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Elbowing their way in

Sun, 04/30/2000 - 8:00pm
Jeff Baumgartner, Senior Editor

And to think some people have been complaining that the Telecommunications Act of 1996 was a bust.

That piece of legislation, which effectively deregulated the telecommunications industry to spur competition in the local loop, has indeed taken time to have an effect. Today, however, network "overbuilders" are returning en masse, loaded with confidence, flush with cash and ready to take on cable operators that have become media giants.

The cable industry is no doubt experiencing a sense of deja vu—having weathered brief bursts of competitive activity in the past from the likes of telcos and utility companies. But back then, overbuilds invariably became real-world examples of suicide economics—incumbent operators would lower their prices to match the ones offered by the newcomer and squeeze him out of existence.

Today, these competitive providers are coming to market with a full suite of services—not just video. They're rolling out voice, video and data and offering single-bill solutions. They are localizing their content. They are providing outstanding, and rapid, customer service. This time, the game should get a lot more interesting, because the services these overbuilders are offering are compelling, and their chances of economic success are much brighter.

After a team of two and $600,000 helped Knology get off the ground in 1994, the company has quickly grown to hold eight franchises, roughly 306,000 marketable homes passed, and has installed more than 138,713 "connections" that support either analog and digital video, high-speed data or local and long distance telephone services in the southeast region of the United States. Before it started striking deals for its own local service franchises, West Point, Ga.-based Knology got started when it purchased Montgomery CableVision and Entertainment and American Cable in Columbus.

While the term "overbuilder" is often used to describe a company like Knology, "Broadband Service Provider" or "Integrated Service Provider" might be a more proper nomenclature, says Rodger Johnson, Knology's president and chief operating officer.

"Using the 'overbuilder' label doesn't describe the bundle of services that we have out there," he says.

Knology's franchise footprint currently includes Huntsville and Montgomery, Ala.; Augusta, Columbus and West Point, Ga.; Charleston, S.C.; Knox County, Tenn.; and Panama City, Fla. The company has also filed for franchises in Nashville, Tenn., as well as the Nashville suburbs of Brentwood, Franklin and Williamson County. A franchise in Knoxville, Tenn. is "imminent," says Johnson.

For the foreseeable future, at least, Knology is content to target only southeastern U.S. markets. "Our strategy is to stay focused on our region, but it doesn't preclude us from considering other areas some day," says Johnson. "We're trying to focus our energy on a market that we believe we know better. We live and work in the South, so we think we know that market very well."

In addition to its familiarity with the market, Knology is driven to operate in the southeast because the company owns a telephony switch there. "It keeps us in a universe," explains Johnson, "where the backhaul of that traffic into our switches is more economically attractive to us, as well."

While Knology currently employs circuit-switched telephony equipment, that could change if IP telephony technology proves to be viable for Knology's business strategy.

"We constantly evaluate new service opportunities, and I think IP telephony is one thing that we anticipate there will be a future for," says Johnson. "It then becomes a question of when and where, and to what extent. We're not going to do anything (with IP) immediately, because we already have a very solid telephone infrastructure in place."

Technology aside, Knology is using a personal touch to enhance its presence, a tactic that incumbent cable operators have used for years in their efforts to stave off competition from the likes of DirecTV and EchoStar, as well as companies like Knology.

In addition to employing basic marketing tactics like direct mail and advertising, Knology, at least in markets where service is introduced node-by-node, will also knock on the doors of potential customers as part of a soft launch that's designed to keep demand in check. The idea is to put a face on the company, and not just prompt prospective customers to call a phone number or visit a Web site.

"We'll sometimes do what we call a 'Saturday Blitz'," says Knology spokesperson Darenda Huguley. "We'll set up a tent with a Knology banner and have sales reps in neighborhoods that just became serviceable."

Adds Johnson, "We'll go door-to-door, trying to create that local identity. It makes the relationship become much more personable. We want to be your hometown provider of these bundled communications services."

As part of Knology's community involvement, the company also hosts local events like cable modem workshops, and similar to the cable industry's Cable in the Classroom initiative, installs video and cable modem services in local schools.

To further its local presence, Knology won a deal to become the exclusive provider of television, data, Web hosting and local and long distance service for the Charleston Area Convention Center starting this spring.

So, what's Knology's end-game?

"Our vision is to be able to deliver our services in markets where we can ultimately pass two million homes," explains Johnson. "If you look at cities like Nashville, which is a little bit larger than some of the other cities that we've done, we may be able to get 200,000 to 300,000 homes passed out of a market like that and put it toward that goal. We expect a six- to seven-year timeframe to build out that entire universe."

Dependent on Knology's continued success, however, that goal could be a moving target. "Goals can be redefined," Johnson continues. "If the visions and prospects look good at that point in time, we can always re-up and go some more."

While not considered part of the close-knit "cable village," Knology has not been remiss in tapping some of the industry's standards initiatives, including DOCSIS and OpenCable.

Indeed, Knology has migrated its cable modem services from proprietary equipment to DOCSIS in all but two markets (Columbus and Montgomery), and plans to do it everywhere as soon as possible. "We feel that the market will ultimately become a retail market for some of these services," says Johnson.

In terms of set-tops, Knology says it tries to engineer its networks in a way to make sure that it doesn't experience interface issues when the boxes eventually hit store shelves.

Though it has met some resistance from incumbent cablers and telcos, Knology hasn't seen anything out of the ordinary.

"We'll see (the incumbents) make some adjustments to their prices and launch some aggressive marketing where they have not upgraded their facilities," says Johnson. "Frankly, we welcome the competition. It helps us stay on our toes, and makes us be more creative about how we can service the customer. That way, the customer actually wins."

E-mail: jbaumgartner@cahners.com

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