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Shaw's Go-It-Alone Model Provides Template for MSOs

As Cox Communications Inc. and Comcast Corp. wrestle with moving away from Excite@Home Corp.'s high-speed Internet provisioning, electronic mail, regional data and backbone services, they might want to take a cue from Shaw Communications Inc. in Canada.

The Calgary, Alberta-based MSO — which serves 2.8 million video and data subscribers — is moving all its 610,358 high-speed data subscribers over to its own Internet Data Center by March 1, 2002. That's just one part of Shaw's plan to make its high-speed services self-sufficient.

Last year, the company launched Big Pipe Inc., its own Internet-backbone division, which operates a national fiber backbone for Shaw and outside customers.

"We've been running down the road to be self-sufficient for two years now," said Shaw president Peter Bissonnette.

And Shaw's go-it-alone strategy has induced Cox and Comcast to visit over the past year to see how the MSO was handling the transition from Excite@Home to its own backbone and provisioning service for high-speed subscribers.

"They are a good model of broadband on cable," said Michael Foley, a senior advisor to Alopa Networks and the one-time president of Excite@Home Canada.

Shaw began provisioning high-speed data subscribers itself three years ago, when it first launched cable-modem service. Over the next year, it contracted some of the provisioning and regional data center work to Excite@Home, but ran into a handful of problems, Bissonnette said.

In 1999, Shaw set plans to build its own Internet data center in motion. It would rely on Excite@Home for mail and content services only.

"We looked at server farms," said Bissonnette, who started talking to Sun Microsystems Inc. about building the data center.

That work culminated in last month's launch of the Shaw Internet Data Center. Shaw had already transferred 60,000 subscribers to e-mail addresses. The final conversion of all data subscribers is expected by March 1, if not sooner, Bissonnette said.

"The first challenge was to get all this done before @Home imploded," he said. "It's a complex transition. We have a plan that we can go in a week if we have to. And we have a content contingency plan."

The initial $60 million data center houses four Sun server array systems. It's built to handle one million high-speed data customers, which is Shaw's subscribership goal for next year.

A separate second $60 million data center facility that Shaw is building will provide redundancy and scale for up to 1.5 million customers, Bissonnette said. Shaw serves about 2.5 million cable subscribers, so a 1.5-million data subscriber base would amount to a 60-percent penetration rate.

The data center was the missing piece linking Shaw's regional cable system plant to the company's Big Pipe Internet-backbone division.

Big Pipe launched in March 2000 through the purchase of 4,000 dark-fiber miles from 360 networks. The dark fiber is located between Vancouver, Calgary, Toronto and Buffalo, as well as Seattle and Sacramento, Calif.

The $165 million deal also calls for Shaw to receive an OC-48 connection between Vancouver and Toronto and another 3,600 miles of dark fiber in North America by year's end.

While Big Pipe provides Shaw with Internet backbone connectivity, it also offers, video, Ethernet broadband and ATM broadband services to other supercarriers.

Bissonnette said Shaw's transition to its own data center has gone well.

"We're getting a lot of happy customers," he said.

Shaw also figures it will be able to recoup the cost of the fiber backbone within two years, as fellow Canadian MSOs Cogeco Cable Inc. and Rogers Communications Inc. may lease some of the plant. The cost of the data centers could be recouped even sooner, said Bissonette, given that Shaw paid Excite@Home $5 per month, per subscriber for data and provisioning.

Sun also is part of Shaw's content contingency strategy, Bissonnette said. "We've got instant messaging and news groups with Sun," should Shaw have to move those services from Excite@Home more quickly than anticipated. Bissonnette said about 20 percent of his subscribers use Excite@Home's local home page.

"It allows them to get into an arena they were unfamiliar with," he said. But once subscribers have been online for awhile, they tend to go directly to MSN or Yahoo or familiar bookmarked sites, he said.

Shaw's 25-percent MSO-wide modem penetration is unheard of in the U.S. It was achieved through the use of retail outlets, local ad avails and word-of-mouth to sell the service.

"You have to be pervasively available," said Bissonette. "We have four big promotions a year."

Those efforts typically include a free installation and a free first month of service.

"Our churn is very low, less than 1 percent a month," he said.

Shaw sells high-speed data service for $39,95 per month. "We think it's at the right price point," Bissonnette said.

Bissonnette said Shaw will gradually move away from the @Home brand over the next few months.

"We hope to come to a forwarding arrangement with @Home," he said, once Shaw completes the transition to its own data network.

Shaw expects to spend $600 million in capital expenditures in fiscal 2002, with cable ($240 million) and Internet ($225 million) making up the vast majority of that total. Shaw said it would spend $35 million on Big Pipe, another $35 million on building costs and $65 million on its satellite service, which serves 575,000 subscribers.

Over the next year, Shaw expects to add 250,000 high-speed Internet users in 2002, to reach nearly 900,000 subscribers.