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Alameda Mulls Cable Sale

3/29/2008 2:00 AM Eastern

Faced with a $33 million bond payment in June 2009, the city of Alameda, Calif., is considering its options, including the possible sale of its municipal cable system.

The 10-year-old system serves about 15,000 video subscribers, but according to a report by a financial team hired to look at the operation, the cable unit will not earn enough revenues during the next 14 months to make the debt payment.

Alameda moved into the cable business at a time when city fathers felt the community was “underserved” by past providers, including Tele-Communications and AT&T Broadband. The city already had a municipal power utility that could operate the telecommunications venture.

But the infrastructure costs grew larger even as the plant was being constructed, and in 2004, the venture was refinanced with bond anticipation notes. The balloon payment on those notes is looming next year. Now, the cable operation faces strong competition from providers including Comcast and AT&T, and ever-changing technology that requires more investment.

According to a recent report to the city council, Alameda Power & Telecom has tried to cut expenses by cutting 12 full-time staff positions, and the cable venture has had $44 million in “interfund advances” from the power side of the business to keep it afloat, the report said.

City officials considered launching telephone service as a way to better compete.

But a report from the financial analyst hired last year, Northcross, Hill & Ash, has told the city council that telephony revenue may not be enough to move the telecommunications operation into the black.

During the last decade, some cities have moved into the telecommunications business due to the deregulation of electrical utilities. Because they were installing fiber-optic gear anyway, towns argued, an incremental investment would allow for the delivery of telecommunications services.

Such services would pay for themselves both with residential revenues and by attracting new businesses to the community, cities reasoned. But some have found that keeping up with commercial competitors is more expensive than they anticipated.

For instance, in 2007, Lowell, Mich., sold its 23-year-old municipal operation, serving 1,854 video homes, to Comcast for $3.5 million. City officials didn't want to spend the millions it would cost to upgrade the 450-MHz system.

Alameda officials are still analyzing their next move, which could be keeping the system as it is operated today, expanding its size or services offered, or selling and exiting the cable business.

September