WOW, what a deal

In a deal that makes sense for everyone involved and is relatively certain to benefit end users, Denver overbuilder WideOpenWest will acquire the assets of Ameritech New Media, the cable television systems owned by SBC Communications and operating as americast.

According to an industry source, WOW agreed to pay about $1000 per subscriber, although neither company would confirm the figure.

When the deal closes in October or November, WOW will grow from 200 Denver-area subscribers to 310,000 users in Chicago, Detroit, Denver, Cleveland and Columbus, Ohio.

“This takes us from a little start-up company to being a huge player in the cable industry,” said a WOW spokeswoman.

It also takes WOW into the realm of big-time cable system overbuilder headaches, including delivering competitive two-way services such as digital cable and high-speed data, neither of which is offered now by the americast systems — the key drawback in the deal for WOW, said Keith Kennebeck, an analyst with the Strategis Group.

“Even though it's a one-way plant and they are pretty old-style systems that they bought, it's still a good deal money-wise,” he said.

Mark Haverkate, WOW's president and CEO, said Kennebeck was off-base in demeaning the system's capabilities.

“It's definitely a two-way system,” Haverkate said. “It's a high fiber count, small home-per-node size [estimated at about 200 homes]. The system was extremely well built — top-of-the-line equipment across the board. It's been extremely well-maintained.”

The americast system is only being used for one-way analog services but can easily support digital and Internet services, Haverkate said.

SBC has been trying to shed the cable properties it acquired with Ameritech while trying to get some return on the investment because being a cable provider “didn't fit with our business strategy,” said a company spokesman. That strategy doesn't preclude video and high-speed data; it just won't be done over conventional cable networks.

“We've invested $6 billion in Project Pronto, which is to get fiber into the neighborhoods,” the spokesman said. “Video streaming is certainly going to be part of what they'll be able to get from broadband and have it delivered by DSL.”

WOW already has deep pockets to upgrade the systems, thanks to financing from Oak Hill Capital Partners and ABRY Broadcast Partners.

MKMB, a Chicago-based minority-owned firm, has agreed to acquire a stake in WOW and will provide marketing and other operational services throughout the Midwest.

“We are talking to additional partners and banks about participating in the deal, but we already have what we need,” Haverkate said.

The new properties should give WOW additional cash flow to fuel its buildout in the Denver area, where it turned on service in April, Kennebeck said.

“They need some sort of income to finance their buildout because they can't get the money anywhere else,” he said. “Their idea was probably to take whatever last money they could and buy these systems and then use the cash flow from these systems to finance their other systems.”

WideOpenWest's wild ride

November 1999: WIdeOpenWest founded in Denver

August 2000: Won Denver popular vote for Denver franchise

October 2000: Started Denver network construction

February 2001: Initiated conversations with Ameritech New Media

April 2001: Activated network, now with 200-plus subscribers

May 2001: Signed agreement to acquire Ameritech New Media subscribers

October 2001: Subscriber acquisitions slated for final approval

WOW is finished buying systems for a while, Haverkate said, although he hedged, “if we have the opportunity to expand to other markets, then we will.”