News

Boston Pact Caps Busy Week for RCN

8/01/1999 8:00 PM Eastern

Overbuilder RCN Corp. jumped forward in its competitive
race with entrenched cable operators last week when it signed a 15-year franchise for
Boston; acquired two Internet service providers to jump-start that business in California;
and launched service in Gaithersburg, Md.

The Boston deal is the biggest coup. The company already
operates there, but has been "cherry-picking" desirable accounts. RCN services,
which include long-distance and local telephony, video and Internet access, are available
in only 10 percent of the city.

RCN says it currently serves 27,500 "hookups."
Each product is counted separately, so a home that subscribes to all offered services
would count as four hook-ups.

Under the terms of the franchise, RCN will build out its
network, spending $250 million in Boston over the next four years. The company also agreed
to pay 5 percent of its gross to the city and to build the municipal government a $10
million private data network. The overbuilder will also give the city $1 million in
equipment and services.

As they announced the deal, city officials noted that the
incumbent operator, Cablevision Systems Corp., was refranchised last year. That operator
promised a rebuild, but in the second year of its franchise it has shown no indication of
starting on the promised improvements, officials told the local press.

But Cablevision said it has started upgrading a system that
already delivers 108 video channels. A decision on cable-modem deployment in Boston could
be made this year.

"Today represents a watershed moment for RCN in the
city of Boston and a watershed moment for Boston residents who have clearly demonstrated
their demand for local phone and cable competition and for high-speed connections to the
Internet," said RCN Chairman and CEO David McCourt in a prepared statement.

"Since RCN began providing service in this market, the
monopoly phone and cable incumbents have done everything in their power to slow our
progress and preserve their unfair and destructive market dominance," he added.
McCourt announced the deal at a press conference with Boston Mayor Thomas Menino.

Cablevision and other competitors have questioned the
propriety of the local partnership that RCN has with utility Boston Edison Co. A report
issued in May by Massachusetts Attorney General Tom Reilly faulted Boston Edison and its
nonutility subsidiary, Boston Energy Technology Group, for entering the telecommunications
businesses.

State authorities had granted the utility permission to
expand its business offerings in three precisely defined areas, none of which is video
delivery, the report contended. It also said the utility had exceeded its state-mandated
investment cap in the RCN venture.

RCN has a "history littered with broken promises and
government investigations," said John Urban, vice president, government affairs for
Cablevision in Massachusetts. He added that Cablevision is well prepared for competition.

Jim Maiella, spokesman for RCN Corp., said his company
anticipates increasing its homes passed to 20 percent of the market by the end of the
year. It is already providing service in four Boston suburbs: Somerville, Arlington,
Newton and Waltham. The systems there are more than half built. RCN has local licenses to
serve 24 municipalities in the Boston area.

As it buttoned up its deal in Massachusetts, RCN also
closed deals in California that will give it a jump-start as an Internet provider -- the
first product RCN launches when it begins service in a new market.

RCN announced it bought Direct Network Access Ltd., one of
the San Francisco Bay area's largest independent Internet service providers; and
Brainstorm Networks Inc., an ISP which provides dedicated and DSL services. That will
hasten the launch of the company's Internet access service, rcn.com.

RCN is currently building a network to serve San Francisco,
South San Francisco, San Mateo, Redwood City and Daly City. In total, the company has
received licenses for an area that passes 450,00 homes with an average density of 300
homes per mile.

The company is also completing a 40,000-square-foot West
Coast headquarters in San Mateo and is building a technical operations center in San
Francisco, which will house a 30,000-square-foot data center, a digital-cable head-end and
an advanced telephone-switching center.

Meanwhile, Starpower Communications, a joint venture
between RCN and Pepco Communications, a subsidiary of Potomac Electric Power Co., last
week launched service in Gaithersburg, Md.

Some 3,500 residents now have access to a bundled package
of cable, Internet access and local and long-distance telephone service. When completed,
the network will reach 11,000 households in Montgomery County, the nation's
eighth-wealthiest county.

General manager Tony Peduto said Starpower has already
brought 40 customers online, most lured by a 94-channel basic package priced at $31.95, or
$5 a month less than the lineup offered by incumbent Cable TV Montgomery. With additional
offerings, Starpower's programming package expands to 140 channels, including 16 premium,
18 digital and 12 pay-per-view channels.

When taken in conjunction with local and long-distance
phone service, the price of cable is discounted to $27.95. The company is also offering
high-speed, two-way, Internet access for $39.95, compared to a telephone-return-path
service marketed by Cable TV Montgomery for $64.95, Peduto said.

Gaithersburg is the second Washington, D.C.-area community
where RCN has launched service. The company reports a penetration rate of about 30 percent
for its cable service in Washington itself, where it has wired more than 10,000 multiple
dwelling units. Moreover, some 80 percent of its customers take more than one service,
with local phone service posting a penetration rate in the mid-20 percent range.

Joe Estrella contributed to this story.

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