bill Bauer has formed a separate
unit, InterTECH Inc., to market a VSAT-based data solution to small operators. "Our
system does work very, very well," Bauer said. "We've got five systems with
live, paying customers in operation."

Aaron, too, said Intellicom has resolved latency problems
with software and caching. Intellicom offers download capacities of 2 megabits per second
to 10 mbps and upstream transmission rates of up to 256 kilobits per second.

As an example of the cost savings, Aaron said, ISP Channel
pays about $4,000 per month for some T-1 circuits. Intellicom's retail charge for
2-mbps downstream speed is $1,700 per month.

Capital costs are important to ISP Channel and other
turnkey data providers since the process of setting up the data services is
capital-intensive. SoftNet was forced to pull a $150 million bond offering over the
summer, when the new-issues market dried up due to global market gyrations. But Aaron said
the Intellicom acquisition helps more with ongoing network costs.

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