High-speed-data service @Home Network gained more turf last
week, scoring deals with a midsized MSO in the Midwest and with the fourth-largest
operator in the United Kingdom.
Most of the biggest cable operators are now aligned with
either @Home or with the merging Time Warner Cable's Road Runner and MediaOne Express
services. Exceptions include Adelphia Communications Corp. and Jones Intercable Inc., and
Jones is now seeking a data provider.
Otherwise, that leaves mostly international and midsized
MSOs as high-speed-data opportunity targets.
Insight expects to grow to a subscriber base of 500,000 by
the end of the year, up from 170,000 last year. @Home spokesman Matt Wolfrom said the
Insight deal demonstrates @Home's desire to go after midsized MSOs.
Insight expects to launch Insight@Home by the end of the
year, mostly in Indiana and Illinois. With Insight, @Home's 10 cable affiliates in North
America will pass about 54 million homes.
Insight CEO Michael Willner said his company successfully
tested telco-return modems in Noblesville, Ind., but it concluded that it needed the @Home
backbone to take full advantage of cable-modem speeds.
"We didn't like the economic model" of
telco-return modems, he said.
Deal terms weren't disclosed. But in previous affiliation
deals, @Home has provided equity to its new partners, in the form of performance-based
stock warrants.
Last month, Century Communications Corp., with up to 3.3
million passed homes, got warrants to buy up to 2.6 million @Home shares at $10.50 per
share, which was @Home's initial-public-offering price in July 1997. @Home disclosed the
Century warrants in a May 15 securities filing.
The @Home founding MSOs -- Tele-Communications Inc.,
Comcast Corp. and Cox Communications Inc. -- own equity in the service. In October,
Cablevision Systems Corp. got warrants to buy 11 million shares at 50 cents each, or the
same price that TCI, Comcast and Cox paid. And Canadian affiliates Rogers Cablesystems and
Shaw Communications got warrants to buy up to 5 million shares at the IPO price of $10.50
per share.
Equity kickers could become increasingly important in
securing deals with midsized operators, said analyst Michael Harris of Scottsdale,
Ariz.-based Kinetic Strategies Inc.
For smaller operators that can't afford the start-up or
marketing costs, a growing number of turnkey providers are willing to fully provision
data-over-cable services for a revenue split, Harris said. @Home also takes a cut -- 35
percent of revenue -- but it may not provide enough support for small operators. And @Home
isn't really interested in serving the smallest markets, anyway, he said.
"For a midsized operator, it's kind of a difficult
dilemma," Harris said. "If they've got a couple of hundred-thousand homes passed
or more, then they probably have the scale to do a deal with somebody like an @Home or a
Road Runner. But if they are going to give up that revenue, they're going to want a piece
of the action on the equity side."
Like Century and @Home affiliate InterMedia Partners,
Insight has a deal to create a cable-system "partnership" with TCI, an @Home
co-founder and controlling shareholder. An executive at one MSO that negotiated a joint
venture said acceptance of TCI-related services -- such as @Home and Headend in the Sky --
was part and parcel of such deals.
Analyst Ted Henderson of Englewood, Colo.-based Janco
Partners said he believes that Jones Intercable Inc. -- which just lost a court ruling
regarding its Jones Internet Channel high-speed-data service -- shied away from an @Home
affiliation before that because @Home refused to provide equity in the service. But that
was before @Home issued warrants in the Cablevision and Century deals. Henderson said he
believed that Jones was in a much stronger bargaining position for equity now.
Last week's deal between Comcast Corp. and BCI Telecom
Holdings (BTH) -- which will eventually result in Comcast gaining control of Jones --
might give @Home a leg up in talks with Jones. But Jones chairman Glenn Jones said the
Comcast connection would have no effect on talks with @Home.
On the international front, @Home stretched its global
reach last week, signing a distribution agreement with United Kingdom operator ComTel
Ltd., that country's fourth-largest cable operator.
ComTel's hybrid fiber-coaxial network passes about 1
million homes, including the high-tech corridor of West London -- the British equivalent
of Silicon Valley -- said John O'Farrell, senior vice president of international
activities for @Home.
"It's an interesting area because it's demographically
affluent -- there are big office parks full of technology companies, and there is the
London commuter belt," O'Farrell said.
ComTel expects to begin alpha- and beta-trials of the @Home
service later this year, with a commercial launch early next year.
"This is a distribution deal, so, from a logistical
point of view, it's quite like a U.S. or Canadian affiliate," O'Farrell said.
Earlier this year, @Home expanded into the Netherlands by
signing deals with Dutch cable operators CasTel and Palet Kabelcom to form what will be
branded "@Home Netherlands."
O'Farrell said @Home's strategic plans include similar
joint ventures on a country-by-country basis around the world, targeting English-speaking
areas first, for content reasons.
@Home and ComTel estimated that that 1.2 million British
households currently connect their home personal computers to the Internet, which
represents an online-penetration rate of about 5 percent. The market is estimated to be
growing at a rate of 40 percent annually, executives said.
