A year ago, most municipal regulators were concluding their transfers of AT&T Broadband franchises to the new operator, Comcast Corp.
While there was not so much as a crocodile tear shed at the departure of AT&T Broadband, not everyone was welcoming Comcast with open arms, either. Despite the company's family-centered, good-performer reputation, many municipalities feared the size and power of the new cable company and anticipated problems getting the behemoth to bow to local regulations.
One consultant, Tom Creighton, an attorney with Creighton, Bradley & Guzzetta, commissioned an independent audit report of the new, larger Comcast for clients including Nashville, Tenn. The conclusion: just say "no" to the transfer.
'Fatal Flaw' Seen
In contrast to reports from Bear Stearns & Co., Merrill Lynch Inc. and Sanford Bernstein & Co., Creighton's report stated the "fatal flaw" in the deal between AT&T and Comcast was the "steadfast refusal to provide a business plan from which (local franchising authorities) can extrapolate a picture of the potential harm to subscribers and LFAs" as a result of the transaction.
The consultant compared the merger-fueled "unbridled growth" to the circumstances that led to financial accounting wrong-doing and ruin at companies such as Tyco International Ltd or Global Crossing Inc.
(Creighton's report did not say any financial irregularities were found or suspected of Comcast).
Despite the naysayers, transfers were concluded and many critics now say Comcast is living up to many of the promises it made in 2002. That includes communities where Comcast has had some very public dust-ups, including Portland, Ore., and Modesto and San Jose, Calif.
Even Nashville, one of the clients which received the "no transfer" recommendation, says cable is "business is usual," with nothing negative to report regarding Comcast.
Other municipalities joined the chorus of the concerned, fearful Comcast could give data to partners other than programmers and billing vendors.
"Apart from the privacy issue, I would generally give Comcast good marks. They've reversed a considerable slide by AT&T," said David Olson, director of Portland's office of cable and franchise management.
He was a frequent critic of AT&T Broadband and led the legal charge to open cable's data platform to unaffiliated content providers.
AT&T Broadband's service was so poor in the region that it was slapped with $200,000 in fines for its shortfalls, Olson noted.
Consumer statistics are now much better, he said.
Comcast "has more of a can-do attitude. They seem more interested and committed to the business, reflecting the company ethos," he said, adding "and I was a jury which was still out in the beginning."
Comcast has generally completed an upgrade promised at the time of the transfer and has lived up to its interconnection obligations, Olson added.
"They sit down and discuss things. AT&T was like a bull in a china shop, 'This is the way things are.' Comcast is more amenable to listen," he concluded.
The operator is moving forward with its promised improvements in Modesto, too, despite a fight over plant electrical safety there that has landed regulators and the cable company in court.
When Comcast took over the system, it inherited a plant that was riddled with poor electrical connections at customer premises, according to city officials. The city asserts the company acknowledged the problem, impacting an estimated 29% of the city's drops, at the time of transfer, for it was in the orders to cure by AT&T Broadband.
The city demanded that the problem, which could result in customer electrocutions, be remedied by mid-year.
But when May rolled around without a substantial reduction in the electrical gigs, the Modesto City Council approved a $1 million fine with escalations of $1 per home per month, further escalating by 10 cents per month for every month the situation was not remedied.
Comcast responded with a suit in federal court there, arguing that the fine is excessive and is being utilized as a bargaining chip in ongoing institutional network negotiations. Modesto countersued, asking the judge to declare Comcast's plant a "public nuisance."
Modesto won the first round, earning a preliminary injunction that requires all electrical faults be remedied by Jan. 1, 2004. After that date, the city can demand the faulty plant be physically removed from customer homes.
Despite the tensions between regulators and Comcast, the operator has continued to abate the electrical problems, and to proceed with a promised upgrade, said Donna Hansen, deputy city manager. Grounding repairs have been vetted and approved by the city's grounding and safety inspectors, she said, "as a result of our enforcement actions."
"They said it was absolutely impossible to fix the problems before December 2004. We knew it was possible," Hansen said.
"On a lot of fronts, you don't get action unless you force them to comply," she said. "You don't get the cooperation you expect from a 'family-owned, community culture' business."
But to Comcast's credit, she added, the operator is making good on an upgrade the community has sought for more than three years. A 750-MHz plant is being completed in the community, but Hansen is keeping a close eye on the operator because of the uptick in rebuild-related outage complaints. Comcast is supposed to warn consumers of expected signal problems, Hansen said.
Meanwhile, Comcast's challenge of Modesto's authority to set that high fine remains pending in court. The results are anxiously anticipated by other LFAs.
San Jose Praise
A spokesman in another combative location in California, San Jose, also has words of praise for Comcast, albeit mild. The operator is lighting upgraded parts of the community, even though the city and company are in court there, too, in a power struggle.
San Jose has been agitating for an upgrade for several years. Despite its supremacy as the "capital" of the Silicon Valley, San Jose has a dinosaur cable system, a two-way, A/B switched system devoid of high-speed data service.
The city once saw its high-tech salvation as a site for a competitive bundled-services platform built by then-PacificBell, only to see municipal hopes dashed, and the plant sold in pieces to then operator Tele-Communications Inc., when PacBell became part of video-adverse SBC Communications Inc.
Comcast came to town with promises of performing the long-delayed upgrade.
But relations between the vendor and company have soured over municipal demands that Comcast live up to franchise requirements for a suite of public, educational and government channels, and an institutional network.
The city responded by preliminarily declining a franchise renewal.
Comcast sued in federal court, claiming its free-speech rights were being violated. The suit also claimed the city was using the negotiating process to demand services beyond the scope of the federal Cable Act.
Magistrate Judge Richard Seeborg of the U.S. District Court for the Northern District of California in Modesto refused to issue Comcast a preliminary injunction, stating the operator's speech rights are not being violated. San Jose is complying with formal renewal processes set by federal law, so Comcast's free speech challenge is premature, the judge said.
As the battle continues, Comcast is building the 750-MHz upgrade and has lit up parts of the plant, bringing cable modems to the community for the first time, said Tom Manheim, public outreach officer for the city.
"That's certainly a good thing, we're happy with that," he said. "We're still going down the formal [refranchising] path but we're not sure where it's going."
And although Comcast is known as a company driven by regional management, there is another change in San Jose. Manheim said city-company contact is with corporate executives out of Philadelphia.
Bay City Blues
Even in similarly situated communities, Comcast may not count on the same reaction from LFAs to its post-merger system improvement efforts. Take Miami, Fla., and San Francisco.
Both had systems that city officials assert were neglected and left outmoded under AT&T Broadband's ownership. Both approved the franchise transfer in hopes of a turn-around under Comcast ownership. Comcast is rebuilding the communities. Miami is happy; San Francisco is not.
In the city by the bay, Comcast has completed 70% of its rebuild, said Denise Brady, deputy director of the department of telecommunications and information services for the city and county of San Francisco. But the project is two months behind its milestones, she said.
"That's very distressful, even if that's up from the 20%" of rebuild completion reported earlier in the year. "We don't know how much of that is activated."
Overall, Comcast is having "growing pains," in Brady's opinion. San Francisco consumers are experiencing problems you'd expect during a rebuild, she added, including periodic service outages and marketing confusion.
Some consumers complain they are offered a deal by telemarketers, apparently tied to the rollout of new services in an area, only to receive a bill that doesn't reflect the special. The problem might be remedied if Comcast had a Web site where a potential subscriber could verify the offer and check its terms and qualifications.
Comcast is attempting to expand customer support and to clarify marketing issues, according to the company.
As for the tardy rebuild, Brady notes the city is 11 months into the 36-month refranchising window with Comcast. San Francisco "assumes the city will be made whole" in its new franchise to compensate for the delayed pace of the rebuild, she said.
Cheers In Miami
Miami, meanwhile, hasn't had a problem with Comcast, said David Mattison, cable telecommunications license administrator. In parts of Miami, consumers were still being served by 350-MHz systems that were only 40-channel capable when Comcast took over operations.
"Nobody put money into the infrastructure here," he said. Now, the lion's share of the 289,634-customer system has been improved to 750 MHz, he said.
"They're ahead of schedule. We're really happy," he said.
Plus, the work has been accomplished as consumer complaints diminished. Complaints in the Kendall license area have dropped to 55 from 80 last year; Miami reported 33, compared to 48 last year; complaints at AT&T North (the 40 channel system) decreased to 76 calls from 96; and AT&T West is at 73, down from 112 last year. Only the Aventura area went up: two instead of one.
During the year, the two sides negotiated renewals of Comcast's six licenses. The new term is for 10 years, but if the company completes the upgrades it will get an automatic extension, Mattison said.
Comcast is already touting high-speed data and high-tech products such as high-speed data and high-definition television.
"When it's finished its going to be great," Mattison said.
The operator has made good on some regional promises, too. In the Dallas metroplex, Comcast spent a reported $70 million to upgrade the fiber network to 500,000 customers there. It has launched new video channels and began offering HDTV at the end of November.
In August, it opened an 86,000-square-foot call center, housing 450 support staff in the Dallas area.
At the end of November, a similar facility was opened in Sacramento, Calif., too, ending a period of outsourcing that sent consumer calls as far away as Canada. Rich Esposto, executive director of the Sacramento Metropolitan Cable Commission, said regulators would be watching to see if the localized center would have a positive impact on customer service performance.
Sacramento is ending a "honeymoon" period with Comcast, which is actually a returning operator to the community. It operated the system in the early 1990s, then swapped it to AT&T Broadband before returning as the operator due to the merger one year ago.
Local officials were pleased to report Comcast's cooperation earlier this year in getting a long-delayed institutional and educational network up and operating. But those good feelings have evaporated over recalcitrance by the operator to open its books for a Sacramento audit.
The city and county got some information it requested but not other data officials deemed vital to an accurate audit of franchise fee payments. It got so bad that in November the commission passed a resolution that would have allowed county staff to seek a subpoena of the payment records if Comcast did not provide information by Nov. 18. More Comcast data is now in the hands of the county auditor and the subpoena was not sought, Esposto said.
'Time will tell'
As for his opinion of Comcast in the community, Esposto said, "Only time will tell."
While LFAs are still scuffling with the operator over franchise requirements and other local issues, most concede that the creation of the nation's largest cable company with the merger one year ago have not triggered the economic impact predicted a year ago.
In its third-quarter earnings call in November, Comcast executives reported that revenues rose 8.8 percent for the quarter. The company gained 23,000 new subscribers in the former AT&T Broadband systems.
Although Comcast lost almost the same number of subscribers in the historic Comcast systems, executives stressed that the company is on track to its goal of 125,000- to 150,000-sub growth this year. The company also had its greatest quarter for high-speed data growth penetration, executives said.
"They've put their money where their mouth is," concluded cable consultant Barry Orton. "They've proved the naysayers were Chicken Littles."