Chicago Suburbs Weigh Cable Overbuilds

Three Chicago suburbs are considering an overbuild of AT&T Broadband, after learning that the MSO won't be offering high-speed Internet services anytime soon.

Batavia, Geneva and St. Charles have mailed 4,500 surveys to randomly selected homes in the area to determine the level of satisfaction with the operator, and whether residents want local government to deliver high-speed data services.

If so, AT&T could find itself fighting a competitive war on three fronts.

It already competes against RCN Corp. inside the Chicago city limits, and soon will be squaring off in the suburbs against the Denver-based WideOpenWest LLC, that's in the process of acquiring Ameritech New Media's local operations from SBC Communications.

The surveys are expected back by this July 13. An official report is expected by the end of the month. Sources said the early returns are running in favor of an overbuild.

Randy Recklaus, Batavia assistant city administrator, said the process was is still in its "infancy," but conceded the three communities "have issues with AT&T," which recently suspended all overbuilds in the Chicagoland area in order to focus on marketing new services in communities where rebuilds had been completed.

"We realize this a big undertaking," Recklaus said. "So we're trying to look at it as three communities trying to make it work, since it would make more sense to do it regionally, rather than trying it individually."

All three jurisdictions have municipally-owned electrical utilities, giving them a leg up on infrastructure costs and consumer confidence levels. Batavia and St. Charles also have fiber optic rings in place connecting municipal buildings that would drive down costs even further.

Another factor prompting overbuild consideration is that the three governments don't figure to benefit from the competition that has reached other area communities.

AT&T spokeswoman Pat Andrews-Keenan said the MSO was unaware of any overbuild plans, but warned that such projects "can be very expensive propositions."

WideOpenWest, which hopes to begin offering high-speed Internet services early next year in 24 local Ameritech New Media systems it's acquiring, has indicated that it will not pursue any new franchises at this time.

A successful overbuild would pose a "significant problem" for AT&T by encouraging other municipalities faced with upgrade delays to pursue similar projects, said Robert Lane, telecommunications analyst with The Yankee Group, a Boston-based research outfit. "The capital intensive nature of such a project can make it expensive. But we think the economics work out for a properly run overbuild," he said.

Another option would be to form a joint venture with an outside entity, which would operate the system, said St. Charles city administrator Larry Moholland.

"That's about the only way to do it," Moholland said. "If you don't have the expertise, then it's better to bring somebody else in to act as the operator."

Moholland said AT&T's attempts at improving on the service offered by its predecessor, Tele-Communications Inc., have been undermined by a lack of capital.

"I don't think they've been given the resources," he said.

Whatever it decides, AT&T is caught between a rock and a hard place, Lane said. If it waits, it risks seeing its suburban subscribers pirated away by WOW or a municipal overbuild. If it acts to protect its market share, it will have to divert capital to its Chicago region, thereby weakening itself elsewhere.

"AT&T has lots of market to worry about, which is the soft underbelly of being the world's largest operator," Lane said.