The city of Austin, Texas, has joined the growing ranks of cities using multiple cable providers as a way to jump-start competition in their local telecommunications markets.
City officials have set the stage for a challenge to Time Warner Cable's hold on 170,000 area consumers by awarding three new competitive franchises.
On April 13, the city authorized a franchise for Western Integrated Networks LLC, a Colorado-based start-up outfit headed by former Frontier-Vision Partners L.P. president James Vaughn.
A week later, it approved deals for WideOpenWest LLC and newcomer Grande Communications, a Texas-based start-up "that plans on being big," Austin director of telecommunications and regulatory affairs Michael D. Parks said.
By bringing in the three companies, Austin joins Portland, Ore., and Seattle as major cities that will have at least three cable operators serving their constituents sometime in 2001.
But it also raises the question of why the overbuilders chose Austin.
In other communities where WIN and WOW plan to operate, the incumbent has usually not completed its upgrade, allowing the newcomers to enter the market on equal footing.
In Austin, however, they'll be going against an entrenched Time Warner system already capable of delivering the same enhanced cable, Internet and telephone services its competitors plan to offer.
"We don't think we're going to be at a disadvantage," WOW vice president of marketing Mike Steinkirchner said. "Don't forget, we're going to be offering open access to Internet-service providers. As the dust settles and dial-up customers switch to broadband, that could be huge for us because we'll be offering people choice."
WOW estimated that it will cost $500 million to build out the entire Austin metropolitan area. "You're talking 225,000 homes, so it's big," Steinkirchner said.
Officials at WIN were also not concerned about competing against Time Warner's state-of-the-art system in Austin.
"State-of the-art is a relative term," WIN spokesman Bill Mahon said. "Even a 750-megahertz system will not be state-of-the-art for very long. As the insatiable appetite for more and consistent speed continues to grow, coupled with the always present desire on the part of subscribers for more video-entertainment services, the systems that are being upgraded today will soon start to have the same bandwidth-capacity issues that predecessor systems have had."
As a result, the incumbent will be forced into "a position of having to make choices on which services to offer based to a large extent on limited channel and bandwidth capacity," Mahon said.
WIN's strategy, meanwhile, is to bring fiber as close to the house as technically and economically feasible, with future plans to extend it to the house, Mahon said.
"Because of the very fiber-rich architecture of our system design, resulting in much greater bandwidth and channel capacities, we will not be faced with having to make those choices and decisions based purely on available bandwidth," he said. "We will have more capacity and resulting flexibility to add services based on consumer desires, without having to face the limited-channel-capacity issues.
Each of the new market entrants was granted a nine-year franchise, which can be renewed after six years at the city's option.
"That way, we get to evaluate them after six years," Parks said. "We can look at how they're doing, how they're working, if they're meeting our standards and if their systems have the latest technology available, or close to it. Based on what we find, we can renew or not renew."
All three companies will have five-year build-out schedules. The franchises become effective 60 days after the final reading by the City Council.
Parks conceded that four different service providers would stretch the market a bit thin. "Do I think all of these companies will survive? No," he said. "I think in the end, we'll see one or two, or maybe a hybrid of two of these companies."
Nevertheless, local officials were eager to bring in competition to Time Warner, which, despite a 750-MHz system and attempts to be a good corporate citizen, is perceived as charging "artificially inflated" cable rates, Parks said.
"We think competition is good for our residents," he added. "I don't think it will cause rates to come down, but it might keep them from increasing."