McLeodUSA Preps TCI Iowa Foray

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Tele-Communications Inc., already wrestling with municipal
overbuilds in Iowa, now faces possible competition in seven new venues -- only this time
from a private entity.

With a nine-year cable franchise already in hand for its
hometown of Cedar Rapids, McLeodUSA recently said that it will seek similar agreements in
six other TCI communities in Iowa, including Hiawatha, Marion, Iowa City, Dubuque and
Waterloo.

Moreover, with the state's second-largest market set
to go, McLeodUSA is also reportedly eyeing Des Moines, the state's largest city, with
over 190,000 residents.

McLeodUSA officials did not return calls for comment last
week.

However, chairman Clark McLeod told the Cedar Rapids
Gazette
that the company will have work crews installing fiber optics within weeks,
and that service will be initiated on a neighborhood-by-neighborhood basis later this
year.

"When a customer requests service, we will install a
cable to their home, apartment or business," McLeod was quoted as saying, adding that
residents who request service while a crew is in their neighborhood will receive free
installation.

McLeodUSA is expected to spend $2,000 per household to
launch cable service in Cedar Rapids, which translates to a potential price tag of up to
$25 million. The plan is for McLeodUSA to expand the 50-mile fiber optic backbone that it
currently uses in Cedar Rapids to resell telephone services purchased from U S West
Communications.

The company has indicated that it hopes to serve 1,500
local homes and businesses in Cedar Rapids by the end of next year, and all 3,700 homes
and 110,000 residents within three years.

TCI, meanwhile, remained remarkably restrained in its
reaction to McLeodUSA's arrival on the scene, despite the threat to its
41,000-subscriber systems in Cedar Rapids, which it acquired last year from Cox
Communications Inc.

Officials for the MSO argued that the company will
willingly compete against a private entity, but not against a local government with the
ability to subsidize its video operations.

"As long as the playing field is level, we're
confident that we can compete," said Debora Blume, regional communications director
for TCI of Iowa. "This is not a city overbuild, but rather, a private company that
will be taking the same risks in the marketplace that we take every time that we open our
doors."

Voters in Cedar Rapids last month voted overwhelmingly to
grant a franchise to McLeodUSA. And while the turnout amounted to only 8.7 percent of all
registered voters, 95 percent of the 6,554 votes cast were for approval.

The vote transformed McLeodUSA into the second
telephone-service provider to branch out into the local cable business, joining Lost
Nation-El Dorado Telephone Co., which is competing against Triax Cable in Oxford Junction,
Iowa.

To avoid problems, sources familiar with the deal said
McLeodUSA's franchise will be "word for word" the same deal awarded to TCI.

Industry executives said they were not surprised that
residents of Cedar Rapids were willing to grant McLeodUSA a franchise, despite a complete
upgraded of TCI's system and the introduction of the company's
digital-programming package.

"There was no opposition," said one industry
follower. "I think that TCI will fight for customers, but I don't think that
they knew how to go about fighting this."

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