Originally created 05/25/04

Knology grows in five years

Knology Inc. probably won't be looking for gifts of wood included with its cable payments.

Wood is traditionally given by married couples celebrating their fifth anniversary, and it's Knology's fifth anniversary in Augusta. But it's hardly a traditional company.

The cable provider moved into the area hoping to capture market share with an unproven plan to offer telephone, cable TV and Internet access in one bundled package.

Five years later, the West Point, Ga.-based company has increased its national customer base from 75,000 to 300,000 and has become the No. 2 cable company in Richmond and Columbia counties, behind Comcast. But things could be better.

During the first quarter of 2004, Knology posted a net loss of $18.7 million, an improvement from the $20.5 million loss during the same period in 2003. The company lost $87.8 million throughout last year.

Still, Knology is focused on growing. It purchased two cable systems last year, one in Cerritos, Calif., near Los Angeles, and one in Pinellas County, Fla., near Tampa. The two acquisitions caused a major portion of the company's losses, but nearly doubled its total customer connections.

"We feel that we are positioning the company to resume our growth trends in the future," Rodger Johnson, Knology's president and CEO, said in the company's first-quarter filing.

Wall Street seems to agree with Mr. Johnson. Despite predictions of a $3.13 per share loss this year, many analysts list Knology's stock as a buy or strong buy, and the stock's end-of-the-year target price is about $10. The stock closed at $5.50 on Monday.

The company's recent acquisitions are far from the norm for the cable company.

Knology is known in the cable industry as an overbuilder, meaning it builds its own cable and telephone network over those of other cable and telephone providers in the area. Overbuilding is an expensive and risky proposition.

Knology invested approximately $50 million to create its Augusta network, which still doesn't reach every household in the area.

"It's a costly undertaking to start up a cable company," said Nancy Horne, the president of the Cable Television Association of Georgia. "You have to lay the cable and rent space on poles and get construction permits and pay franchise fees, and then you've got your programming costs."

There is also no guarantee that customers will switch providers.

This is where Knology's bundling concept comes into play. When the company moved to Augusta, few cable companies bundled TV and Internet services, and almost none offered telephone service.

Getting customers to understand bundling was a bit tough at first, but they have accepted it, said Mike Adams, Knology's district manager in Augusta.

"We've been very fortunate that the customers who have subscribed have enjoyed it," he said.

Studies by the Cable and Telecommunications Association for Marketing show that customers with bundled products are less likely to switch providers. And more than two-thirds of households surveyed would prefer to use one company for their cable, telephone and Internet access.

Bundling is now a common practice for many cable providers.

Mr. Adams would not provide the growth in subscribers in the area over the past five years. He said the company will continue to grow and expand in the market, continually becoming more cost efficient.

"We're going to be competitive," Mr. Adams said. "We can offer the same products and buy the same electronics, but when you get down to it, it's all about customer service."

Reach James Gallagher at (706) 823-3227 or james.gallagher@augustachronicle.com.


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