Iowa Battle Zones Rural Iowa LECs Overbuild Cable

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As if municipal overbuilds weren't enough, Iowa cable
operators are now apparently being challenged by the state's independent and rural
telephone cooperatives.

But unlike the days when these small Iowa telcos got into
cable by building systems in isolated communities or by acquiring struggling local
operators, more and more rural carriers are instead opting to overbuild the incumbents.

At present, the Iowa Telephone Association estimated that
70 of its members, including independents and rural co-ops, are offering cable to 120
communities in the state.

The reason why so many telcos originally got into the
business is simple: Just like it has the nation's largest number of municipal
electrical utilities, Iowa also has 158 local-exchange carriers, many serving rural
communities where cable service was nonexistent.

These days, however, the reasons for challenging incumbent
service providers are just as simple.

Experts believe that cable is a natural extension of an
LEC's existing business -- a service that can be bundled with a telephone offering at
rates lower than those of the incumbent.

Moreover, it's an opportunity to capitalize on the
company's local presence and history of providing quality telephone service.

Cable-industry officials conceded that in order to compete
against telcos, they must often struggle uphill against their own past indiscretions.

"It's amazing," said Ric Hanson, director of
operations for Triax Midwest Associates, which operates systems serving 40,000 subscribers
in 85 Iowa communities. "If one thing goes wrong with cable, it's remembered for
years. You hear about how 'your system went down on Super Bowl Sunday.' They
forget that there was a 50-below wind chill and 20 inches of snow. It still comes back to
haunt you."

Some telcos reported finding that it is relatively easy to
lure subscribers away from an operator with corporate headquarters located in another
state, and with Iowa employees and service trucks often sitting in other towns miles away.

LEC executives insisted that their long-standing
relationships with local telephone consumers give them the edge in competing against cable
operators that may only have been in town for a few years.

"My personal opinion is that telephone companies are
better-suited to providing cable than cable [operators] would be at offering telephone
service," ITA spokesman Kent Jerome said.

Take the case of Wilton Telephone Co., which was recently
granted a cable franchise by the residents of Wilton, a town of 3,000 located between
Davenport and Iowa City.

WTC is building a $350,000 network that will compete for
some 700 cable subscribers currently served by Tele-Communications Inc., the state's
dominant cable operator.

Its approach to attracting customers can be summed up by
its claim that "one phone call can get you the president of our company."

"People in rural communities like to see who
they're working with," WTC vice president Mark Peterson said, noting that a
survey of 1,700 area residents only turned up two who would not take the company's
cable service.

"With us, they see our employees at church, at the
grocery store and at the ball game. They weren't getting the same fuzzy feeling from
TCI that they get from us."

In the past, Peterson said, Wilton residents were often
left without service because the local operator would only send service technicians to the
community "on certain days of the week."

TCI officials said that policy was rescinded when the MSO
took over the Wilton system in January 1991, adding that the company's service
technicians are only "10 minutes away," in the town of Muscatine.

"No customer is left without service," said
Debora Blume, director of communications for TCI of Iowa. "I guess it goes with the
territory, but it's frustrating when these competitors come in and try to create a
reputation as a service provider by making statements about TCI's service that are
simply not true."

Meanwhile, WTC expects to complete its network in August,
when it will begin offering 40 channels of analog service for $20 per month, compared with
TCI's rate of $23.85 for 36 channels.

To entice the early sign-ups, WTC is offering one month of
free Home Box Office and Cinemax, as well as free installation.

Peterson said TCI has responded by dropping its rates to
"rock bottom" and by putting a planned $2-per-month rate hike on hold.

"People are already seeing the benefit of us getting
into competition with TCI," he said.

Another town with an overbuild by a local telephone outfit
is Montezuma, a community of 1,600 residents located southeast of Des Moines.

Montezuma Telephone Co. began competing against Triax
Cablevision two years ago.

"We figured that we go to the same homes, so why not
offer them cable, as well?" asked Francis Freeborn, MTC's general manager and a
12-year member of the local city council.

"All we had was a company with rates that kept going
up, and that wouldn't make special trips from Cedar Rapids to take care of service
problems. You needed two or three complaints for them to come out," Freeborn added.

Hanson confessed that two years ago, it took three service
outages before a company service truck would roll after normal hours.

However, he said, with the advent of competition, Triax
scuttled that policy, and it now responds to every single call, no matter what the hour
may be.

"It costs us a hell of a lot of money," he
admitted. "Our policy was always that your service would be repaired within 24 hours.
But we took a hard look at that and decided that it wasn't good enough, because
ultimately, if you're going to compete and be the winner, you have to provide the
best customer service."

Hanson conceded that the toughest part of battling a telco
is its reputation for quality customer service, but he wondered whether that service
extended to its new cable operations.

"What is their policy if a cable customer is out of
service at 10 p.m.?" he asked. "Are they running live human beings out there 24
hours a day, seven days a week, 365 days a year? If so, fine. We still have to do as good
a job of customer service as possible."

In the beginning, MTC gave itself a competitive edge by
offering 38 channels of basic programming for $18 per month -- a price that Triax
reportedly matched. The MSO also brought in a sales force that went door to door, offering
$50 to consumers who signed up.

That $50 offer, Freeborn said, opened his eyes to how
easily some consumers can be lured away.

"That had more of an impact than we would have
thought," he said. "But I've seen some TVs that were so snowy that I
couldn't figure out why they took the $50."

Even so, MTC's latest figures give it 700 cable
customers in Montezuma and neighboring Lake Ponderosa. Freeborn estimated that this leaves
Triax with 150 customers, compared with the 475 that it had before competition arrived.

Triax has also reportedly run into trouble in the
north-central town of Lake Mills, located near Mason City, where Winnabago Co-Op Telephone
Association decided in the early 1980s that plans for burying 330 miles of aerial
telephone plant could easily be expanded to include cable.

After offering service to 2,300 Lake Mills residents in
1980, Winnabago has since branched out into the adjoining communities of Thompson (700
residents) and Buffalo Center (1,200 residents).

It didn't take long to discover that residents
preferred getting their cable service from a local entity, said Winnabago GM Terry
Wegener.

"People in these communities know that we provide
quality telephone service," Wegener said. "We're also local. We're
part of this community. We have people working for us who were born here."

Surprisingly, some cable executives were less inclined to
vilify telephone overbuilds, insisting that competing against another private entity is
inherently "fairer" than going against a cable network owned by a municipal
government.

"It's on my radar screen, but lower than
municipal competition," said Tom Graves, executive director of the Iowa
Telecommunications Association. "That's because it's fairer competition. At
least they don't control access to rights-of-way, like local governments do. Do you
think that these municipalities are going to be fair?"

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