OpTels IPO Offers Look at Private-Cable Power

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OpTel Inc., a unit of a Canadian MSO that has become the
biggest private-cable firm in this country, wants to tap the U.S. stock market for another
$100 million to fuel further expansion.

OpTel -- which is owned by Le Groupe Videotron Ltee., the
No. 2 MSO in Canada -- filed a registration statement for an initial public offering last
week. The size of the offering wasn't disclosed, but Videotron, which currently owns
70 percent of OpTel, will retain control after the stock sale.

The stock sale follows a $220 million debt sale in early
1997 and $150 million in credit lines established in late 1997.

Dallas-based OpTel solidified its grip on the multitenant
market in April, closing the first phase of its $81 million deal to buy the third-largest
operator in that market, Interactive Cable Systems Inc., based in nearby Richardson,
Texas. Since the middle of 1996, OpTel has doubled its cable business through acquisitions
that brought in 700 multitenant complexes and 103,000 subscribers.

Since Videotron bought control of the former Vanguard
Communications in 1994, OpTel has grown from $400,000 in annual revenue to fiscal-year
1997's $39.8 million. Through six months of fiscal-year 1998, revenue is up 45
percent, to $27 million.

Because of acquisition and upfront-marketing expenses,
OpTel rung up an accumulated loss of $111 million as of Feb. 28, the end of its fiscal
first quarter. But in that quarter, OpTel generated $100,000 in positive cash flow, versus
the $1.4 million cash-flow loss in the same period a year earlier. Cash-flow trends should
"improve significantly," as OpTel moves to flesh out existing markets, rather
than mainly cracking new ones, it said.

As of April 30, OpTel had about 203,000 cable subscribers.
Houston is its top market, with 68,000, about one-half of which came from last year's
$36.5 million acquisition of Phonoscope.

Its next biggest market is Dallas-Fort Worth, with 21,000;
followed by Chicago (18,000); San Francisco (17,000); Miami-Fort Lauderdale, Fla.
(16,000); and San Diego (12,000). It also has more than 10,000 subscribers each in Denver,
Los Angeles and Phoenix.

OpTel's plan is to extend into telecommunications
services, such as telephone and high-speed Internet access. So far, it only has 7,400
phone lines wired to customers. But it just kicked off phone service, using switches
installed in Houston and Dallas-Fort Worth, and it plans to install switches in most or
all of its biggest markets by the end of next year.

Like other private cable operators, OpTel tries to get
exclusive access to apartment complexes, locking them in with contracts ranging from five
to 15 years. Generally, operators like OpTel offer upfront payments or revenue splits to
get those contracts.

As OpTel noted in its registration statement, several
states, including Virginia and Illinois, are considering "mandatory-access"
laws, allowing other video and phone providers a chance to market to OpTel's
customers. Texas now has such a law for certified telecommunications providers. And the
Federal Communications Commission has a proposed rulemaking under way that is considering
a federal mandatory-access law or term limits on exclusive contracts.

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