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Is High-Speed High Risk?

Tue, 07/31/2001 - 8:00pm
Michael Lafferty, CED Associate Editor

When high-speed cable modem service finally became a reality several years ago, many believed those modems and the service revenues they represented would eventually trickle down to the small- and mid-sized operators, but only after a number of years. Then, companies like ISP Channel and HSA Corp. came ashore, promising a fantastic turnkey approach to high-speed access for independent operators.

Those companies had business plans that called for them to take on the lion's share of the upfront costs for equipment and software in exchange for a not-too-small piece of the revenue pie. Suddenly, high-speed access for small- and mid-sized operators became a reality.

Turnkey turkey

But these same small- and mid-sized operators got an unexpected holiday surprise late last year when the ISP Channel announced it was closing up shop by the end of 2000. The sudden departure from the turnkey arena left many operators scrambling for a way to salvage their high-speed access business.

ISP affiliates had little time to sketch out a Plan B before ISP Channel apparently rubbed salt into the fresh wound. One person close to the situation who preferred not to be identified said that ISP Channel tried to sell the equipment it had installed in headends to the operators who were left holding the Internet bag.

"In most cases," said the source, "what they (the operators) found out was that ISP Channel severely overbought for what was needed in these markets. So, when they were presented with a bid for buying all the gear in their headends, there was definite sticker shock."

Then, this past spring, the ISP Channel chill hadn't even left the air when High Speed Access Corp. announced it was getting out of one-way high-speed service (with its expensive T-1 telco return) and that it was sidelining the turnkey approach in exchange for network service arrangements where the operators would take on more of the financial burden.

By all accounts, HSA has tried to ease concerns and the transition for those systems affected by the one-way withdrawal. But, as one source notes, it hasn't been easy for operators who expected HSA to fill a void.

On the rebound

Apparently, independent cable operators are a resilient lot. The ISP Channel/HSA wounds had barely started healing when many of the affected operators decided they had to act. For some, it meant forging new kinds of agreements with companies that provide expertise and assistance to service providers like themselves. For others, it meant striking out on their own into unfamiliar, and often choppy, Internet waters.

MetroCast Cablevision has three systems serving nearly 40 contiguous communities in central New Hampshire and southern Maine. Two of the systems are already two-way; the third will be upgraded to 860 MHz in a year. All told, there are about 62,000 subscribers stretched out over 2,000 plant miles.

Steve Murdough, director of engineering for MetroCast, says the company was originally an ISP Channel customer before it purchased a few systems from New England Cablevision. Those systems had their own high-speed data service that was created as a result of a partnership with a local Internet service provider (ISP). That partnership would prove to be a valuable asset.

"When ISP Channel went away," says Murdough, "we took the route of rolling what was the ISP Channel into the existing partnership with the local ISP. Currently, we now have our own service–MetroCast Online. The ISP partner provides the link to the infamous cloud in the sky–the Internet– and technical support."

Forging a similar local partnership, says Murdough, may be a key other operators could use, not only for technical know-how, but also to gain increased customer loyalty.

"I'd strongly recommend that if you're not going to do it yourself completely–and there's always the issue of having the talent on board–I'd look to a local provider who is familiar with routing issues, access issues and has a support desk already in place," Murdough tells his brethren. "I think with that partnership we have a much better relationship because they are local. And, I think they take a much stronger ownership of the customer with you."

Partnering up

Another local partner advocate and practitioner is Carson Communications in Wetmore, Kan. Bob Carson, president and general manager of the company, says it has about 3,100 subscribers being served out of one major headend and a few smaller headends on a two-way system that was designed for 750 MHz, but activated at 550 MHz.

Carson says he bought five systems from Falcon in early 1999 with the idea of totally rebuilding them. The rebuild included 60 miles of coax and 20 miles of fiber. He laughingly recalls that once the company prepared to activate the reverse "it happened so smoothly, I felt bad about it. I wondered when the hell Murphy (of Murphy's Law fame) was going to jump up and bite me."

No teeth were ever bared, however, so Carson focused on giving his subscribers high-speed access. He had very definite ideas about how it would be accomplished–with local help–and the effect it would have on his high-speed take rate.

"We wanted to do it ourselves so that when people look at us, we are their Internet provider. We knew we had to partner with somebody to help us get certain links and other things like the help desk environment.

"Eventually, we partnered with a (Kansas-based) telephone company that already had a good help desk up and running. It had dial-up under its belt, as well as DSL. So, we felt that was a plus and we partnered with them to provide our help desk and some of our engineering.

"We launched the service May 2. We're doing the installation ourselves, and we just installed the 76th customer today. There are 50-some pending orders. So, we feel we're doing great."

Carson says he knows many operators similar in size "are fearful of committing the dollars that it takes to buy a full T-1 (1.55 Mbps) service, not knowing what their take (rate) will be." He thinks they should forge ahead. "I wouldn't recommend trying to buy a partial T-1 or anything like that," says Carson. "If you're going to do it, take your hit upfront and get it all done." But also, he says, "make sure of your service quality."

Carson believes high-speed access is only the first step of many along the digital highway. "We're of a mind that we want to get ahead of the curve for once," says Carson. "It's paving the way for the digital tier. It's paving the way for telephony. It's also a retention device for the video side of things."

One step at a time

Not all independent operators are as gung-ho as MetroCast or Carson. Cable Management Associates (CMA) has approximately 45 headends in nearly 60 communities in Texas, Louisiana, Mississippi and Nevada. Those headends serve anywhere from 40 to 6,000 subscribers each. A small percentage (10 percent) of its plant is two-way.

Mark Reaves, vice president of systems operations for CMA, says that the HSA withdrawal from the one-way market forced his company to do the same. In order to stay viable, Reaves says, he would have been forced to bring the entire service in-house and "throw labor at it," which he wasn't willing to do. "I'm looking at systems that had maybe one or two percent penetration," says Reaves. "You're talking about 20 or 30 people. It's not a huge issue. Unfortunately, the 20 or 30 who had it loved it."

For now, Reaves and company are dedicating resources to launch a digital video product. That's because "it's an instant revenue stream, where Internet access is probably a little futuristic at this point. "We feel like the competitive threat is much higher in the video market right now, than it is in the Internet market, especially in these rural systems."

A good portion of his reasoning on this comes from his belief that a $50 cable modem service is too expensive for people who "are pretty happy with the $20 (dial-up) service and getting their e-mail every day."

Aye, aye matey!

For better or worse, some operators don't have that choice. Phil Shockley, co-owner and general manager for employee-owned Communication Services, had little wiggle room when it came to deciding whether to deploy two-way high-speed access.

His company serves the Pt. Mugu Naval Air Station north of Los Angeles, as well as a few other nearby communities and apartment complexes...by microwave. The company's total subscriber count is in the neighborhood of 2,500 to 3,000.

Shockley says the original decision to provide high-speed access to the somewhat isolated base was a no-brainer. "We were under a lot of pressure from the base commander because Internet access became a quality of life issue," says Shockley. "Quality of life issues are a big thing in the military now because they want to keep their people.

"This is a missile-testing base, and they're all techies out there with their computers in their homes, and 19 kbps (dial-up) just doesn't get it."

The ISP Channel sinking left Shockley adrift with his two-way system on the base. He considers himself lucky for finding a company that could step in and steady his high-speed service. "We feel very fortunate," says Shockley, " to have found ParaLynx (see sidebar). These guys saved our butts."

Shockley's challenge now is to make his microwave communities two-way. He's currently in the process of activating a dark fiber that runs up a nearby mountain (Laguna Peak) to his microwave facility.

"Once we get that return fiber tested and up and running," says Shockley, "we're going to try a new system from Wireless Bypass (www.wireless-bypass.com). It's a UDL 2300 cable modem return system that enables people with microwave links to put in a return path without going to the expense of putting a full bandwidth transmitter/receiver in. They make a narrow bandwidth transmitter/receiver that operates at 23 GHz and goes up to 10 miles and gives you a return path on your microwave system."

Strategic partnerships, whether it's someone like ParaLynx or Wireless Bypass, are important, says Shockley. The key, he says, is choosing the right partners in the first place.

"The one thing that I would recommend operators do before they get in this," says Shockley, "is to find somebody they can partner up with, because a small operator, for example, doesn't want to handle the technical support.

"If you don't have people in your company who are familiar with networks and computers, before you even get into it, you need to get out there and find yourself a good partner."

 

Stepping into the void

The demise of the ISP Channel and the strategic withdrawal of HSA Corp. have opened the way for new companies and new business models. We'll-take-it-all-off-your-hands turnkey is passe´. Mutually beneficial partnerships are gaining ground. Below are just a few companies that have stepped up to fill the void.

Network IP

www.networkip.net

Based in Longview, Texas

Pete Pattullo, president and CEO, describes his company as a wholesale ASP–application service provider– for small- and mid-sized cable operators.

The Web-based company allows service providers to access and control all of their operations over the Internet. Among other things, it provides an Internet-accessible back office system with real-time billing, self-provisioning, customer service and E-commerce.

ParaLynx Internet

www.cablerocket.net

Based in British Columbia, Canada

ParaLynx offers a full suite of Internet-related services to small- and mid-sized cable operators and their customers (both residential and business alike) including: equipment sourcing, Web access, e-mail, news access, accounting, customer service and technical service support, marketing and Web hosting.

ZCorum Inc.

www.zcorum.com

Based in Alpharetta, Ga.

ZCorum provides an array of advanced Internet and communications products and services including Web-based customer care and operations support systems, system design and equipment sourcing, integration services, marketing, private-label portal design and maintenance.

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