ISP Channel inks new cable deals

The agreements with Ohio-based Coaxial Communications and Lakewood, Washington-based Cedar Communications bring ISP Channel's total number of cable operator partners to 28. The deals potentially expand ISP Channel's customer base by 80,000 households; but more importantly, they exemplify the type of pacts the company has pursued as part of its goal to provide complete services to small and mid-sized cable operators.

ISP Channel, a subsidiary of SoftNet Systems, offers cable modem services similar to @Home and Road Runner, a joint venture between Time Warner and MediaOne. ISP Channel began providing services in October.

ISP Channel has focused its business on small and medium-sized cable operators, or those companies whose cable networks pass by less than 50,000 homes. Even though companies like @Home and Road Runner have exclusive deals with some of the biggest cable operators, ISP Channel claims it can survive by benefiting from a higher revenue split with the smaller cable companies--since it does most of the work for them.

"The smaller operators tend not to have the capital to install the head-end equipment and the technical knowledge to offer the tech support depth, and customer service, that we can offer," said Kevin Gavin, SoftNet's senior vice president of marketing.

Gavin said ISP Channel is a "turnkey solution," since it arranges cable modem installation, provides marketing for the service, and, in some cases, handles account billing "so the operator doesn't really need to spend their time where they don't have the expertise."

"We end up with a slightly higher revenue split than the @Homes and RoadRunners," Gavin said. ISP Channel takes a 50-50 cut of the profits from their Net-over-cable service, he added.

SoftNet recently bought satellite provider Intellicom, a move that the company hopes will give it a cost advantage in rural markets. The purchase allows the company to connect rural head-ends--the place where cable companies gather programming through satellites and deliver it through coaxial cables to the home--to its Internet backbone, without the expense of leasing T1 lines from local phone companies.

Nothing but crumbs?
ISP Channel will not disclose its subscriber numbers. Executives would only say that with today's deals, the company's partners have access to around 2 million households.

However, a recent study shows @Home, with about 305,000 subscribers, and Road Runner, with roughly 160,000 customers, combine to serve about 90 percent of the cable modem market. Together, their cable partners have the potential to reach tens of millions of homes.

That kind of market dominance is likely to leave little more than crumbs for other players such as ISP Channel.

@Home has partnerships with 18 of the largest cable operators, including Tele-Communications Incorporated, Cox Communications, and Comcast. Road Runner exclusively serves its investors, two of the larger cable companies in the country.

But ISP Channel argues the explosive potential for the cable modem market means there's plenty of room for competition.

"The @Homes have more than their plate full," Gavin said. "There's more than 11,000 head-ends out there and they can't get to them all."

ISP Channel estimates that of the 95 million homes passed by cable in the United States, some 24 million of them are "unaffiliated" with either @Home or Road Runner.

"The other companies have their hands full. They just don't have the capabilities to roll [service] out as quickly as the market wants," Gavin said. "We step in to that piece which is under served."

A smaller piece of the pie
The Strategis Group, a telecommunications market research firm, recently pegged the broadband services market as a $3.8 billion business by 2003, with more than 6.2 million U.S. households subscribing to a cable modem service in the next five years.

Many analysts expect cable modem use to double annually over the next several years.

@Home, recognizing the potential to lock up even more partners, announced its own plan to court small and mid-sized operators earlier this month. @Home expects to name technology and cable partners in early 1999.

The new offering, called @Home Solutions, is going after exactly the market that ISP Channel hopes to reach. But ISP Channel thinks @Home and Road Runner are too busy satisfying their larger partners and investors to focus on smaller markets now.

ISP Channel's Gavin said: "To a large degree, [the creation of @Home Solutions] validates our point all along that there are attractive business opportunities in the smaller markets."