So the story goes. . .it was the year 1284 when a strange and wondrous figure arrived in Hameln, Germany. Attired in a coat of many colors, he promised to free the town of a plague of rats and mice for a fixed sum of money. The villagers immediately pledged to pay him his fee. Soon after, the visitor produced a pipe and began to play. All the rats and mice came running out of the houses and gathered around the Pied Piper in a teeming mass. Once convinced that each and every one followed, he went out of the town straight into the River Weser where the vermin plunged after him and drowned. The villagers, however, now freed of the plague, regretted their promise to pay for what appeared to be such a simple act. Upon hearing their decision, the Piper of course left the Hameln in a rather bitter mood.

One Sunday morning, after spending a year's time in conjuring up a scheme that would make the villagers regret their decision to not pay him, the Piper returned to Hameln. This time he returned dressed as a huntsman wearing a green suit, bright read hat and a look of bleakness on his face.

While the villagers were assembled in church he once again began to play his pipe in the streets. But it was neither the rats nor the mice who came out this time, but the village children. Playing his pipe's alluring notes he led them all into the deep forest where they all disappeared, forever.

How can a Classic German Fairy Tale possibly hold a lesson for both private broadband operators (PBOs) and multifamily housing property owners?

The Piper's Music

Until the third and fourth quarters of 2000, venture capital groups, equipment manufacturers, PBOs and property owners followed the suggestions and guidance of analysts, consultants, provocative press releases and at times, well-written, albeit deceptive marketing materials. Still alive today, these are Pipers of the very worse sort. But at times, the providers of competitive video and Internet services themselves were the Pipers, brandishing bold business plans and profit schedules. And other times, the various funding sources of much needed capital were the Pipers. These players were promising access to near endless pools of capital and a commitment to be in the game for the long haul, fueling a fire that soon was difficult to control. In either case, each of these were playing an alluring tune desired by all American businesses - access to a large, vulnerable marketplace with significant capital resources to exercise the will of these bold business plans.

Unfortunately, prudent and traditional business practices between private operators and multifamily real estate owners began dancing to the Piper's tune. Analysts, venture capitalists and hoards of cable operator consultants convinced many that the multifamily housing industry is a large, untapped market willing to sign any agreement so long as it offered enough services and enough cash (nothing could have been further from the truth). They promised access to key companies and organizations, valuable research data and "experienced" guidance on how to make it all work together, profitably.

These modern day Piper's had Internet service providers thinking that developing content as opposed to entering into strategic alliances for such content was a smart, necessary business decision. They convinced many private, video-only operators that providing Internet access as an additional service was both easy an inexpensive. Of course, in no instance did any of these facts come to light. The lessons for some (i.e., OpTel, ICS, Global Interactive, Cable Plus, Darwin, Reflex, etc.) have been to take that fated, final journey into the dark forest while still dancing to the Piper's music.

Fortunately, for those who did not meet this fate, the multifamily housing marketplace does remain a viable marketplace. However, this is an industry that is far more cautious and prudent with its decision to enter into service agreements with competitive video and data providers.

Pied As The Piper

To be "pied" is to be segmented. It is to be segmented into many different shapes and colors. This is what the multifamily housing industry is, pied. Often times called multi-dwelling units or MDUs, this market includes high-rise buildings, garden style apartments, student housing, active adult and senior living, hotels and hospitals. It's demographic ranges from low to high income and ages 19-90. The variability of this market's resident demographics and property types make it the key market for private operators.

Like the private operator world, mavericks essentially started the MDU industry. While MDUs were once seen to be the bottom of the barrel in terms of attractive real estate investments, both Wall Street and Uncle Sam now see this housing segment as crucial to the way of American life. It is seen with such promise that Security and Exchange Commission regulations permit public investment in Real Estate Investment Trusts (REITs). These are portfolios of largely MDU properties that can be publicly traded. As an investment vehicle, this industry has such a solid anchor that many pension funds hold large portfolios of investments into REITs or private multifamily portfolios. This is what was created by individuals whose nature was to take a risk. So MDU property owners are not averse to risk, so long as it as calculated and can be shown to hold a long term value.

The Promise

Those business leaders who essentially started the MDU industry, many of whom still manage these oftentimes family owned companies, represent the quintessential entrepreneur. Much like the private system operator, they have struggled to convince lenders their business plan is a good one. They have had battles with the politicians, regulators and inspectors of every city and state about codes and restrictions. They have dealt with the inevitable down-cycles in the availability of capital and the fluctuations of interest rates. And finally, they deal with perhaps some of the most demanding issues related to customer service, equipment maintenance, operational overhead, marketing and staffing.

As entrepreneurs, MDU property owners inherently look to resist being forced into taking cable television service from the incumbent, franchise cable operator. However, some have had no other option given either the property's location or the availability of competitive service providers in the surrounding area. Equally, they look to resist being forced into taking high speed Internet access from the local Bell operating companies who in many cases, have failed to deliver the service. Instead, these same individuals, the individuals and companies that gave genesis to the old-time private cable operators - they are still seeking quality, competitive alternatives in digital video and high speed Internet services for their residents

Paying The Piper

Had the villagers paid the Piper for his services, their children would not have been led into the forest. Of course, the world would have also been spared the value of a moral story that continues to ring true in 2001. Simply stated, the Piper must be paid or bad things will happen.

For private operators seeking to continue tapping the still existing, large scale opportunities within the MDU marketplace, the Piper plays many different tunes and for many different prices. But paying his price is resulting in success for many private operators and MDU property owners.

A few of the issues MDU owners have learned from this past year's change in status amongst video and Internet service providers, the price to be paid to the Piper are; 1) the operator's business costs more to grow and maintain than perhaps many operators expected and the operational capital needs are intensive and should be evidenced by the provider prior to entering into a long term service agreement, 2) the regulatory assistance afforded by the Federal Communications Commission (FCC) is of lesser value to both the private operator and property owner than is alluded to by poor interpretations of the Rules, leaving property owners to fight oftentimes expensive and losing battles with the local cable or telephone company for access rights, 3) it is now imperative that a video operator's system be capable of delivering digital video programming via WSNet, DirecTV or EchoStar, 4) a video operator must be able to facilitate high speed data service to a property either in-house or through a strategic alliance if a property is to remain competitive in an area currently served with cable modem or DSL service from the community's incumbent providers, and 5) adequate infrastructure must exist within the operators company to meet the unusually high equipment maintenance and customer service needs of MDU properties and their residents. These are both extensive and expensive, but are now key service elements required by MDU owners.

Playing Or Listening

Today's marketplace for private operators and MDU property owners is a harsher and less forgiving environment than it was just 12 months ago. Little regulatory relief can be expected from the FCC for either the property owner or private operator in the near future. While the FCC is making progress on subjects such as inside wiring, perpetual contracts, exclusive contracts, etc., it does not appear to be nearing a decision on the issues at the time this article went to press (For more information on these visit www.imcc-online.org).

Both private operators and property owners can continue expecting a difficulty in forcing the local telephone companies to move the common point of demarcation to a central point where equipment can affordably be connected to facilitate high speed Internet access. Additionally, franchise cable operators remain in the Cat Bird Seat with respect to the arguments on accessing existing, inside coaxial cabling.

As franchise cable operators are upgrading their networks to provide digital video and high speed cable modem services, these are mainly seen in the more central, urban areas. This leaves many MDU properties without access to such services and as such, in need of quality digital video and Internet access alternatives in order to attract residents from competing properties. This also holds true with respect to high speed digital subscriber line (DSL) service from the local telephone companies.

MDU owners must realize that if a truly competitive solution is to be developed on their properties for digital video and high speed Internet access, they must be prepared to become more involved with either the economics of the deal of the contracts length of term. Such issues include telephone wiring, coaxial cabling, outlet installation, equipment purchases, etc. However, in many cases these can be addressed with various bulk purchase agreements, for those property owners finding value in this model.

Private operators must realize the MDU industry is now more experienced in the subjects of private video and Internet services, as well as the providers capable of providing these. While it is still growing in its understanding of the economics and technologies, the industry is becoming more aware of the red flags to be identified when evaluating service providers. As an industry, it is slowly understanding the different wireless technologies, taking note of those which appear to be effective in the MDU environment and those which do not. The MDU industry is also working to see the promise of wireless, but does so with caution after several difficult experiences during the past 2 months.

But remember, the MDU industry is filled with companies whose decision makers are mavericks, oftentimes iconoclasts who seek opportunity within the bedlam of chaos, such as the chaos in today's voice, video and data markets. Most importantly, they seek opportunities to improve their core business - leasing units to millions of residents for an average period of 12 months. As such, they will always welcome strong, solidly performing companies whose services help them to competitively improve the core business.

Paying The Price

The Piper, like a recent misleading market and its Band of Merry Men, still plays an alluring tune that still offers a beckoning call to a dark place. These are those consultants, analysts and venture capitalists who discuss national strategies, high profiled marketing plans, vertical integration and promised access to key MDU decision makers.

The villagers, like many surviving or new private operators, as well as many MDU property owners have "been there, done that" and now own the t-shirt. They see what the Piper's price is and that he must be paid. They realize that either parties failure to pay results in failure. But most importantly, they are not shying away from the work required for facilitating competitive digital video and high speed Internet service on MDU properties. For both the private operator and the MDU property owner, the Piper's promise is still as good as it sounds for those willing to pay the price. Good luck.