The once runaway cable overbuild craze was in a free fall last week, as another newcomer announced it would put virtually all of its plans on hold.
Digital Access Inc. became the latest overbuilder to step back from previously announced plans when it told Milwaukee and Indianapolis officials it would delay plans to enter their markets, perhaps for as long as two years.
Instead, the overbuilder will reportedly use its $450 million in equity funding to try and gain a toehold in Nashville, Tenn., the first market in which it received a franchise. The company had previously canned plans to overbuild Kansas City.
"I knew that it was in the works, but I'm surprised that it was announced," said a former Digital Access insider.
By press time, Digital Access officials had not returned calls requesting comment.
News of the company's pullback follows a decision by American Broadband Inc. to scrap its plans for Buffalo, N.Y., and surrounding communities.
RCN Corp., the best capitalized of the overbuilders, is also pulling back. WideOpenWest, a Denver-based outfit headed by former RCN executives, has canceled plans to overbuild the incumbent in San Antonio, Seattle and Portland.
Industry sources said the declining fortunes of the nation's overbuilders demonstrate that second- and third-tier markets like Milwaukee and Indianapolis won't be developed over the next three years, as originally envisioned.
After steep declines in dot-com investments, nervous venture capitalists now want telecom outfits to spend their investment dollars on a "standalone basis," said one industry expert.
"That means that the money has been designated for a certain market, and you can't take $50 million and spend it developing another market," said the industry insider. "So, you can't be as aggressive as before."