ISP Channel Affiliates Fret

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SoftNet Systems Inc.'s plan to cut the workforce at ISP Channel by 33 percent could be just the tip of the iceberg.

Sources close to the situation said SoftNet-which originally wanted ISP Channel to provide turnkey high-speed services to cable operators in mid-sized markets and rural areas via a revenue-sharing model-recently wrote to a number of affiliates, warning that the service is re-evaluating its own economic viability.

On Dec. 1, ISP Channel will "cease providing billing services and cease payment of telecommunications connectivity charges," the service warned. But e-mail and local-content services will be continued "into December, to allow for the transition of your customers."

Galaxy Communication, ISP Channel's first MSO customer, received the Oct. 25 letter and came away confused.

"We're very concerned about this," Galaxy vice president of programming Doug Montandon said. "They begged for the business, and we stuck with them. Our main concern is our customers, who don't even know who in the hell ISP Channel is."

Galaxy has 1,500 residential and commercial customers using ISP Channel. The MSO is looking for alternatives to provide high-speed data should ISP Channel go dark.

ISP Channel has also asked bigger cable affiliates, such as Mediacom Communications Corp., to consider signing new contracts with terms more favorable to the vendor, sources said.

One cable-equipment provider said it received a recent letter from ISP Channel that stated the company is "changing its business" and canceling purchase orders, including orders for equipment that had already been boxed and marked for delivery.

SoftNet and ISP Channel declined to respond to questions involving recent letters sent to either its equipment suppliers or cable affiliates.

Mediacom and others are said to be looking for alternative contracts with high-speed partners such as Road Runner, Excite@Home Corp. and High Speed Access Corp., sources close to the situation said.

Mediacom-which has a 10-year deal with ISP Channel that includes performance-related stock warrants-wouldn't comment directly on whether it was seeking alternatives.

"We've got markets in beta testing that will be released commercially and new markets to be launched in the fourth quarter, and we expect those markets to be launched," Mediacom senior vice president and chief financial officer Mark Stephan said. "ISP Channel has been a good provider of service. We've been pleased with their performance."

A Road Runner spokeswoman confirmed a number of existing ISP Channel affiliates have approached the company but would not name the operators.

An HSA official said his company was also contacted by ISP Channel affiliates. He advised those systems that HSA can't talk to them while they are under contract with ISP Channel.

Excite@Home, which has a division that targets smaller cable operators, declined comment.

SoftNet said two weeks ago it would re-examine ISP Channel's future in the wake of rapid consolidation among independent cable systems. ISP Channel aims to shift resources to Aerzone, a unit that offers wireless broadband services.

ISP Channel, whose founder, Ian B. Aaron, resigned as president in August, has about 33,000 cable-modem customers and deals with about 90 cable systems representing 2.4 million contracted homes passed.

"We're talking with our affiliates about what makes sense going forward [to] restructure contracts and so forth to find out what makes sense for both parties," SoftNet senior vice president Steve Harris said last week. "We need to have some decisions in place this quarter, but we haven't crossed any bridges, and I would say we haven't burned any bridges, either."

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