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To: harryl1 who wrote (9230)5/26/1999 11:44:00 PM
From: MAELING  Respond to of 18998
 
My understanding is that CAIS as an internet provider is another me too product. Their specific claim to fame is being able to hook up hotels and apartment buildings to the internet via the 4 wire set-up coming with all telephone hook-ups, rather than rewiring with Cat 5 wiring. (In a standard telephone line there are two lines for the telephone, and two lines for the bell. Turns out telephones no longer require the separate bell lines, they just send through a big-time voltage.) CAIS uses a set of resistors and capacitors to separate the frequencies just like your stereo speaker system does to filter the tweeter signal, from the mid-range, from the sub-woofer. CAIS divides into three frequency bands: one for voice, one for EtherNet, and one for future video signal. So they sort out the frequencies to provide Ethernet connection to the central server for the floor of a hotel, or an apartment building. They have a patent for this gizmo that is 50% owned by CAIS and 50% owned by InLine. There are some exceptions over which they fought a licensing battle and lost last fall. The patent is probably OK, but there are some fuzzy areas. Tut Systems has a totally different system that is easier to install and more reliable. Problem with the OverVoice thing is that as runs get longer, the frequencies drift. In a stereo, only one category of speakers is downstream. With conflicting digital and POTS signals there is the problem of 'drift' and crosstalk. You almost have to tune each installation. The hotels and apartment bldgs don't care because it is CAIS that pays for the installation. One would think that they might get good at it, but they are going to outsource the installation to a cable pulling Co. and Volt Information. Not good if you are trying to keep costs down.

They list lots of hotels where they have put in their service. Big costs, no revenue so far because CAIS pays for the installation themselves. I think it is instructive that even after it is put in it doesn't generate revenues. There has been no proof of concept financially. They have manufactured 10,000 of these electronic filters, at $225/room, it looks like they intend to spend at least $2-3 million to put them in. Then there are servers, ISP costs, etc.

Their trophy is an open-ended deal with Hilton Hotels. The prospectus lists all the hotels in that chain. Looks good until you realize that Hilton has a contract with On Command to provide in-room entertainment on an exclusive basis. On Command is also providing internet service. Hilton can decide to terminate a contract with CAIS on what appears to be an arbitrary basis. Since CAIS brags that in the future they will deliver video via their OverVoice system, I would think that On Command might take umbrage. I see a lot of cost without much revenue from this relationship. Some trophy.

I don't find that they have a business. All of their future plans entail entering markets by giving away goods and services. However with no barriers to entry, it appears like a way to burn cash. They've lost lots of money in the past, I don't know why the future shouldn't hold the same.

There are so many related transactions and loans to be paid off that it doesn't pass my smell test. I couldn't call it a scam unless I spent more time, but until and unless the market boosts the price back up, I'm not going to bother.

Ciao