NEW BROADBAND PLAYERS RETREAT FROM CABLE, TELECOM MARKETS

WOW, for example, once aimed to build competitive systems for Internet and other broadband service in Denver, Dallas/Ft. Worth, Houston, St. Louis and Tucson areas, among others. But, having run through much of its initial $53.5 million in capital, it’s focusing just on Denver, where it plans to start service soon and hopes to sign up 20,000 customers by year-end. Capital crunch has “kind of made us focus on one market for now,” Haverkate said. “Instead of trying to do everything at once, we're doing it more sequentially.”

Overbuilders also blame their woes on stiff cable and telco resistance to their competitive forays, particularly in Boston, N.Y., Philadelphia. They cite unfavorable court and FCC decisions and reluctance by many municipalities to license BSPs under new, less regulatory open video system (OVS) framework established by Congress in 1996 Telecom Act. “Unfortunately, the OVS model has not proven as attractive as one might have hoped due to a variety of factors,” said RCN Vice Chmn. Robert Currey in testimony before the Senate Antitrust Subcommittee last week. While RCN operates OVS systems in some areas, it’s now mainly pursuing traditional cable franchises in Cal., Chicago, Northeast.

As result of unexpected capital crunch and other factors, cable operators, phone companies and ISPs find themselves facing fewer potential rivals than they did last spring, when more than 15 BSPs were building or planning to build fiber-rich systems that could offer cable, telephony and high-speed data services. In Philadelphia, for instance, RCN recently pulled back from its intent to build $200 million system that would have competed against Comcast’s cable system and Verizon’s phone network. While RCN officials say they withdrew from Philadelphia because of lengthy franchise delays and Comcast’s role in blocking franchise and access to local sports programming, cable officials and independent observers place more blame on financing squeeze. “Although RCN has historically enjoyed good access to both the debt and equity capital markets, this access is clearly much more restricted in the current and anticipated future market environment,” Moody’s said in recent report downgrading RCN’s debt ratings.

Western Integrated Networks (WIN) indefinitely postponed plans to build competitive cable-telecom networks in Austin, San Antonio, San Diego, Seattle. While overbuilder is moving ahead with simultaneous construction in its first 2 cities -- Sacramento and Dallas -- and intends to start in Sacramento by fall, it has put 4 other systems on hold. “Clearly, we have not been immune to the goings-on in the capital markets,” said Shiraz Moosajee, vp- business development for WIN. “The important thing is, we're still around.”

Same couldn’t be said for several other BSPs that got off to later start than RCN, WOW and WIN. At least 2 younger overbuilders -- Digital Access and American Broadband -- dropped by wayside recently before they could connect first customer, despite raising up to $450 million apiece. Digital Access shut its doors early last month after gaining franchises in 4 large metro areas and beginning construction in Kansas City. “The [business] model works if a reasonable amount of leverage [debt] is applied to equity,” said CEO Joseph Cece, who also was targeting Indianapolis, Jacksonville, Milwaukee, Nashville. “That leverage is simply not there right now.”

Despite pulling back, surviving BSPs said they remained bullish about prospects for their competitive systems. Offering bundles of cable, telephony and high-speed data, they still aim to sign up 15%-30% of local market for each service over next 5 years. But they're far less bullish about outlook for capital markets over next few months as economic slowdown continues. “I think you need to ask somebody named Greenspan about that,” Moosajee said.