Big Bandwidth Is a Capital Idea for OEN

Optical Entertainment Network Inc. is a good model for the service provider of the future. The company offers video, data and VoIP services, which it markets under the name FISION, over its own FTTH network in Houston. OEN expects to turn up service in California and Florida in about a month.

OEN’s James Hagemeier

But how does a company like OEN compete against large competitors like Comcast Corp. in this high-stakes business? And how does it convince investors that putting money into OEN will be a winning bet?

OEN’s CFO James Hagemeier — a panelist at xchange’s Capital 2.0 event this month in Secaucus, N.J. — talks here about the company’s business plan and the money behind it.

JH: Consumers (both residential and commercial) that want more entertainment value for their money. Many customers have switched or are in the process of moving to OEN because of dissatisfaction with incumbents.

How many paying customers does OEN have?

JH: 350. As we only launched our official service earlier this year, our market share is low, but we are having a lot of success penetrating the areas we are targeting.

What is your plan for differentiation and success?

JH: Our service differentiates itself in both quality and quantity. Because we run on fiber all the way to the home, our video signal is never compressed or decompressed, so the quality of the signal received by the subscriber is the same as when it left the network satellites. Our offering of over 10meg symmetrical Internet speeds, 400 channels and an HD lineup that is many times greater than the competition, is far superior to any of the other offerings from the incumbents.

What is OEN’s “communities of content” concept?

JH: Essentially, that we have such a massive bandwidth pipeline [that] we have the luxury of providing specific multichannel offerings for a niche market. For example, we offer over 55 channels of Hispanic programming to our FISION Latino subscribers. We are looking at Korean, Japanese and Vietnamese programming packages and services to cater to these multicultural markets. An emerging community is our “HD Enthusiast Community.” We’ve addressed this HD content appetite by creating our own HD Relaxation channels.

Wireless has become an important part of communications. How does wireless fit into the OEN strategy?

JH: When we launched our FISION Triple Play Plus offering in Houston, we’ve always had an eye on incremental revenue units such as cellular phone and home security. However, since our delivery of IPTV over fiber-to-the-home is unique to the multichannel video space, we wanted to make certain that we had our triple-play product perfect. Now that we’ve launched with success, we’re looking at multiple cellular phone solutions to stay competitive with other providers who are bundling cellular phone service with triple play. On the WiMAX front, we’re seeing lots of opportunities there particularly in the planned development communities where mini-clouds specifications are popular.

How is OEN positioned financially?

JH: OEN has continued to have the support of its investors due to the richness of the service offering and the potential for growth. The company manages cash very aggressively and keeps a low burn rate to minimize cash needs.

What are your sources of funding?

JH: OEN has raised capital through friends and family investors ratably over the last two-and-a-half years. We have raised about $13.5 million.

How long will that funding keep OEN afloat?

JH: OEN is in the midst of a round of financing that, once completed, will last until profitability. OEN has contracted an investment banking group to assist in a large capital raise which will likely come through private equity markets.

How is OEN going about convincing the financial community it is worth investing in?

JH: Most investors in the financial community have had negative experiences with incumbent providers (like many of the subscribers in the communities) and the OEN business plan, supported by the network content agreements, gave hope of an ‘entertainment package of the future’ that has gained a lot of support.

What is the end game for OEN and its investors in terms of market share goals?

JH: Five percent of the projected fiber-to-the-home market as it expands in the U.S.

Is OEN profitable? When does it expect to be profitable?

JH: Our current plans have OEN at breakeven at the beginning of 2008.

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