Insanity Peaked In Jan. 2000

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My pick for insane story of the millennium came just four weeks into 2000. Our top story that week: a pair of startups, vying for the chance to build their own cable and telecom networks and compete against established cable companies and Bell operators, had each secured commitments for close to a half-billion dollars.

The chief financial officer of one of the companies, Western Integrated Networks, bragged it took only two days to raise more than $450 million — and none of the meetings even took place outside Denver.

WIN at least built some plant and obtained some customers, in Sacramento, Calif., before going bust. The other firm, Digital Access Inc., never got that far and shut down in March 2001.

OK, that was pretty much the peak for everyone in telecom. Remember 1999? Three cable operators — Charter Communications Inc. (in a huge $3.7-billion offering), Insight Communications Co. and Classic Communications Inc., now part of Cebridge Communications — went public. We reported the 10 public MSOs in 1999 enjoyed a 30% run-up in their stock prices. But by April 24, 2000, the stocks had suffered a 30% decline.

So what good is that hindsight today?

As you’ll read elsewhere in this report, a whole new wave of cable “overbuilders” is on the way, and they won’t be out trying to raise a few hundred million dollars here or there to get started and then pull back. That’s because they’re the phone company and they don’t have to, to paraphrase a Lily Tomlin character. (Of course if I were going back 10 years and not five, you’d find the phone companies saying much the same thing, then pulling back, but their business plans make a lot more sense now. They’re not buying “wireless cable” spectrum, for one thing. They’re enhancing existing plant.)

But cable is much more competition-tested now than in 2000, when the DBS Duo began the year with around 11.5 million customers. They’re north of 24 million now.

Cable also has a much better balance. From a mere 1.9 million cable-modem customers in early 2000, the cable industry’s broadband count now stands above 22 million, having risen 866,000 in the second quarter alone, according to Leichtman Research Group.

And while cable had a mere 180,000 residential phone customers in early 2000, according to National Cable & Telecommunications Association estimates, Cox Communications Inc. alone has more than 1.5 million phone customers; Comcast Corp. has about 1 million while just getting into Internet protocol-based telephony; and Time Warner Cable ended the June quarter with more than 600,000.

As for the stocks, the news hasn’t been that good — the cable group has been down every year since 1999, except for an 18% upturn in 2003. Last year the group was down 8%.

Or like 1999, maybe 2006 will be a year for all boats to rise and everyone to get the capital they need. At least they can be expected to stick around longer than Digital Access did.