ISP Channel Fades Out, Leaving Turnkey Arena

Following a recent string of staff layoffs and financial strife caused by industry consolidation, SoftNet Systems Inc. said its wholly owned ISP Channel cable-modem servicesubsidiary plans to cease operations by the end of 2000.

That leaves its cable-operator partners with the option of seeking other collaborators or going it alone.

SoftNet said the target termination date for most of ISP Channel's cable affiliates will be no later than Dec. 31, with some operations continuing through January 2001 pursuant to settlement agreements with cable operators the company declined to disclose. It anticipated that ISP Channel's cash expenditures to be roughly $28 million to $33 million through January.

"We're working with all of the affiliates to help them with an orderly transition," SoftNet senior vice president Steve Harris said.

Harris wouldn't give details on how many former ISP Channel affiliates would receive a service extension through January.

"It's too early to say at this point," he said, noting that talks with smaller systems have been less complicated and, therefore, resolved more quickly than negotiations with larger ones.

In the meantime, SoftNet has given High Speed Access Corp. clearance to negotiate deals with ISP Channel's cable affiliates.

Despite HSA's green light, the process of securing contracts with ISP Channel's existing affiliates is likely to be hotly contested as competing providers swoop in with their deal talons extended, hoping to snatch some willing prey.

ISP Channel's most coveted possession, a tattered affiliation with Mediacom, won't go to HSA, Multichannel News
has learned.

According to industry sources, @Home Solutions, an Excite@Home Corp. unit that targets small- to mid-sized cable operators, plans to announce today (Dec. 18) that it has secured an affiliation agreement with Mediacom. Specific terms of the agreement were not known at press time.

Earlier, HSA had said it was in deal discussions with Mediacom as well.

HSA spokesman Andy Holdgate acknowledged that his company will face some competition from other providers seeking deals with ISP Channel affiliates. Holdgate said HSA is pursuing such agreements, but no deals have been signed.

Meanwhile, @Home Solutions appears to be moving the deal needle. Company vice president of affiliate operations Dan Donnelly said @Home Solutions was set to announce several new agreements-most of them with ISP Channel affiliates. San Bruno Municipal Cable TV, an ISP Channel affiliate, has already started negotiations with @Home Solutions, following City Council approval last month.

"There are quite a few attractive [ISP Channel] properties," Donnelly said. He said there's no "magic number" in terms of cable systems that are too small to pique @Home's interest, however, it would be a "pretty rare" occurrence for his company to target a system with less than 5,000 subscribers.

@Home captured the Mediacom contract, in part, because the MSO is concerned that HSA once employed a turnkey business model similar to ISP Channel's. Thus, it could eventually suffer the same fate as its former rival.

Also, like SoftNet, HSA's stock has slid below $2 per share. HSA shares were at $1.75 in early trading last Thursday, well off its 52-week high of $24.25 and close to its 52-week low of $1.18.

HSA has moved to a more equitable network-services model, Holgate countered, and has strong financial backing and deployment agreements through its agreements with corporate cousins Charter Communications Inc. and Vulcan Ventures. Charter and Vulcan invested an additional $75 million in HSA earlier this year.

HSA has stated publicly and in Securities and Exchange Commission filings that the Charter and Vulcan investment would be enough to get it through 2002, but the sum wouldn't be enough to completely fund its current business plan.

But HSA's new model means it won't pay for headends, modems or marketing, which should slow the company's burn rate, Holdgate said.

While some ISP Channel cable partners look to other providers, others have already made the decision to tackle high-speed data on their own.

US Cable Corp., which passes 250,000 homes, is one such operator. In October, the MSO disclosed that it had scrapped a letter of intent with ISP Channel to provide cable-modem services and local content to about 150,000 homes.

US Cable selected ISP Channel because of its focus on providing local content via its ISP Channel Neighborhood division, said MSO vice president of operations Joseph Appio.

"We don't have that now, so where else can we go to get that local feel? I believe the only way we can get that local feel is to do it ourselves. We know our local community better than anyone else," he said.

Noting that the scotched agreement with ISP Channel "set us back because we were relying on their expertise," Appio said US Cable has handled the expense of training employees and purchasing the necessary equipment-including an ADC Telecommunications Inc. cable-modem termination system and Com21 Inc. modems-to deploy high-speed data at one undisclosed site.

Eventually, the MSO would like to link its initial site with the operator's other systems as US Cable moves beyond trials and into commercial deployments by the first quarter of next year, Appio said.

He still hasn't concluded whether the financial model for cable-modem services will pan out, however. The MSO originally believed one T-1 connection could serve between 300 and 400 customers.

"We're learning that the scale is much lower," Appio said.

While US Cable plans to try cable-modem service on its own, it also has left the door open to other providers like HSA, @Home Solutions and Road Runner in the future. "That's my backup plan," Appio said.

While ISP Channel, a turnkey cable-modem service provider, is about to plunge into the darkness, another one has surfaced.

Harris confirmed that ISP Alliance Inc., a company based in Alpharetta, Ga., has been contacting ISP Channel affiliates about taking over its portion of the business.

ISP Alliance officials did not return phone calls. But according to its Web site, ISP Alliance offers customer-care services, operation-support systems, Internet connectivity, network design and hardware configuration-a turnkey model.

As for ISP Channel's final chapter, 137 employees are still on board. The company cut 89 jobs in October and 49 last month.

Linda Haugsted contributed to this story.