City in Iowa OKs Triax, Will Overbuild

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The city of Spencer, Iowa, has renewed Triax
Telecommunications Co. L.L.C.'s local franchise, but it will proceed with a $16
million municipal overbuild, city officials said last week.

After talks on a long-term franchise stalled, the city
elected to renew Triax's deal for five years, which gives Spencer Municipal Utilities
time to build a network capable of competing for the area's 5,000 cable subscribers.

"Then we'll give them both the same franchise,
with the same terms, and let them fight it out," said Bruce Gifford, chairman of the
Spencer Cable Commission. "We have to do that, or Triax would claim that we were
favoring SMU."

The overbuild is expected to be the most expensive ever in
Iowa -- the state with the largest number of municipally owned utilities in the nation.

SMU will loan the new municipal telecommunications utility
the money to build the network. Construction is expected to begin this summer, with the
first customer coming online next fall.

In response to the threat of competition, Triax has
launched a $3.2 million rebuild of its system in Spencer, a community of 12,000 in the
northwest corner of the state.

Gifford said one of the negotiating points blocking a
long-term deal with Triax was the company's insistence that the city take over
operation of the local-access channel.

However, Triax officials said the problem revolved around
the 1 percent of its gross revenues that the company pays to support local access.

Since local access in Spencer amounts to little more than
some public-service announcements and tapes furnished by outside sources, the company felt
that a portion of the estimated $100,000 per year collected by the city should be rebated
to local subscribers, Triax spokesman Tom Bordwell said.

Gifford said the city has taken the proposal under
advisement.

Meanwhile, Brian Grogan, a partner with Moss & Barnett,
a Minneapolis-based law firm representing Spencer, said the threat of municipal
competition spurred Triax to rebuild its system at a time when most operators would have
held out.

"We told them that there was little chance that they
won't have a franchise in Spencer, unless they breach their existing deal,"
Grogan said. "So we didn't see any reason to tie ourselves to a long-term
agreement."

Moreover, in the event that competition doesn't come
to Spencer, local officials were reluctant to enter into a long-term deal that would not
allow the city to benefit from developing technology, Grogan said.

"This way, in five years, we can get another bite of
the apple," he added. "And even if competition doesn't develop, we still
get a new system, so we win either way."

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