Portland Likes Overbuilders

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Regulators in Greater Portland, Ore., are sufficiently
impressed with the qualifications of two potential overbuilders -- WideOpenWest LLC and
RCN Corp. -- to pursue possible franchises for both to compete with AT&T Broadband in
the region.

They expressed concern about the long-term viability of
four companies in the market -- the overbuilders and incumbents U S West and AT&T
Broadband. But members of the Mount Hood Cable Regulatory Commission concluded that
consumers in the community would be no worse off if one of the ventures failed.

"We need to take some risks in order to get some of
these services in the city," commissioner Susan Diciple said during a meeting last
Thursday night that was broadcast over the Internet.

The commission issued a request for qualifications last
year. When the city of Portland became the first in the nation to require AT&T
Broadband to open its high-speed-data platform to competitors, the operator responded by
removing the city from its product-deployment schedule. Portland responded by soliciting
competitors.

MHCRC cable director David Olson said officials have come
to "substantial agreement" so far on franchise terms with WOW, and RCN has been
"diligent in bridging issues."

The companies have diverse plans for the breadth of
deployment and products. WOW proposes building in Portland and four surrounding cities,
investing $515 million in a plant that will deliver high-speed data, video and
Internet-protocol telephony. That investment comes out to about $45,000 per plant mile,
plus connection and consumer-equipment costs. It projects system build-out in four years.

"Our projections are conservative and realistic,"
WOW president Mark Haverkate said. He pledged cable service at a lower price with better
service than the incumbent.

RCN's build-out is targeted more to Portland. It
projects an investment of $490 million for a system capable of delivering local and
long-distance calls, video and data.

Because of the smaller system and the expensive telephone
switching equipment, its cost per mile is estimated at $165,000, according to city
reports. Build-out is planned in seven years.

Cannibalization of the incumbents' customer bases
seems vital if both companies are to survive.

WOW's business model is based on cable penetration of
14 percent, eventually growing to 24 percent, with 18 percent Internet penetration. RCN
projected 32 percent video penetration by 2010, 15 percent penetration of Internet sales
and 28 percent penetration of telephony customers. Both companies predicted negative cash
flow through 2006.

There are "substantial uncertainties" about the
ability of all the companies to operate, according to a city analysis. It's clear
that not all of them will meet their targets, the analysis continued.

An AT&T Broadband representative urged the
commissioners to craft agreements equal to the requirements the incumbents abide by,
adding that bonding should be sufficient to protect the community if one of the ventures
fails.

Commissioners, too, are worried about the specter of plant
abandoned in midconstruction. They instructed staff to come up with bonding requirements
that are stringent without creating a barrier to entry.

The body also strongly supports public access and urges the
creation of requirements that are "commensurate with, but not identical," to
AT&T Broadband's package.

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