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Shaw: Canadas Up-and-Comer MSO

Calgary, Alberta -- Although not Canada's largest MSO, ShawCommunications Inc. appears to be the country's most dynamic, especially when it comes todeploying advanced technologies while keeping its books richly in the black.

Already, and perhaps incredibly, Shaw is the largestsegment of @Home Network's high-speed data segment, having lured 55,000 customers to theShaw@Home service.

That's despite the fact that big U.S. MSOs, likeTele-Communications Inc., Cox Communications Inc. and Comcast Corp., are also constituentsof @Home.

It also means that Shaw -- which owns an equity piece ofcable modem manufacturer Terayon Corp. -- has deployed more than 10 percent of the cablemodems currently in use in North America, based on Kinetic Strategies Inc. estimates of500,000 year-end cable modem deployments.

And that's just one of the advanced service categories. Onthe digital video side, Shaw, which already offers analog video to 1.5 million customers,has also rolled out 70,000 digital households in Calgary and Toronto.

And in a "cover all bases" wrinkle, Shaw alsoowns another 125,000 TV subscribers, through its direct-to-home subsidiary Star Choice. Inaddition, through a recent share-swap deal with Canadian Satellite Communications(Cancom), it is poised to take over distributing distant TV signals to Canada's cablecompanies.

Cancom had been the only company allowed to do this inCanada until recently, when Star Choice won the country's first competitive license fromthe Canadian Radio Television and Telecommunications Commission.

All told, Shaw is the only Canadian company that combinesregional cable distribution with national satellite coverage. The fact that Bell CanadaEnterprises (BCE) gave up on launching cable terrestrial services -- focusing instead onits ExpressVu DTH business, the only other legal domestic small-dish service in Canada --means this unique status is likely to remain unchallenged for the foreseeable future.

Finally, Shaw runs "Shaw Mobilecomm," thethird-largest paging service in Canada, and "Shaw FiberLink," a 2,000 mile-longfiber optic network with 450 commercial access points.

As impressive as these assets are, there's more to Shawthan distribution. The company also owns three cable TV specialty (non-broadcast)channels: Country Music Television Canada, YTV (youth), and Treehouse TV (preschoolers).

Shaw also has DMX (Digital Music Express) digital audio onits programming roster, and operates 11 radio stations across Canada, many of them inmajor markets.

How did a family-owned business grow large enough togenerate half a billion dollars in annual revenue?

"We've always managed it very conservatively, meaningwe won't stretch it out too far," replies Jim Shaw Jr., president and chief operatingofficer of Shaw and a second-generation manager of the MSO. "We like to takebite-sized pieces of our next acquisition, and kind of roll ahead."

Because of that approach, which includes an emphasis onraising equity, Shaw has never had to rely on loans to finance its growth. Even today,"our debt range is around four times, which is a very comfortable cable range,"Shaw said. "It's kind of mid-range for most cable companies."

Still, the term "bite-sized" is evidently quiterelative. That's because Shaw is in the midst of devouring Western InternationalCommunications (WIC), until recently one of Canada's largest broadcasting companies.

If the CRTC approves the deal, Shaw Communications will endup with three more cable channels and stakes in five more, plus 12 additional radiostations and a 54 percent share of Cancom.

But even if the CRTC doesn't approve the WIC buyout, therecent share-swap with Cancom should be sufficient to give Shaw Communications control ofthat company. The reason: Under this new deal, WIC's 54 percent stake in Cancom would bediluted to 27 percent, while Shaw Communications ends up with 30 percent of Cancom/StarChoice.

Bob Bek, an industry analyst at CIBC Wood Gundy in Toronto,described Shaw as an MSO that is "firing on all cylinders." Bek and otheranalysts described Shaw as "up-and-comers," with talented executives who knowhow to deploy new technologies economically.