Iowa Town Leans Toward Overbuild

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The city of Spencer, Iowa, may be within weeks of
activating the state's most ambitious municipal overbuild of an incumbent cable-television
operator.

Spencer Municipal Utilities recently shelved its plans to
acquire Triax Telecommunications Co. L.L.C.'s local network, instead beginning to build
its own $16 million system -- the most expensive ever in a state known for municipally
offered cable service.

Meanwhile, in preparation for launching competitive
service, local officials have transferred the city's cable franchise to Middletown,
N.Y.-based Mediacom LLC, which is acquiring 342,000 Triax subscribers -- including 5,000
in Spencer -- for $740 million.

SMU information director Curtis Dean said plans for an
overbuild began moving ahead after Mediacom showed no interest in selling the Spencer
system. "Nothing ever came of it after the Mediacom deal was announced," he
added.

As a result, Schoon Construction -- which built municipal
networks in nearby Hawarden and Laurens, Iowa -- began building Spencer's system in early
July. Completion is expected in mid-2001, Dean added, but the first customer should be
activated late this year.

As an inducement to Triax customers, SMU is offering two
free months of expanded-basic service to local residents who request that their cable
service be shifted over to the new system once construction is completed in their area.

Moreover, the utility added 1,000 future customers during
the annual Clay County Fair, a nine-day event that draws some 300,000 visitors and ranks
among the largest county gatherings in the nation.

"And that 1,000 doesn't include the people who have
come into our offices or returned the sign-up cards we sent out," Dean said.

Subscribers will receive a 58-channel expanded-basic
package featuring Disney Channel for $26.75 per month, or slightly below Triax's
44-channel offering for $27.50.

SMU also plans to use multiplex-premium services as a lure
when it launches an as-yet-unpriced 20-channel digital tier, Dean said, adding,
"That's something the MSOs do: They use multiplexed services to drive digital
penetration."

Mediacom is operating the Spencer system under a recently
issued five-year franchise extension for Triax. The deal does not require a rebuild of the
local network, but Triax has nevertheless launched a $3.2 million project that will
upgrade its system to 750 megahertz.

Dean dismissed industry claims that municipal overbuilds
are economically shaky, ultimately leading to subsidies through higher taxes.

"That's rhetoric designed to protect a monopoly,"
he said. "We haven't had an electrical-rate increase here since 1982. Few utilities
are managed that well. We've even been able to give back a dividend in the form of grants
to community projects. Our residents wouldn't us do this if they thought we were going to
threaten that resource."

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