ISP Profile: MSTAR — continued

Ringing the changes in internet technology
For MSTAR, a privately held company, the transition from dial-up, then DSL, from ISP to fiber-based triple-play provider, was not without trials. The process began over two years ago. At that point, MSTAR offered only internet services, in Utah and several neighboring states. When it threw in its lot with the municipal FTTH networks in Utah, it entered two entirely new businesses—TV and phone.

"It was probably a struggle and we just didn't know it at the time," Gould quips. MSTAR hired outside talent that knew the new businesses, and its existing employees learned. On the TV side, which is generally considered the most difficult for ISPs to break into, the company certainly appears to have overcome the challenges. Gould speculates that MSTAR may now be the largest IPTV provider in the country, with between 10,000 and 40,000 subscribers. He also claims it was the first to obtain licenses from all major content providers.

Equipment
Cost structures also changed. Quite aside from the capital costs of setting up IPTV and VoIP infrastructures—the company maintains a network operations center (NOC) in Provo, plus servers and routers at network operator sites—ongoing costs also increased. The staff complement increased rapidly. It now stands at 100. "The cost and effort to support the customer on three services is obviously substantially higher than on one," Gould points out. "And we didn't have installation costs or issues before."

When a new subscriber signs up for triple-play service, the network operator—iProvo or UTOPIA—completes the fiber run to the customer premises. This is usually at no direct cost to the customer or to MSTAR, though it's clearly built in to the access fees MSTAR pays, and gets passed on to the customer.

MSTAR takes on full responsibility for financing customer premises equipment—routers, set-top-boxes (STBs) and wiring. The company, at no charge to the customer, installs Cat-5 wiring in the home or office to carry media and data. And Gould notes that unlike the routers and STBs, MSTAR does not own the wiring. If another service provider persuades the customer to switch to their service, that capital asset is lost.

Still, the dividends are attractive. The company now derives more than half its revenue from the fiber-based services. And the subscriber base is still growing rapidly. The company has capacity to add between 500 and 1,000 new subscribers each month. "[Actual subscriber growth] falls in that range," Gould says.

The future is fiber, the future is open
He won't say whether the company has reached a break-even point on the capital investment required to enter the fiber-based triple-play business. Nor will he say how much the company invested. But MSTAR is "fully" funded to pursue its current business plan. "At some point we may grow beyond the current investors' capacity to fund [continued growth]," Gould says. "But we're not looking for cash every month."

Growth will come on two fronts. The existing FTTH networks are still being built out. iProvo currently passes about 28,000 homes and businesses. When it's completed, UTOPIA will pass 175,000, but is now at just over 20,000. Additional Utah cities may join the UTOPIA consortium. And MSTAR expects to be on other yet-to-be-built FTTH networks elsewhere in its operating areas.

Some of these are already in development, though none has been announced, Gould says. The reason, he suggests, is that the municipalities involved don't want to let the incumbents know about their plans until they're a fait accompli, for fear they'll raise objections. Incumbents have accused municipalities of competing unfairly, but Gould argues that nothing could be fairer than the competition that open networks like iProvo and UTOPIA MetroNet foster.

"Any provider can come and apply and get the same rates we have," he says. "If they want to come and offer services, they can come and do it."

—End

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