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Hundreds of condos tightly packed on Naples' tony Gulfshore Boulevard could be a bonanza for an upstart cable company.
In an effort to snag business away from Comcast, entrepreneurs Josh Henschell and David Nickerson have raised $2 million from investors to install fiber cable in condos and other dense residential developments in Lee and Collier counties.
Their company, Pathworks, has an agreement with the phone company CenturyLink to provide television and other communications services such as high-speed Internet and digital phone. Pathworks installs the fiber in a building or residential community and then connects directly to the phone company's lines. So far, three condo towers on Gulfshore Boulevard totaling 180 units have signed up.
One big challenge is installing the fiber, a huge capital expense that ranges from $650 to $2,500 a unit, depending on how dense the development is. To compete against Comcast and still make a profit, homeowners associations must agree to a 10-year contract with Pathworks.
The long-term contract is the only way to pay for the upfront fiber expense. “Everyone loved the fiber, but they didn't want to pay,” says Henschell.
That's because few investors today have the risk appetite to invest the $20 million needed to install the fiber speculatively in this area. “Five years ago, we could have raised that in 30 days,” Henschell says. “We haven't been as successful as we wanted in raising money.”
And Comcast is a fierce competitor with plenty of resources of its own, including 600 employees in Southwest Florida. “Competition is nothing new to Comcast, whether it's in video from the satellite TV companies, or Internet and increasingly video from the traditional telephone companies,” says Barbara Hagan, Comcast's market vice president and general manager in Fort Myers, in a statement.
Comcast says it plans to upgrade its digital network in Sarasota and Fort Myers areas in the year ahead, re-branding its service and calling it Xfinity. “We continue to invest in our network to give our customers more video channels, more HD choices, faster Internet speeds and new cross-platform features that are being created and launched practically every month,” Hagan says.
So Henschell, 35, and Nickerson, 58, split their time between pitching prospective customers and persuading new investors, a difficult and costly balancing act. The preferred shares of the privately held firm pay a 9.8% interest rate and are collateralized against the contracts they sell to residential associations. Each preferred share converts to four common shares after three years and will earn dividends when the company becomes profitable.
Henschell is currently raising a second round of private financing for the two-year-old company totaling $8 million while crafting a public offering. Despite the bureaucratic challenges of a public offering, Henschell says selling shares publicly presents the company to a broader audience of prospective investors with better accountability. It also provides an exit strategy and liquidity to current investors, including some who live in the Gulfshore Boulevard condos.
But as anyone who has had experience with homeowners associations knows, it's difficult to get residents to agree on anything. What's more, many residential developments are locked in with existing long-term contracts with Comcast, so Nickerson and Henschell have focused on those developments whose contracts are up for renewal.
Nickerson and Henschell say cable will get more competition in the same way the phone companies faced hundreds of upstarts more than a decade ago after the deregulation of telecommunications. Like the telecom startups, Pathworks seeks to build the “final mile” of fiber into customers' homes. “Florida is all about density,” Henschell says, noting that if the company is successful here it will explore other areas of the country in which to expand.
They've pitched groups like the Collier County Presidents Council, a loose organization of homeowners associations that represent 55,000 homes. “We have an immense amount of goodwill,” Nickerson says.
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