Tiny-System Subs Demand Cable Modems

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Matrix Cablevision Inc. of Los Gatos, Calif., is so small
that the independent operator handles all of its own accounts and billing. It doesn't
have the capacity to do pay-per-view, but it has gotten into the cable-modem business.

Matrix's customer base demanded it. Subscribers of the
435-customer system, near California's Silicon Valley, apparently will accept 47
video channels, but they clamored for the high-speed data that they've read about.

Beginning in April, the operator began giving it to them,
using one-way (telephone-return) technology.

"Economically, it's a no-brainer. I break even at
30 homes," said Brad Daniel, president of Matrix.

The operator signed up with high-speed-data turnkey
provider ISP Channel Inc. so that it could offer data in advance of its planned upgrade
from 450 megahertz to 550 MHz and two-way capacity 18 months from now.

Daniel said the move is economic because ISP Channel pays
for the installation of the T-1 phone lines to enable the technology, and the headend
hardware is convertible to two-way when the rebuilt is complete.

"One-way technology works fine. [A total of] 80
percent of the use of the Internet is downloads, and that's the direction of the high
speed ... I'm a little surprised that big MSOs are opting to wait [for rebuilds to be
completed]," he said.

Not all MSOs are waiting. Some analysts predicted that
operators may expand their telco-return plans -- especially smaller operators -- in order
to head off telephone companies' inroads into high-speed data via
asymmetrical-digital-subscriber-line technology.

With improvements in technology -- such as a headend
chassis with a programmable card that can be swapped out when a plant is rebuilt to
two-way capability -- operators can cost-effectively launch one-way cable modems now, said
analyst Michael Harris of Kinetic Strategies Inc.

Potential competitive pressure was a consideration for
Western Shore Cable Television, which serves 20,000 customers near Air Station Pawtucket
in Maryland, outside of Washington, D.C. The demographic is tech-savvy, so general manager
Michael Laigle was confident that there was a good market for modem users there. Western
Shore launched as a beta-site for HSANet in December 1997, because an executive in the
company is friends with HSANet president and chief operating officer Ron Pitcock.

Now, "we have the best of both worlds," Laigle
said. The system sells one-way service in the area that is served by the five nodes that
it hasn't upgraded and two-way from its two rebuilt nodes. Customers pay $39.95 per
month for either version, plus $9.95 for modem rental, or they can buy the Com21 Inc.
modem outright for $250. A total of 6 percent of the customer base has signed up for
HSANet, he added.

Bell Atlantic Corp. is "not a big threat" in the
high-speed-data business yet, but the operator wanted to get to market before the
telephone company deployed ADSL, Laigle said.

Executives from another one-way user, Horizon Cable
Television in Northern California, doubted that the local telco -- Pacific Bell, part of
SBC Communications Inc. -- will ever reach its rural communities of Point Reyes, Inverness
or Olema. But the company launched cable modems because the customers in the 850 homes
that it serves asked for service.

The communities are close to San Francisco, and they have
high-tech home workers, like graphic designers. Even with regular dial-up Internet-service
providers available, they called the company to ask about modem deployment.

Horizon's president, Kevin Daniel (brother of Matrix
Cable's president), said he checked out turnkey modem providers and settled on ISP
Channel as the fastest and most economical.

"It's a pretty slick setup for small operators.
[ISP Channel] monitors all of the charges, and it splits the revenues with me," he
said.

Daniel has played with the product, and he said,
"Calling in on the phone is not that big an obstacle."

Horizon is in the midst of final field-testing of the
product, for which it will charge $49 per month. The company will rebuild its plant from
350 MHz to 450 MHz, then convert to two-way next fall, Daniel said.

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