News

Iowa Overbuild Frenzy Keeps Building

8/16/1998 8:00 PM Eastern

A community of just 7,000 residents in north central Iowa
is considering launching one of the state's most expensive municipal cable overbuilds
ever.

Algona, Iowa, is looking at a $14 million municipal
telecommunications network capable of offering cable, Internet access and local phone
service to some 2,500 Tele-Communications Inc. subscribers.

Residents voted by a 75 percent majority last fall to
authorize Algona Municipal Utilities to study the project, making the town one of about
one-dozen TCI communities in Iowa considering going head-to-head with the embattled MSO.

Local officials said the overwhelming vote was the result
of the town's belief that its rural location makes it an unlikely candidate to
receive the latest in telecommunications services anytime soon.

"Many of our residents feel that if they're going
to have state-of-the-art telecommunications, we're going to have to do it
ourselves," municipal-utilities manager Nick Scholer said.

Some, however, were surprised that the project was still on
the drawing board, given the fact that the city's own feasibility study placed the
cost of the network at up to $9 million over original projections, making it one of the
most expensive municipal overbuilds ever proposed in Iowa.

Cable-industry officials said the city's willingness
to pursue such a high-priced project indicated that egos are at work, rather than concerns
about what's best for the community.

"It just shows that they don't care about the
cost," said Tom Graves, executive director of the Iowa Telecommunications
Association. "They just want to build it because it makes them more important."

Meanwhile, Deb Blume, regional communications director for
TCI of Iowa, said communities like Atlantic, Winterset and Humbolt, Iowa, backed away from
municipal overbuilds after seeing the final numbers.

"Obviously, these projects don't make much
financial sense," Blume said. "And cities are taking a more cautious look in
terms of the bottom line."

However, Scholer said, Algona officials believe that they
can cut $1.5 million from the cost by not initially extending the network to cover housing
developments outside of the city limits. They also plan to pare another $2 million by
partnering with a telephone-service provider that would install a switch in exchange for a
cut of the profits.

Even under the worst-case scenario, the feasibility study
determined that the city could make money if it achieves just a 40 percent-penetration
rate for its services.

"But if people believed enough to vote 75 percent in
favor [of the project], we should be able to do better than that," Scholer said.

Scholer said local sentiment remains "positive"
on the project, primarily because of TCI service that "left a lot to be
desired."

He conceded, however, that TCI has responded to the
possibility of competition by launching digital programming and by installing fiber optic
cable in the center of town.

"But all of these extra channels come at a substantial
price," Scholer said. "Let's hope that consumers don't have that short
of a memory."

The municipal utility's board of trustees hopes to
have a final decision on whether to build the network by early next year. If approved,
construction is expected to take about 18 months.

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