Overbuilder Seren Could Stir Things in Denver

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Denver -- The cable arm of one of the nation's largest
investor-owned utilities hasn't ruled out taking on AT&T Broadband & Internet
Services in its own backyard.

Moreover, with deregulation looming, industry watchers
said, more and more major utilities are prepared to become "serious players" in
the telecommunications business.

But for now, Northern States Power Co., Minnesota's
largest electrical and natural-gas utility, remains the most aggressive when it comes to
pursuing a cable strategy.

Its Seren Innovations Inc. subsidiary said Colorado is one
of several regions it's looking at as it hatches plans to continue expanding into
cable.

Presumably, Seren's possible entry into cable's
capital city here would follow NSP's planned acquisition of New Century Energies, the
assets of which include Public Service Co. of Colorado (PSCO).

But Denver wouldn't be the first community where Seren
would go head-to-head with a former Tele-Communications Inc. system.

On May 10, the company began offering cable, local,
long-distance and Internet-access service in St. Cloud, Minn., competing against a former
TCI system now operated by Bresnan Communications. The build-out cost: $26 million.

The bundled package -- which will include 58 channels of
cable programming, Internet service at speeds of up to 1.5 megabits per second and one
local phone line -- will be priced at less than $70 per month.

Elsewhere, Seren has also applied for franchises in Walnut
Creek and Concord, Calif. -- two AT&T Broadband strongholds in San Francisco's
East Bay area. That project is pegged at $143 million, and more are apparently on the way.

"I'd say stay tuned," Seren CEO Glynis
Hinschberger said. "We're not stopping here."

Although no decision has been made on Denver, Hinschberger
admitted to "preliminary" talks with some northern Colorado communities that fit
the company's criteria of midsized markets with attractive demographics.

"If you look at Denver and the surrounding vicinity,
it certainly has prospects," she said.

Demographically, the metro area would appear to be a gold
mine. Its population of 2.1 million residents is squeezed into a six-county area served
almost exclusively by PSCO.

Among the adult population, 92 percent are high-school
graduates and 35 percent are college-educated, with an effective buying income (income
after taxes) that ranks above the national average, making them ideal candidates for the
advanced services Seren would offer.

"Clearly, there are a lot of things in Denver that
would meet our goals," Hinschberger said.

But it won't be easy to compete for those lucrative
subscribers in Denver, where AT&T Broadband has signed up 75,000 digital customers
citywide, launched its high-speed TCI@Home Internet service in upgraded areas and budgeted
$200 million for a complete rebuild that will introduce a host of new services, including
telephony.

"From our standpoint," AT&T Broadband
spokesman Matt Fleury said, "competition is the rule, and not the exception, in all
of our markets. And because we expect competition to intensify, and not diminish,
we've taken the next logical step to be more competitive by upgrading our
system."

Hinschberger wasn't worried, though, noting that
Walnut Creek and Concord were concerned enough about their existing cable service to
approach Seren about an overbuild. Moreover, the two communities are working together to
expedite the company's entry into the market.

"When somebody is working to bring you in, that's
pretty compelling," she said.

Meanwhile, Seren possibly invading Colorado would make
Denver -- where AT&T Broadband has more than 400,000 cable subscribers -- one of the
most competitive cable markets in the nation.

The race could get even tighter, experts said, when U S
West, the region's dominant local-exchange carrier, makes a move into video in order
to protect its share of the local telephone market from AT&T Corp.

"It's going to be interesting to see what
happens," said one Denver official who had already been informally contacted by Seren
officials. "We, as city officials, would be delighted to see it. We've always
held that open competition is the answer."

Experts said the merger of NSP and NCE provides Seren with
certain incentives to eye Denver.

First of all, PSCO already reaches virtually every home in
the metro area. Therefore, its existing infrastructure reduces the capital outlays needed
to launch an overbuild.

Moreover, PSCO has already been authorized to offer
telecommunications services by the Federal Communications Commission -- another leg up.

More important, the city's existing franchise with
PSCO may allow Seren to get around a local ordinance mandating that any new franchise must
go before the voters -- a requirement that telecommunications-service providers have
historically called a detriment to entering the local market.

Veteran industry observers, meanwhile, called the major
utilities "sleeping giants" that have awakened to the fact that deregulation of
their industry will require offering new services to consumers who will soon be able to
purchase their electrical power elsewhere.

"Not only wouldn't I be surprised [if Seren comes
into Denver], but I'd be surprised if more power companies didn't do something
like that," said Jonathan Kramer, head of Kramer.Firm Inc., a technical-consulting
outfit that advises municipal governments.

Another utility that has apparently seen the light is the
Long Island Power Authority in Long Island, N.Y., which is acquiring Long Island Lighting
Co. as a prelude to offering telecommunications services.

Key to any utility's entry into the telecommunications
business will be countless miles of fiber that the industry has spent years installing
between substations, Kramer said.

"They're realizing that the fiber they have in
place is a valuable distribution tool," he added. "Extending that out from the
substations to provide video is not going to be a big deal. And they're going to be
serious players because they'll be able to carry telecommunications traffic hundreds
of miles, and not just tens of miles."

Kramer predicted that those who choose not to follow
Seren's overbuild strategy will still have options.

One way would be joint ventures with operators of
open-video systems. Under that scenario, the utility would handle distribution, while the
OVS outfit took care of licensing and operations.

"[The utilities] would let the OVS operators show them
how the video business works," Kramer said. "Don't forget, most of these
utilities aren't that entrepreneurial. But are they run by smart businesspeople? Of
course they are."

Apparently, there are rumblings of other large
investor-owned utilities preparing to follow in Seren's footsteps.

Brenda Trainor, president of Frontier Trail Inc., a Las
Vegas-based consulting firm specializing in telecommunications and public policy, said
many of them are waiting to see how deregulation shakes out at the state level. Once
that's clear, they'll concentrate on divesting themselves of their
power-generating capacity in order to focus on distribution.

"Once they get rid of the power-generating side of the
picture, can you imagine the wad of cash they're going to have to invest [in
telecommunications]?" Trainor asked.

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