When Galaxy Cablevision undertook a network upgrade two years ago, it seemed a logical way to save on costs by consolidating headends.
This month, that upgrade turns into a moneymaker, too, as Galaxy starts collecting state funds from the Nebraska Department of Education for distance learning and high-speed data services.
The paycheck is large: One-time fees of roughly $60,000 per school from 30 participating schools, and about $279,000 per year in recurring fees collected from the aggregate schools.
Galaxy, headquartered in Sikeston, Mo. runs 550 cable systems in 16 states. In Nebraska, the MSO has been routinely interconnecting its 95 systems there, collapsing a widely-scattered topology into seven or eight system clusters per headend.
More recently, Galaxy's upgrade surpassed the predictable and also became a tale of how it and a vendor partner seized an opportunity, then fought to keep it.
It all started last November, when Galaxy approached the Nebraska Department of Education to see if there were any fits between local schools' needs and Galaxy's upgraded networks.
It turned out to be a well-timed call. The state was in the midst of planning how to interconnect four educational service units (ESUs 3, 4, 5 and 6) that served more than 60 K-12 schools in the same region.
At the time, Galaxy had already installed 350 strand miles of fiber in the southeastern portion of the state, which enabled it to gang 35 systems over four headends, executives explained to the NDE.
To educators, Galaxy's upgraded plant meant they could link 24 schools to three headends, says Terry Cordova, vice president of engineering for the MSO. Two weeks after it identified the distance learning application, Galaxy executives demonstrated the system to 175 educators. "We knew we had to work pretty fast to come up with a design for three of the ESUs," recalls Cordova.
Galaxy took along executives with Broadband Networks Inc., a State College, Pa.-based manufacturer, as a key technology partner that would enable the services.
Their pitch: To link Galaxy's fiber network directly to coaxial plant in each school, moving signals in an analog format, says Bob Beaury, president of BNI. "It's basic broadband — broadband plant dedicated to schools.
"The idea was to craft a hybrid fiber/coax configuration with fiber to the schools, and coaxial inside them," says Beaury.
Together, Galaxy and BNI showed educators how their analog solution could provide full-motion videoconferencing, wide area networking (WAN), high-speed data, and links to "NebSat," an educational satellite service.
"Frankly, it was a hit," says Cordova.
"Most of the schools had some form of dial-up Internet connection; some had a 56 kbps line," he continues. "We offered, as part of our basic package, to deliver Internet traffic over our fiber network, so that they didn't need the phone lines, and they, of course, had the high speeds of cable modems."
The NebSat link also raised enthusiasm levels among the educators. NebSat isn't fully available in rural areas of the state, so Galaxy demonstrated how the programming could be moved from the downlink to the fiber, then dropped off to participating schools.
Educators loved the idea. One school system in particular — Milligan Public Schools, which graduated nine students this year — was especially relieved with the link for sheer survival reasons. "They're fighting just to survive, and a distance learning network could save them," one BNI executive recalls.Enter: Telco threat
But, predictably, as acceptance levels grew from the educators, so did interest from competitors US West and Alliant Communications, two telcos serving different parts of ESUs 4, 5 and 6. Their counter pitch: Digital technologies.
Don Ferneding, manager of direct services for three of the ESUs, says the telcos and the Nebraska Telephone Association lobbied heavily against the analog approach pitched by Galaxy, pushing instead a digital scheme for the schools.
And, says Don Vanderheiden, a retired school superintendent who works as a consultant for the NDE's telecommunications projects: "There was actually a political move . . . to disallow any state funding for any projects that didn't use digital. It was not just a little thing," Vanderheiden continues. "It took several of us two months to get that fought and won."
The telco contingent proposed a digital scheme based on DS-3 lines, which Vanderheiden valued at $468,000 per year, based on a yearly line connection charge of $15,600 per school multiplied by 30 schools.
Links to the Internet at T-1 speeds (1.54 Megabits per second) were priced separately by the telcos, at approximately $1,300/year/school, says Vanderheiden.
Pinched for pennies, educational executives were underwhelmed by the pricey digital alternative pitched by the telcos.
"(Galaxy) offered twice the capabilities at 30 percent less cost. We're working with tax dollars here, so we had to find the best deals without sacrificing quality," Ferneding explains.
Despite enthusiasm from the schools, the next four months wrapped Galaxy in red tape. Executives were hauled off to meetings and public hearings around the state, to defend their pro-analog approach.
"It was a terrible political fight. (The telcos) were saying that analog is dead, and that Galaxy's approach was proprietary — pretty much anything they could come up with, to protect their revenues," says one source who was close to the negotiations, who preferred anonymity.
Ferneding says the schools rallied for Galaxy's analog approach "because we could get more bang for our buck — digital was too expensive." Plus, he was intrigued by Galaxy's high-speed Internet proposal, which offered connections at 10 Mbps, which were faster than telco proposals.
Ultimately, Galaxy was told it had to file for an intrastate telecommunications certificate.
At one point, according to Cordova, Ascent offered to match Galaxy's price. "But by then, it wasn't as much a cost issue as it was functionality, and we still killed them on video conferencing as well as data expandability."
In the end, Galaxy won. It received its telecommunications certificate in early July, and immediately began hooking up equipment to meet a September 15 deadline to have 30 schools operational.
Executives representing the Nebraska Department of Education were glad to see it happen. "It looked like (telco) was going to be the technology we had to use, until the cable company stepped up," explains Vanderheiden.
At press time, BNI was busily readying racks of equipment to ship off to Nebraska. In addition to all lightwave transmission and reception gear used in the network to connect each school, BNI is supplying "everything but the fiber plant — classroom equipment down to cameras and VCRs, as well as all the data networking equipment for the LAN and WAN," says Beaury.
For the high-speed data service, Galaxy plans to use headend and cable modem gear made by Bay Networks Inc. Students will receive a partitioned 10 Mbps link, says Beaury. That's so that some of the throughput can be dynamically assigned to control, conference scheduling and other applications.
Galaxy is planning to link another batch of 30 schools by early next year, executives say. On the plant side, plans are now underway to lengthen its fiber network to span 1,200 miles.
Galaxy is also in discussions with other Nebraska MSOs and independent telephone companies to create a statewide network for educational and other business applications.
"We've been able to show some of them the potential business, and they're excited about it," says Cordova. "It's a pretty significant revenue stream."