City poised to have 3 cable firms

Move to competition could be industry model

07/17/2000

By Gromer Jeffers Jr. / The Dallas Morning News

When the Dallas City Council criticized AT&T Cable Services and then rejected the company's rate increase for Dallas customers, at least two would-be competitors were listening.

"We are keenly aware of the customer-service issues in Dallas and the cable industry in general," said Julie McGrath, a senior vice president for WideOpenWest LLC, one of two Internet-based cable companies from the Denver area interested in doing business in Dallas.

"We want a platform to allow for the best in digital cable television."

Another start-up company – Denver's Western Integrated Networks – is also vying for a Dallas cable franchise, promising to build a $500 million high-speed Internet, telephone and cable system here.

But even with the new competition and complaints about customer satisfaction, city officials say it's unlikely that AT&T will be denied a franchise when its current agreement expires in September.

Instead, city officials say, they want to create a three-way competition for Dallas cable customers. The city is negotiating 15-year franchise agreements with AT&T, WideOpenWest and Western Integrated Networks.

AT&T says that it has made improvements in customer service and that it's not worried about the competition.

"We provide the latest technology for our customers," said AT&T spokeswoman Angel Biasatti. "We are the leader in the industry."

Dallas has never had more than one cable-television provider at one time in the 20 years that the city has awarded cable franchises, officials said.

The city is poised to become a model for industry observers and municipal telecommunications officials who say they wonder whether competition in the cable arena means lower rates and better service for customers. Others want to know if start-up companies can successfully challenge industry powerhouses.

"I don't think there's any question that competition ultimately helps the customer," said Dallas City Controller Eric Kaalund. "Until now, we've never been approached by more than one company."

Barry Orton, a professor of telecommunications at the University of Wisconsin-Madison, said competition can keep rates down and improve the quality of service.

"Traditionally, it's been a natural monopoly and it was too tough for the second company," he said. "The idea that you're going to have competition is the real solution to some of the problems."

Old thinking

Cable television exploded nationally more than two decades ago, offering viewers more programming options. The industry was dominated by a handful of companies that built expensive cable systems to meet customer demand.

Once a cable company became entrenched in a city, it didn't need to worry about much competition, industry leaders say.

Allocating substantial dollars to duplicate a cable system already in place was seen as bad business even if the franchise holder was viewed as poor, said Bill Arnold, president of the Texas Cable Association.

"No one came forward seeking a franchise because of the economics," he said. "It didn't seem wise to duplicate the plant of an existing franchise."

Even today, Mr. Arnold said, there are only about 50 new competitors – the industry calls them "overbuilders" – in the United States.

In Dallas, Tele-Communications Inc., or TCI, operated for years without competition, despite constant complaints from city officials and customers about service.

AT&T bought TCI about a year ago.

When it went before the Dallas City Council recently to get ratification of a 31-cent monthly increase for basic-cable service, several council members called AT&T's cable service lousy and the council voted against the increase.

The Federal Communications Commission set aside the council's rejection of the increase, pending an appeal by AT&T.

The seemingly fertile ground for cable customers in Dallas, experts say, should give competitors hope. And new technology makes building a new digital cable system a smarter investment, industry observers said.

AT&T has 150,000 cable customers in Dallas, or 30 percent of potential customers, officials said. AT&T and industry officials say there's a lot of room for growth – and not just for cable television.

WideOpenWest and Western Integrated Networks say they want to be part of it. Like AT&T, they will provide cable, Internet and telephone service.

"Everybody wants a part of the broadband revenue pie," Mr. Arnold said. "The overbuilder has to be successful in getting a little piece of each stream to make his business plan work."

WideOpenWest has been awarded franchises in Grand Prairie, where AT&T is already the incumbent, and in Irving. Western Integrated Networks has franchises in Austin and San Antonio.

Both companies have raised hundreds of millions of dollars in start-up capital, officials said.

In the meantime, AT&T has begun a $150 million system upgrade to meet the competition and improve service in Dallas.

"The marketplace will dictate who will survive," said Grand Prairie City Attorney Don Postell.

Mr. Postell said Grand Prairie is concerned about the effect of multiple cable companies on public streets.

"There will be a lot of people trying to put things in, and we expect to have some disruption to the public right of way," he said.

Dallas officials say they have similar concerns. Mr. Kaalund said any franchise agreement will include provisions mandating that companies repair the public right of way in a timely fashion.

Still, some council members say they worry that the city will be left with the chore of repairing street cuts.

"Right now, I don't think our current franchise agreements pay for themselves," said Mayor Pro Tem Mary Poss.

Customer-service worries

Some council members say they are also concerned that the two new companies won't be able to improve service.

Mr. Kaalund is requiring that cable franchise agreements contain customer-service provisions, including stipulations that cable company operators consistently answer telephone calls.

He is also negotiating how much support cable companies should give to public-education and government programming.

Industry analysts say it's too early to know if overbuilding in the cable industry can be successful.

Mr. Orton, the telecommunications professor, says the most successful overbuilder is SBC Communication's Ameritech, which operates in the Chicago area.

"To have a wired competitor means that the customer has a real choice," Mr. Orton said.

Barbara Mallory Caraway, chairwoman of the City Council's Transportation and Telecommunications Committee, said industry eyes will be on Dallas.

"It will be interesting to see how all these companies compete against each other," she said. "Hopefully, it will lead to a better deal for the customers."