Cities Count Ways Overbuilds Fail

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It's hard to tell who's more disappointed with the failure of most of cable's overbuilders: the companies themselves or the cities that hoped competition would stabilize rates and offer choice in broadband.

Competitive providers hope a revival of the financial markets will return them to the broadband track.

"But if you want competition, you're going to have to help it along," said Carolina Broadband Inc. CEO Bill Schuler during a panel at last week's National Association of Telecommunications Officers and Advisors here.

Finances aren't the only factor sinking Carolina Broadband's new builds, Schuler said. Cities need to help new vendors circumvent the anti-competitive efforts of cable and telephone incumbents, he said.

Carolina Broadband stalled in part because of insurmountable build-out requirements — "We can't do 100 percent," said Schuler — as well as exclusivity agreements between incumbents and apartment-building owners and discriminatory pole rates and attachment policies.

Utility Duke Power proposed pole-attachment rates for Carolina Broadband that were three times what were assessed to Time Warner Cable, he noted. It also refused to allow the overbuilder to make non-standard attachments, although other pole users were permitted to do so.

Predation

Incumbents also practice predatory pricing, he said. For instance, AT&T Broadband charges $37 for basic cable in Maynard, Mass., but next door in Lexington — where it competes with RCN Corp. — the same package is about $31, according to Schuler.

And Adelphia Communications Corp. also differentiates. In Monrovia, Calif., basic subscribers pay $34.95, but in Arcadia — where Altrio Communications Inc. provides competition — Adelphia customers pay $21.90 for basic. And consumers in Arcadia who call to drop Adelphia are offered a $100 bounty and every third month free of charge to stay, Schuler said.

"Everyone talks about a level playing field," he said. "There is no level playing field. We have all the risk."

Competitors banked on capturing 30 percent of the market and earning $105 per home for bundled services. But detailed construction plans demanded by cities "tell the enemy where we are going to strike," he said.

Another competitor — Deborah Royster, general counsel for Starpower Communications of Washington, D.C. — suggested ways cities could ease the way for overbuilders. Find ways to curb the predatory pricing, she said, and institute success-based build-outs.

Companies should only be required to move beyond the first phase of construction when they determine they are as successful as the incumbent, she said.

Blame yourself

But some regulators in the audience placed blame for competitors' failure on their own high-blown proposals. What overbuilders really expect are subsidies, said regulators who attended the panel, and cities just don't have the money.

Some cities aren't waiting for competitors to recover and resume their business plans. Those localities have joined the ranks of municipal broadband providers.

For instance, Lakeview, Minn., launched a wireless Internet operation that even allows instant messaging, video and audio.

The $384,000 system provides services that no commercial vendor was interested in launching, either in Lakeview or several surrounding communities. Project director Mark Erickson said he knew the service would be a hit when "everybody got all excited at the prospect of booking tee times for the local golf courses on line."

That's an example of the "points of community," or the features new providers need to find to convince potential customers that a new service is one they just must have, he told other regulators.

Chicago muni

Even host city Chicago, which is already served by three cable providers, intends to launch a municipal broadband network. The city is in the final stages of selecting the winning company from a handful that answered its request for proposals, said Douglas Power, project director for CivicNet. He would not identify the bidders.

The city would like to reduce the $31 million a year it spends on telecommunications services, but it doesn't want to become a telephone company itself, Power said. CivicNet will be a public-private partnership to develop a digital network.

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