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Boom Times in Cable Town Again

Denver - For Mark Haverkate, these days are reminiscent of an era when a group of unknown entrepreneurs made this city the home of the fledgling cable industry.

That's because Denver is again attracting a lot of attention from wireline multichannel-video providers, only this time as one of the nation's most hotly contested cable markets.

At least two-and possibly three-competitors plan to challenge AT & T Broadband's hold on 470,000 area cable subscribers, as well as the MSO's hopes for controlling the high-speed-data and local and long-distance telephone markets.

"Just like [late Daniels & Associates chairman Bill] Daniels, [late Tele-Communications Inc. chairman Bob] Magness and [Jones Intercable Inc. founder Glenn] Jones created an industry here 40 years ago, we're doing the same thing. Hopefully, we can do as good a job," said Haverkate, president of Wide-OpenWest LLC, a local start-up set to take on AT & T Broadband in its own backyard.

The lure of the six-county Denver metro area can be traced to 2.2 million mostly well-educated, technologically knowledgeable and well-heeled consumers living in a community with high computer-penetration and Internet-usage rates.

"Put all of it into the mix, and you have a great potential market," said Dean Smits, director of the Denver Office of Telecommunications, which is preparing to negotiate its second competitive cable franchise this year.

"I admit I'm somewhat surprised that we're looking at the real possibility of having three service providers for traditional cable. A year ago, that wasn't even on the radar screen," Smits added.

Heading the list of video competitors is U S West, a regional Bell operating company that is set to offer very high-speed digital-subscriber-line service over enhanced copper phone lines in the affluent Denver suburbs of Boulder and Douglas County.

Close on its heels in both communities is WOW, a newcomer based here and headed by Haverkate and other former RCN Corp. executives. Their ambitious plans for dozens of Front Range communities have already produced franchises in two other area suburbs with more than 190,000 households.

"It's a young market. It has high computer use, high Internet use," Haverkate said. "It's also high-growth. Everybody wants to live here, so the economy will be strong for years to come."

WOW brings an added ingredient to the competitive mix: a decision to offer Internet-service providers access to its network. "It's obvious that they expect to make their money from the Internet," Smits said.

The final entry in the local telecommunications sweepstakes may be Seren Innovations Inc. So far, it is targeting mostly college communities north of Denver. But it could be persuaded to move south following the acquisition of the state's largest electrical and natural-gas utility by its Minnesota-based parent, Northern States Power Co.

WOW and Seren each plan to build high-speed networks, while U S West will leverage its existing phone lines in order to introduce the same VDSL service it's using to protect its share of the local phone market in Phoenix.

DEFYING HISTORY

WOW-the financial backing of which pales before the deep pockets of AT & T Broadband, U S West and Northern States-bears the most watching as it tries to defy history.

For years, cable overbuilds were considered unthinkable, with potential competitors scared off by the prospect of building expensive new networks that at best would still have to share the market with entrenched incumbents.

Today, however, with high-speed platforms capable of delivering cable, Internet access and local and long-distance phone services, competitors can chase three revenue streams.

"Before, it was clear that an overbuilder that didn't get 50 percent of the video market was not going to be economically viable," said Ron Rizzuto, professor of finance at the University of Denver.

"Now it's possible if you can get 25 percent of the video, 25 percent of the data and 20 percent of the voice market," he added. "Whether or not that's possible, however, remains a work in progress."

But with competitors insisting that they can construct new and potentially better networks at costs of $1,000 per home passed, "it's cheaper to build" in an era when acquisition costs approach $4,000 per subscriber, Rizzuto said.

Specifically, then, why is Denver suddenly such a hot market?

For one, it has a wealth of available talent.

Consolidation has seen the acquisition of such locally based cable giants as TCI and Jones Intercable, leaving hundreds of industry veterans out of work. And with another round of layoffs expected to result from AT & T Corp.'s pending buyout of MediaOne Group Inc., the region could be awash in unemployed telecommunications professionals.

"Many of the people who built these companies are still here, and they would like to stay here," Haverkate said. "They're looking for an Internet-based company to help build."

A look at Denver's population also clearly indicates why the area is a hotbed of competition.

In addition to being home to 2.2 million of the state's nearly 4 million residents, the metro area boasts demographics that other communities only dream about. Some 92 percent of the adult population, for example, has at least a high-school education, while 35 percent has some college background.

More important, in Boulder and Douglas County, median family-household incomes average $62,000 and $80,000 per year, respectively, making those communities ripe for the advanced telecommunications services about to be offered by new entrants.

Not surprisingly, those were the first communities to attract competition.

GROWING REAL FAST

In Douglas County, U S West recently acquired a 15-year franchise that paves the way for it to offer its VDSL service to 123,000 residents in unincorporated parts of the county south of Denver.

Strategically located between Denver and Colorado Springs, Douglas County has been the nation's fastest-growing community in nine of the past 10 years, with a population explosion of 150 percent.

One of its most attractive features is Highlands Ranch, a 22,000-acre master-planned community where luxury homes have residents with annual median household incomes in excess of $80,000 and the computer-penetration rate tops the national average.

"You're talking about a lot of people moving in who have the financial resources to take advantage of the competing technology that's going to be available," Douglas County administrator Doug DeBord said.

On the business side, tele-communications-service providers are eyeing the county's southeast business corridor. The area is home to the Denver Tech Center, with some 26 million square feet of office space-the largest employment center in the state.

U S West was so eager to begin competing in the affluent community as soon as possible that it recently said it will proceed with its plans for Douglas County despite a corporate decision to slow further franchise acquisitions until its merger with Qwest Communications International Inc. goes through.

"They've told us that they do not intend to delay," DeBord said.

The RBOC plans to run optical fiber to within 4,000 feet of area homes, then combine copper telephone wires with VDSL technology to offer cable service. U S West officials did not return calls seeking comment.

OPENING UP TO WOW

By late last month, meanwhile, Douglas County officials were reviewing a possible franchise for WOW, which plans to spend $500 million building high-speed networks that will span the Front Range.

U S West and WOW are also set to square off against AT & T Broadband-and each other-in the suburbs of Aurora and Boulder. WOW has a franchise to serve 110,000 households in Aurora, and U S West is trying hard for its own deal.

In the trendy community of Boulder, meanwhile, the RBOC has a leg up, having received a permit to begin construction of its VDSL network. A permit for WOW was expected to go before the City Council late last month.

A 27-square-mile community nestled at the foot of the Rocky Mountains, Boulder is the eighth-largest city in the state, and its economy is supported by the computer and aerospace industries. Its population, which totaled 76,685 in 1980, will exceed 100,000 this year.

It's a community where 70 percent of the households have computers and 80 percent of those have access to the Internet. "That makes it a uniquely attractive market to companies that want to offer Internet services," Boulder telecommunications coordinator Richard Varnes said.

Although negotiations have yet to begin, Seren officials admitted that Boulder will be one of the Front Range communities where they, too, will seek a franchise.

EAGER IN BOULDER

Experts predicted that competitors will find Boulder consumers eager to try new service providers. It's a market where disgruntled residents still associate cable with TCI, which spent years battling local officials over service, rates and promised upgrades.

The result is that Boulder has been undeserved in the past, according to Stan Zemler, president and CEO of the Boulder Chamber of Commerce. "We're behind the curve in terms of having the city wired," Zemler said, "and we have a slew of dot-com companies that need good access."

Despite U S West's name recognition in the community, Zemler expects WOW to lure more customers away from AT & T Broadband. "What you're getting from U S West is an upgrade," he said. "WideOpenWest, with a more modern architecture, will more likely be able to provide more services. With U S West, it's not going to be the best, fastest technology available."

But the largest battleground will obviously be the city of Denver, where the population has doubled since 1960 to 500,000, or more than the entire state of Wyoming.

The combatants will be vying for the attention of one of the best-educated communities in the nation, where more than 50 percent of the population owns PCs. It's also the unofficial headquarters for AT & T Broadband, which serves 116,000 cable customers.

With a $200 million overbuild project on the table, WOW will be the first competitor to take on AT & T Broadband inside the Denver city limits. The Denver City Council next month is expected to grant the company an incentive-based, 10-year franchise that would reward WOW with an additional five years for meeting annual construction deadlines.

U S West, meanwhile-which has danced around the possibility of entering the Denver video market for years-has suddenly stepped up the level of its talks with the city. "In recent weeks, the talks with U S West have gone from exploratory to more substantial," Smits said.

Rizzuto believes that with AT & T Broadband still years away from completing its upgrade in vast areas of metro Denver, competitors will be able to get their operations up and running in time to enter the market on equal footing with the incumbent.

"[Competitors] won't be dealing with an entrenched 750-megahertz network with a hold on the public," he said. "Instead, they'll both be like new kids on the block together."

Not so, said Joe Stackhouse, AT & T Broadband's regional vice president for metro Denver.

Stackhouse said 30 percent of the MSO's metro upgrade has been completed, with a significantly higher percentage expected by year's end. He also expects to complete the Denver upgrade one year ahead of schedule, thereby adding five years to AT & T Broadband's franchise and paving the way for the company to begin offering broadband services well in advance of the competition.

"We've got to get it done," he said. "If we don't, somebody else will."

With the AT & T@Home high-speed-data service already being offered to some 300,000 area households, a 26 percent penetration for digital cable and telephony trials under way in Aurora, Lakewood, Golden and Arvada, the MSO plans to solidify its hold on the market before the competition can get up and running.

"Clearly, it's a race," Stackhouse said. "We know the competition is serious. But we've been competing with direct-broadcast satellite providers for years. And we're taking steps to be the fiercest competitor anybody could ever go up against."