Cable Operators

Struggles of a Startup

7/15/2005 8:00 PM Eastern

When it comes to rating the service of Comcast Corp.’s Washington, D.C., system, district resident Tyrone Brown takes a historical perspective.

“I think the system has come a long way,” he says, noting the current “excellent service” he receives.

But Brown — a former commissioner at the Federal Communications Commission and now a lawyer at the powerhouse Washington firm of Wiley, Rein & Fielding — isn’t the typical cable customer. He was also a partner in the consortium that won D.C.’s first cable-TV franchise in the early 1980s.

LIKE WILD WEST

“I was a part of it during the Wild West pioneer days,” he says.

Indeed, the early rush to win franchises and build out systems was much like the old West of the 1800s — when starry-eyed settlers migrated into the new U.S. territories in search of wealth. The land was often free, if you could get to it. Authorities would post stakes in the ground representing tracts of free land and then allow prospects to race across open fields to “stake a claim” to them.

Like cable franchises, those able to seize the opportunity reaped great rewards.

In the early ’80s, the Washington, D.C., metropolitan area was one of those unclaimed stakes. And a bevy of prospects were lined up.

Brown was one of the partners in a consortium that included venture capitalist Herbert Wilkins and Robert Johnson, who later went on to start Black Entertainment Television and make billions selling it to Viacom Inc. The consortium, which was eventually named D.C. Cablevision, won the franchise.

Also in the mix was MSO Tele-Communications Inc. — part of the growing empire of Bob Magness, who later died, and John Malone, the present chairman of the programming and systems group Liberty Media Corp.

TCI had agreed to provide well over $100 million in financing if the consortium won the franchise (in return for a 75% stake in the venture). The deal effectively made the D.C. system a TCI property, but despite Denver-based TCI’s majority stake, “we promised that a local group would stay in control,” says Brown.

Malone, who knew Brown from previous business deals, didn’t blink at the prospect of ceding management control.

“He knew he couldn’t roll over us, but he also knew he could trust us,” says Brown. “We never could have done it without TCI.”

Of course, actually building the system was going to take more than money: Most of D.C.’s telecom infrastructure resided underground, in a Byzantine patchwork of ducts below the streets. Unlike in many cities, telephone poles were a rare sight throughout large areas. And city officials liked it that way.

“There was a substantial obligation to put the cable underground,” says Brown. “And we knew there was no way that a cable company could economically build its own duct work throughout downtown. … The underground here was an enormous part of the city. It was going to be a nightmare.”

So the consortium turned to the only entity that really knew its way around that maze: Bell Atlantic’s D.C. operating company, C&P Telephone, which agreed to build the system on a contract basis. It was one of the only times on record that a telco was contracted to build a cable-TV system. And rumors that C&P Telephone botched the job persisted for years.

Brown shakes off those stories, but admits the system simply didn’t meet the high bar set by some city officials. “It didn’t get built with the kind of large channel capacity and two-way system the city wanted,” he says. “But back then, that was very forward-looking.”

As D.C. Cablevision continued to build out the infrastructure into the early 1990s, its home in the nation’s capital put it under the microscope. Every outage or service problem was amplified. When rates went up, federal officials read about it in the local papers. To some degree, the situation created a perception (sometimes not altogether undeserved) that the D.C. cable system underperformed other systems in major cities.

When telecom giant AT&T purchased TCI in 1999, it took over the D.C. system, but didn’t hold on to it for long, selling it to Comcast Corp. after only about a year and making few infrastructure improvements in the meantime. In fact, crucial upgrades from 450 MHz to 860 MHz, as well as the introduction of broadband Internet access and video-on-demand, didn’t reach the D.C. market until after Comcast took over the system at the end of 2000.

TOUGH ENVIRONMENT

To be fair, D.C. Cablevision faced many challenges in those early years, including trying to maintain a cable system built by a phone company. And operating among lawmakers and regulators who were also local residents created a burden that few cable operators could have withstood without at least some hiccups.

In the end, the hard work in the beginning built the foundation of the modern system Comcast runs today. “It was very difficult,” says Brown. “All of us were very proud of what we achieved.”

Of course, none of that is Brown’s problem anymore: He hasn’t been personally involved in the D.C. system since he received AT&T stock as part of the 1999 acquisition.

“I traded it, but not soon enough,” Brown says of AT&T’s languishing shares. “It’s only money.”

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