Not Enough Indies for ISP Channel

Not Enough Indies for ISP Channel

By Brian Santo & Mavis Scanlon

If the death of ISP Channel is indicative of anything, it’s the waning relevance of independent cable operators.

ISP Channel developed a business plan that relied entirely on independent cable operators. It would provide a turnkey Internet access business, including the assumption of all marketing and customer service costs. The model proved utterly unsustainable.

In October, SoftNet Systems, ISP Channel’s parent, acknowledged "rapid and unexpected consolidation in the cable industry" was preventing ISP Channel from achieving the economies of scale necessary to make the business viable.

The SoftNet board said it would limit its financial support of ISP Channel in 2001 to $30 million and wanted ISP Channel to stop losing money by the first quarter. It also announced a "restructuring" of ISP Channel, consisting largely of layoffs.

The decision to pull the plug came in mid-November, and it came suddenly. On or about Nov. 10, ISP Channel affiliates received a form letter from the company warning it was planning to restructure its business focus. Five days later, affiliates received a second letter saying the ISP Channel would largely cease operations effective Dec. 31, though some customers would be supported through the end of January.

SoftNet quickly cut a deal with High Speed Access, enlisting HSA to help affiliates make a transition to other providers.

Shutting the operation down has left ISP Channel affiliates scrambling. These include several smaller cable operators, but it also affects AT&T Broadband, Charter Communications and Cox Cable, all of which have acquired independent operators that had contracts with ISP Channel.

The financial fallout will be fairly negligible, however, according to one affiliate.

Speaking at an investor conference in New York, Mark Stephen, CFO of Mediacom, said, "The impact of SoftNet will be limited to one quarter."

Mediacom took the hint in October when the restructuring of ISP Channel was announced and immediately began working toward alternate Internet access solutions for its customers. It is "very deep" in discussions with another turnkey Internet access provider to make a transition that’s seamless for customers, Stephen said.

AT&T Broadband recently purchased the Palo Alto Cable Co-Op, which had a contract with ISP Channel that ran until April. Though AT&T intended to eventually switch Palo Alto subscribers over to its Excite@Home service, as a practical matter, it wouldn’t have been able to do so for months, pending the installation of a fiber backbone and a digital infrastructure. The contract with ISP Channel would very likely have been extended, says Andrew Johnson, an AT&T Broadband VP-communications.

"They gave us 47 days," Johnson says. "Given that short time frame, that’s a significant challenge."

ISP Channel, and its cable modem partner Com21, are helping AT&T set up a version of Excite@Home, Johnson says, but it will be "less robust" than typical Excite@ Home service.

As for SoftNet, a spokesman says it will take some of its ISP Channel assets and transfer them to its AerZone subsidiary. SoftNet estimates it will cost $28 million to $33 million to keep ISP Channel going through to the end of January, about what it wanted to spend on ISP Channel for all of next year.

"There remains a possibility of incurring additional unknown cash charges related to resolving affiliate and equipment contracts," the company says.

Which is legalese that includes the possibility of breach-of-contract lawsuits.

AT&T Broadband’s Johnson allows that lawyers may yet get involved, but for now, AT&T is concentrating on first things first.

"If our customers don’t have service Jan. 1, they’ll be shaking their fists at AT&T," he says.