Craig Wireless delays MDS rollout in B.C., but says it still plans to move ahead

Craig Wireless International Inc has delayed the rollout of its wireless cable system in British Columbia as it awaits an improvement in capital markets and explores potential partnerships. The company hopes to forge relationships with wireless and tower operators to reduce the need for capital investment so it can deploy its multipoint distribution system (MDS) in B.C. beginning in November, according to CFO Darcy Kindred. Craig Wireless’ SkyCable Pacific Inc subsidiary received CRTC approval earlier this month for a year’s extension to July 6, 2002 to implement its MDS system in seven B.C. communities – Decision CRTC 2001-470. In a July 12 letter to the CRTC seeking the extension, Craig blamed poor capital markets for the need for a delay. "The capital markets for competitive BDU undertakings, specifically for MDS video networks, experienced a market downturn beginning in the later part of the year 2000," states the letter, signed by Jennifer Strain, VP of corporate and regulatory affairs at Craig Broadcast Systems Inc, an affiliate of Craig Wireless. "At this time and for the foreseeable future, it is virtually impossible to finance the start-up of an MDS video network either with debt or private equity. This sudden and severe downturn has had a negative effect on the entire Canadian MDS industry. While difficult to predict, we are hopeful that there will be a turn around in the financial markets for MDS video services within the next 12-month period." Kindred says the extension will give Craig a chance to regroup, do more research, and find partners before moving ahead. "The market conditions were a factor in terms of raising substantial amounts of capital," Kindred told CCR. "But I think the other thing the market conditions do is force you to really take a little extra time...We’re looking at not necessarily going all proprietary starting out. …The key thing we’ve tried to do strategically is not necessarily go ahead and try to build every component of that network ourselves. There are some people that we believe we can partner with for mutual benefit." Some analysts point out, however, that regardless of Craig Wireless’ approach investors are staying away from companies that are entering well-entrenched markets such as broadcast distribution and telecommunications. "There’s a lack of funding in Canada for projects of a nature where (companies) are not going into what I would call a virgin market," says Eamon Hoey, senior partner at Hoey Associates and Telecommunications Consulting Services Inc. "So there is currently not a significant appetite for those companies going after cable operators’ services." Capital markets unkind to Look A lack of capital has also had a significant impact on Canada’s largest MDS operator, with Look Communications Inc now teetering on the verge of bankruptcy. Look has until Aug. 25 to come up with a $98-million loan payment. The amount was originally due on Aug. 2 to Look’s bankers but the company’s principal shareholders – Charles Sirois’ Telesystem Ltd and BCE Inc – agreed to pay the banks off. In the process, the two companies became Look’s lenders with the same rights as the bankers and gave the MDS operator a few more weeks to find the cash. Hoey believes the only way there would be a case for SkyCable Pacific is if its technology allowed it to distribute broadcast services at prices far lower than cable, or if its service was drastically different or better. He has crunched the numbers and says it’s unlikely that consumers would go through the trouble of switching to a new broadcast distributor such as MDS, as the savings would be minimal. He adds that CRTC regulations make it difficult for distributors to offer programming packages that are radically different, thus eliminating another potential distinction that could sway customers to move away from cable or satellite TV. "We have question marks around virtually every company perhaps with the exception of the incumbents, such as Rogers, Shaw and BCE, until we start to see some clarity of direction," Hoey says. "And currently neither the info-entertainment, broadcasting, telecom or cable distribution industry has any significant clarity of direction."Kindred, however, insists that Craig "is absolutely not giving up" on wireless cable. He says proof of its commitment to the technology is its June 14 agreement to purchase a 10,000-customer wireless cable system in Hawaii from U.S. telecommunications giant Verizon Communications. "Despite what’s happening, on the big level, if you’re Look and you have to raise $90 million, I think, you’re in trouble," Kindred says. "If you’re Craig and you need to raise $5 to $10 million to do exactly what you’d like, I don’t think you are in the same situation." Craig Wireless beat out Look for a regional MDS licence to serve the B.C. communities of Victoria, Vancouver, Abbotsford, Chilliwack, Penticton, Kelowna and Vernon in July 2000. In its licence application, the company proposed a monthly basic service fee of $17.99, including the cost of the antenna and decoder equipment as well as installation. Look proposed a monthly charge of $20.95 and an installation fee of $125 (For more details, see the July 24/00 edition of CCR affiliate publication, Report on Wireless). Kindred insists SkyCable Pacific’s plan is still viable, but he won’t reveal specifics. "I think the clear message we want to send out is that we certainly haven’t given up on the MDS business…or the capital markets."

Craig Wireless delays MDS rollout in B.C., but says it still plans to move ahead

Broadcast | August 15, 2001

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