Knology Knows Southeast Overbuilding

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What's a little-known company from sleepy West Point, Ga.,
doing buying up overbuilt cable systems, overbuilding other markets itself and quietly
amassing a state-of-the-art network of video, voice and data systems in the process?

Nothing that special, really. If you ask the people at
Knology Holdings Inc., it's just another day at the 600-employee broadband arm of ITC
Holding Co., which has several up-and-running systems and nearly 30 cable franchises
across the Southeast.

"We're building a new communications network,"
Knology president and CEO William Morrow explained. "We've never bought an incumbent
cable operator. The reason why is because the overbuild networks are five to 10 years old,
instead of 15 to 20 years old. It's a much newer network."

Not that one-way analog-video overbuilds can't be
successful, Morrow insisted. It's just that two-way broadband networks have improved the
cash-flow prospects considerably.

"Overbuilds have always worked," Morrow said.
"I just don't think they were financeable. The banks always held cable paper, and
they would call their cable clients to ask about an overbuilder seeking funding. Of
course, the cable operators would tell the banks that overbuilds don't work."

Not anymore, he added: "Now, the whole landscape has
changed with the passage of the Telecommunications Act of 1996. You could always get
cash-flow-positive on cable alone, but broadband makes this a very strong business."

Indeed, Knology has already wooed MindSpring Enterprises
Inc. -- a high-profile Internet-service provider that, interestingly, bills itself as a
way to "escape AOL [America Online Inc.]" -- to help market its cable-modem
service in several markets.

Morrow pointed out that the cash-flow picture gets even
more attractive when you start putting small and midsized businesses into the mix. He said
Knology will aggressively target those business customers as it moves beyond its current
slate of second-tier markets to bigger, urban centers in the South.

So far, Knology has purchased overbuilt systems in
Columbus, Ga.; Panama City, Fla.; and Huntsville and Montgomery, Ala. And it has obtained
28 other franchises to overbuild markets in Alabama, Florida, Georgia and South Carolina.
Its current systems and franchise areas pass 246,575 homes.

Knology currently has 91,838 households for its bundled
offerings, 80,068 of which are specifically for video services.

Knology's regional focus and small size have kept it out of
the minds of many major MSOs, as they remain more focused on big players like RCN Corp.
and Ameritech Corp.'s Ameritech New Media cable arm.

"I don't think Knology is on a lot of cable operators'
radar screens yet," said Michael Harris, president of Phoenix-based Kinetic
Strategies Inc.

That's just fine by Morrow, who said Knology will forgo any
expansion plans until its Southern build-out is complete. "There are lots of great
cities in the Southeast," he added, "so why would I want to have my employees on
planes all of the time?"

That's not to say that Knology doesn't have aspirations.
For example, it just partnered with the Centennial Fund and Prime Ventures to launch the
"ClearSource" overbuild venture in Waco, Texas, with plans to overbuild several
cable systems throughout the state.

Morrow said he'll look at other markets, as well, either as
equity-investment opportunities or direct Knology plays.

So does all of this make Knology a good acquisition target?
"A lot of folks could see a lot of value in Knology," Morrow said. "There's
a lot of built-up value here."

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