WideOpenWest LLC has scrapped plans to overbuild San Antonio and Austin, Texas, and it will instead focus on competing in Dallas and Houston.
The Colorado-based start-up withdrew franchise applications in San Antonio and Austin last week in order to concentrate on serving more than 1 million households in the Dallas metroplex and 850,000 homes in and around Houston.
Observers said the decision may signal that overbuild fever is cooling as competitors worry about too many service providers chasing the same dollars.
"At some point, your market becomes saturated. It's just not enough to survive," Austin director of telecommunications and regulatory affairs Michael D. Parks said.
WOW president Mark Haver-kate said consumers would not be served by so many service providers "piling into one area. We have to spread out and concentrate on areas where each company's opportunities for success are greater."
The company's decision to focus on Dallas and Houston does not leave San Antonio and Austin without prospective competitive telecommunications providers.
San Antonio has already approved a cable franchise for Western Integrated Networks LLC, a Colorado-based start-up outfit headed by former FrontierVision Partners L.P. president James Vaughn. A second franchise, for Grande Communications, is expected to be authorized this week.
Both WIN and Grande have been granted franchises in Austin, where they will compete against one of Time Warner Cable's most technically advanced networks.
"I don't think WideOpenWest's withdrawal will have any significant impact on our schedule for constructing and activating our networks in San Antonio and Austin," WIN vice president Bill Mahon said. "Our plans and activities are so that we can start offering our services at the earliest possible moment."
But Parks said WIN and Grande will still have to fight an entrenched incumbent, as well as each other, if they proceed in San Antonio and Austin.
"I don't know if you want to fight a battle to the rear and the front at the same time," he added. "I'm still not convinced that there are going to be two complete overbuilds here."
Theoretically, WOW has left the door open to re-enter both markets if WIN or Grande stumbles out of the starting gate.
In the meantime, its withdrawal eases some concerns for city officials, who worried about having multiple cable providers operating in their rights-of-way at the same time.
Elsewhere, sources indicated that WOW may be ready to abandon plans to enter the Sacramento, Calif., market, where city officials confirmed that the company has yet to submit the proper documentation.
Dropping San Antonio and Austin does not indicate that WOW is having trouble financing its plans, Haverkate said. The company plans to spend some $830 million building networks in Dallas and Houston that will go head-to-head with AT & T Broadband. Haverkate also hopes to raise another $200 million in private equity this summer.
"A lot of people are interested, especially in high-bandwidth Internet services," he added. "Since there's nothing stopping the demand curve for that service, it's going to be something everybody gets in on during the next two to three years. It's going to be sort of like cable was in the early years."