Oregon Muni System Leases to ISPs

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The theory that Internet-service providers can share space
on cable operators' networks will be put to the test in Oregon's Rogue Valley by
year's end.

But in this case, the operator will be Ashland, Ore., a
mountain community of 1,900, where five area ISPs plan to use a new $6 million municipal
fiber optic cable network to offer high-speed Internet access to local residents.

Meanwhile, Ashland, which sits squarely between Portland
and San Francisco, will use its share of the network to compete against Falcon
Communications Inc., soon be part of Charter Communications.

Both services will launch in about six weeks.

The city already offers Ashland Fiber Network data service
to 20 local businesses that "need lots of bandwidth," Ashland communications and
marketing director Ann Seltzer said. So why not also offer residential Internet service?

"What it came down to was that we didn't have the
staffing to offer that level of service," Seltzer said, "but the ISPs did, and
they stepped up to the plate."

Even though the local ISPs haven't launched yet,
Falcon wasted no time in responding to a competitive threat. It recently introduced
high-speed-data service Falcon@Home in Ashland, even though it had yet to roll out the
Internet offering in nearby Medford, Ore., a community of 150,000.

"Internet access wasn't supposed to come to the
Rogue Valley for another five years," Seltzer said. "This just goes to show that
competition is good."

Local Falcon officials were not immediately available for
comment.

"[Falcon] would rather focus on Ashland because they
have competition here," Ashland administrative-services director Dick Wanderschied
said.

The network was originally envisioned as a way of
protecting Ashland Electrical Utilities, a municipally owned power company that faced a
threat from the proposed deregulation of the Oregon electrical market. Even though
deregulation has stalled in the legislature, it's expected to resurface.

"It was during this big-picture brainstorming period
that the 1996 Telecommunications Act passed," opening the way for electrical
utilities to compete with entrenched cable operators, Seltzer said.

"We asked ourselves, 'If we build a system that
can support cable service and the needs of our utility, just how much can this
infrastructure do?'" he added

The result is a telecommunications network that will not
only allow AEU to operate more efficiently, but that will permit the city to get into the
cable business and to support five ISPs.

That's bad news for a cable industry fighting furious
battles against a growing number of local franchising authorities seeking to force their
incumbent operators to allow unaffiliated ISPs onto their high-speed platforms..

Wanderschied said he expects "a good percentage"
of local residents to elect to stay with their incumbent ISPs, especially since those
service providers will be able to deliver up to 5 megabits per second of high-speed
Internet access by using the Ashland network.

"You won't have to change your e-mail address,
for example. But with Falcon, you have to use their Internet-service provider,"
Wanderschied said. "That's going to have many people opting to buy from us,
rather than the incumbent."

Meanwhile, Falcon will be under pressure on the video side,
as well.

Seltzer said the city will offer cable at prices up to 20
percent below the incumbent. Its offerings will start at $6.90 per month for 11
community-access, educational and broadcast networks, increasing to $34.52 for a
79-channel package, not counting premium services.

The community expects to roll out its service on a
neighborhood-by-neighborhood basis over the next 18 months.

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