On October 29, alternative broadband service provider WINfirst launched its next-generation, fiber-to-the-home (FTTH) service to select residents of Sacramento, Calif. with the message: "Bringing colors of light into the home." It also brought to light a flurry of hoopla, analyst skepticism and competitive grumbling from incumbent cable, telephony and ISP competitors.

WINscreen, developed by Canal+ and WINfirst, 
serves as the navigation tool for the service provider’s digital cable product.

No matter, WINfirst insists. It knew what the reaction would be, and thus far the Denver-based multi-service provider (aka overbuilder), founded in November 1999, is pushing ahead with its promise to provide what it believes customers crave: video, voice and data services from one company on one bill, with unmatched customer service. What a concept.

And what a challenge. Competitive market pressures from stalwarts such as AT&T, Pacific Bell and a host of ISPs and long distance phone companies, along with a parched capital market and scary FTTH per sub installation costs of between $1,000 and $1,500 ($600 is average for hybrid fiber/coax networks) are making WINfirst's triple play vision an exercise in sheer determination, albeit with some potentially impressive upsides.

Despite those road hazards, WINfirst expects to have about 25 percent of its Sacramento market built by year-end 2002. It plans to complete the project in five years at a cost of about $500 million. So far, so good.

"The business plan has been scrubbed by analysts, investors and partners, and all have been pleased with the expected return on investment (ROI) of three to five years, and the reception in Sacramento has been very pleasing to investors," says Frank Casazza, president and COO of WINfirst.

WINfirst is backed by a group of quality investors, including Duff Ackerman & Goodrich, GE Capital, J.P. Morgan, Madison Dearborn, Oak Investors and others. It now sports more than $900 million in equity, and strategic alliances with construction giant Bechtel Group, which is building WINfirst's Sacramento plant, along with Accenture, Canal +, Ceon Corp., Level 3, Lucent, Philips and others.

"A big step was to identify strategic partnerships to build out the network, and there were only a few companies that could do it, so Bechtel is doing the heavy lifting construction in Sacramento, Lucent the phone business and Accenture the OSS. The challenge now is to manage the size of the build. It's not rocket science, but each of the parts, such as headend equipment, telephone, routers, data center and customer care center, all present their own set of challenges. They're bumps in the road, but we're resolving them," Casazza says.

WINfirst is offering an impressive mix of 280 channels of digital TV, 80 premium multiplex services, PPV and VOD (400 titles), 45 digital music channels, 10 Mbps Internet connection, and local and long distance phone service. When all three video, voice and data services are taken as a bundled package, customers get a 21 percent, or $40 per month, discount, the company says.

"Sacramento has opened its arms to us. Clearly, customers are interested in taking all three services, which most have been doing. The response rate has been incredible," boasts Bill Brovsky, vice president of sales and marketing for WINfirst.

It better be incredible, analysts caution. With less than 20 percent of Sacramento built, the jury is still out as to just how successful WINfirst will be there, not to mention the other markets it expects to build in, most notably Los Angeles, which is expected to cost a staggering $1.5 billion.

Add to the mix an awakening den of competitive giants in Sacramento and other potential WINfirst markets, along with a near non-existent capital market, and WINfirst is already scaling back plans for its Dallas build. "The capital markets have caused us to slow our Dallas market build. We've committed capital to Sacramento, but must find new capital and strategic partners. We have significant builds in front of us, like L.A., but if we can demonstrate execution in Sacramento, we can prove this isn't just a business plan, but a successful business concern," Casazza notes.

What concerns most analysts is WINfirst's funding. "It's (FTTH in Sacramento) a good idea in theory and has the potential to take market share away from cable, telephony and DBS," says Keith Kennebeck, analyst for the Strategis Group. "But financing is the problem. It's very costly and ROI is needed to keep the operation funded. L.A. will take serious money at $1.5 billion, and each network will cost $500 million to $1 billion. Given the tight financial markets, they'll have trouble financing new sites," Kennebeck notes.

WINfirst, Casazza says, is addressing that very issue. "We're formulating a capital funding strategy right now and it will depend on how the capital market rebounds, then we'll go back to our original capital market. We have the resources and partners and want to take the key learnings from Sacramento and apply them to new markets as quickly as possible."

Speed counts, analysts say, especially in the intensely competitive video, voice and data markets. "It's a tough market, and the incumbents are very powerful, so lots of favorable market conditions must exist, but good financing is the key," Kennebeck says.

Despite myriad questions about the future of FTTH as a business, most analysts agree its future could indeed be bright, with Sacramento being a classic benchmark case-in-progress. Concludes Kennebeck: "In the future, when broadband interactive services intensify, companies like WINfirst will be prepared for almost unlimited capacity. But it's a very risky business, and they need penetration rates now."

Getting to those rates will require a strategy to differentiate WINfirst from its competition, experts say. "They wanted to differentiate themselves across the board, and there are a lot of doubters about the network architecture, FTTH, etc. and that it's cost-prohibitive. But we're proving you can deploy this network topology, offer competitive products and make a business out of it. There are still some road blocks, but it will cause those initial doubters to take a second look," says Dave Moss, president and CEO of Canal+ Technologies Inc., a partner in the WINfirst Sacramento build.

WINfirst's competitors are taking a closer look as well, albeit with a laissez-faire attitude, at least publicly. "They (WINfirst) are in a limited, small service area, and certainly from a customer service perspective, it means more competition for us. But we face significant competition already. We believe the more providers, the more broadband customers, so overall the competition should make us better and heighten the awareness of broadband services," replies Brian Dietz, executive director of communications for AT&T Broadband in Sacramento.

WINfirst is taking a similar non-aggression stance. "We have no desire to attack AT&T head-on. We want to build a network that's never been built before. It's about proving the concept of more channels with quality pictures, VOD, Internet and telephony from one company. We want to be sure this business model works in Sacramento first before moving into new markets," explains Brovsky.

WINfirst’s 186,000 square foot facility in Sacramento.
Yet getting past Sacramento will require some creative marketing and finance strategies, two challenges WINfirst has no illusions about. Admits Casazza: "There's a marketing challenge in signing up customers to all three products when you're new in each space. How do we differentiate ourselves from the competition? We've learned from customers that service is the key."

As a result, WINfirst deployed live humans to answer phone calls and schedule specific appointment times (as opposed to using two- or four-hour windows). Then, the company integrated all three services on one bill. "Those (features) will separate us. Now, we're getting a resounding 'yes' from our customers," Casazza notes.

Just exactly how many customers WINfirst has landed remains a closely guarded secret. But the company's build in S. Natomas, a Sacramento suburb, has already passed 20,000 homes. A year from now, WINfirst projects its build will pass 120,000 of the 450,000 homes in the franchise area.

Just how resounding a response WINfirst gets in its next round of funding will likely define the company's future, experts suggest. "Can WINfirst survive without making much money from customers during penetration level buildup? The model is questionable, and the market is tight, but if WINfirst can continue collecting large amounts of funding and can finance its operations, it has the potential to gain market share," Kennebeck concludes.

With its advanced FTTH network, central processing center, self-healing primary ring and enough cash to build Sacramento, WINfirst is betting it can. Extols Brovsky: "We want to get away from branding ourselves as a cable or telephony company. We're a different company and want to pay attention to what the customers want and do customer service right. The results thus far are proving that model right."

Whether that model can be extended to WINfirst's franchises in Austin, Dallas, Houston, San Antonio, San Diego and most notably Los Angeles, lies with the success it has in its Sacramento debut.

Whatever the outcome, a large group of industries and companies will be observing just how successful WINfirst is in "bringing colors of light" into its customers' homes, and whether one of those colors will turn green.