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HSAC: The Wired World

It looks like it is finally happening. Paul Allen's so-called "wired world" will be real.

Yesterday, Paul Allen's cable company, Charter Communications (CHTR) , announced that it will make St. Louis the testing ground for his vision. This was done by swapping cable systems in Texas, as well as five other states, for the AT&T Broadband and Internet services located in St. Louis (and three other states).

Consumers will have a wide array of virtual services, such as high-speed Net access, phone services, interactive video -- all driven through cable wires. To carry out the vision, Allen has been on a spending spree, purchasing interests in a myriad of companies.

One of these companies is High Speed Access (HSAC). Simply put, the company allows for super-fast Net access over cable lines. For example, instead of plodding along at 56K, you can instead surf the Web at speeds 100 times, thus allowing for multimedia, video and so on.

How does High Speed Access make money? The company gets exclusive arrangements with cable operators and revenues are divided. The service fee per cable modem is about $40 per month for the consumer (there is also a monthly rental fee for the cable modem of $9.95).

However, the company's stock has been in the doldrums, with it selling for $23 yesterday. The range this year has been $15 to $49-3/16. The company went public on June 4 at $13 per share.

On its face, the company looks quite small, with revenues of about $1 million for the third quarter. Although, this was an increase from $101,000 in the same period last year. Of course, the company is losing money: $14.3 million in the latest quarter, compared to $11.1 million in the same period last year.

But the company's value is really about its tremendous potential. The company has been laying the groundwork to build a substantial customer base. By aligning with cable partners, the HSAC service can be deployed to 1.5 million subscribers in 26 states. This was a 76 percent increase over the prior quarter.

There is tremendous competition. But HSAC has positioned itself in markets where it is not as intense. That is, HSAC focuses on the "exurban" markets, which have cable systems with fewer than 100,000 homes. In all, this represents about 48 million homes. What's more, small markets usually are more amenable to oustourcing solutions.

HSAC also has other major backers besides Paul Allen. Microsoft. (MSFT) , Cisco (CSCO) and Com21 (CMTO) are investors.

With Charter's announcement yesterday, there should be lots of news about HSAC and how it will participate in the wired world. In other words, HSAC could be poised for upside.


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