Creating cable competition isn’t easy

By Ed Enoch

Published: September 6, 2008

Residents at Monarch Estates Retirement Community love Auburn Football.

They gather around and watch it together in the community’s common room, said co-manager Donald Musgrave.

Residents at the community, located in Auburn, wanted to watch the Louisiana-Monroe game, but Charter Communications wanted to charge $400 for pay-per-view, Musgrave said.

“They said, ‘You’re just like a bar,’” he said. “We don’t sell tickets here; we just get around the TV in the common area.”

Musgrave said residents were upset when they couldn’t get the game.

“We’re their customer, and they could care less about us,” he said.

Charter makes an easy bad guy as the only multi-system operator (MSO) cable provider in Opelika and Auburn. The company is like the cowboy in black from old westerns. And the townsfolk have had plenty of bad experiences — enough that local governments have tried to recruit competition for the provider.

But recruiting competitors has been difficult.

“The truth of the matter is, because of our market size, the likelihood of us getting a bigger provider isn’t good,” Opelika Mayor Gary Fuller said.

But the fourth largest cable provider in the nation does care about its customers, said Lynne Coker, director of government affairs at Charter.

The company, which serves approximately 200 cities and counties in Alabama, constantly evaluates customer service and system operations, Coker said.

In the last few months, the company has added more people and improved communications between dispatchers and service personnel, Coker said.

“If someone has had a bad experience, it takes a while to get them back and get them happy, and that’s the goal,” Coker said.

Musgrave said things would be different if there was competition.

But it looks like Fuller’s hero may have to be home grown — Opelika Light and Power.

In July, the city council approved a feasibility study by telecom consultants Uptown Service, LLC., of a fiber optics system.

The city’s utility would operate the system, Fuller said, adding he would like to see the city do it if it makes good business sense.

From a capital standpoint, moving into a new market isn’t easy, said Anthony Palermo, vice president of marketing for Knology, a company approached by Fuller to come to Opelika.

In the past, the model was determined by demographics, population and installation.

“You dealt with density and dirt,” he said.

Palermo said a rough estimate of cost per mile for underground installation is $50,000 to $70,000, and $30,000 to $50,000 for aerial installation (cables hung on utility poles).

A density of 80 to 90 homes per mile was ideal for a market historically, he said. But Palermo expects it has increased to more than 100 homes per mile.

Fuller said Opelika tends to be too dispersed for the model, with houses every quarter mile or so in some places.

The biggest cost for a provider is often the channels they offer.

“Those rates go up every year,” Palermo said.

Sports programming is probably the largest, increasing 15 to 20 percent on average, Palermo said.

Coker agreed, but declined to discuss specific rates. Costs increase and continue to increase when channels are extremely popular, she said.

The costs for carrying local broadcasters like ABC, NBC and Fox affiliates have increased, too.

Many now choose elected re-transmission, which charges a cable provider for re-transmission of a local broadcast, Palermo said. Cable companies must get a local broadcaster’s consent to carry their transmission. The agreements and terms vary, but most are annual or renewed every two to three years, he said.

“Now, you are talking about increasing costs for cable providers,” he said.

The idea of a fiber system in Opelika isn’t new.

Brian Skelton, general manager of the Tullahoma Utilities Board in Tullahoma, Tenn., said Opelika looked at fiber while he was serving as light and power director, but never moved forward.

Tullahoma’s system will come online in October. Tullahoma is similar in size to Opelika, Skelton said.

Skelton estimates about 9,100 of the city’s 10,400 electric customers are potential fiber customers. Skelton said the city is currently testing Internet, phone and cable systems.

The city borrowed $16.9 million through bonds for construction and another $3 million in an inter-department loan for initial operations, Skelton said.

Approximately, 1,200 people are already on a waiting list to get services, he said.

“It’s just amazing everyday seeing the excitement of the people who want to disconnect (from Charter or another existing provider),” Skelton said.

But Skelton doesn’t expect Charter to go without a fight. He expects the provider to slash prices to stay competitive.

“We know that, and that’s why we don’t expect to get an 85 (market) percent penetration rate,” he said.

There’s also competition from above. Satellite providers are bound by clear lines of sight for their dishes and not much else, Palermo said.

Satellite has about 20 to 25 percent of the market, Palermo said. Another 15 percent is “Rabbit ears guys” without a cable provider, and 60 percent are customers of MSO providers like Knology and Charter.

But completion is, of course, good for the little guy.  It increases options for the customer, Palermo said.

“We have competition in our business — it makes you better,” Musgrave said.