Kutztown Muni Befuddles Ops

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Entrenched cable operators in Pennsylvania are quickly adopting a battle cry: "Remember Kutztown."

Incumbent operators are worried that more cities will emulate Kutztown, which is building a fiber-to-the-home cable system, in addition to the other municipal services it now offers. The town, equidistant from Harrisburg and Philadelphia, hopes to launch telephony, video and high-speed data services to residents by the end of June.

A 25-home pilot test is expected by the end of May.

The video package will include 101 channels, but prices haven't been determined, according to city officials.

It's understandable that a town that's underserved — or unserved — by commercial cable operators would seek to build a municipal system, officials at MSOs said. But Kutztown's system would compete with Service Electric Co., whose state-of-the-art operation delivers digital cable, pay-per-view and high-speed data.

Gary Day, the corporate manager of administration and telecommunications for Service Electric in Kutztown, said the company's plant has been upgraded to a 750-MHz, two-way capable fiber-to-feeder system.

'THEY FELT IT WAS NEAT'

"They've done what they're supposed to do, their rates are in line with the region," said Pennsylvania Cable and Telecommunications Association president Dan Tunnell. "The worst part is, there are no complaints. The town's just doing this because they felt it was a neat thing to do."

He also questioned the city's FTTH strategy, a business model of questionable viability in the commercial world. City officials said the plant will give them unparalleled data speed.

Tunnell said PCTA members would schedule meetings with the state's legislators over the next few months. They'll be armed with a study from the National Cable & Telecommunications Association, which asserts that municipal overbuilds are not economically feasible, he said.

The town's broadband business will have the advantage of name recognition, as well as universal consumer contact. The city already provides water, sewer, trash and electric services to Kutztown residents.

The cable operation will reach an estimated 2,230 homes.

Most galling to operators is the muni overbuild's tax advantage. Tunnell fumes over a local newspaper article, in which Tunnell said Kutztown's director of technology, Frank Caruso, predicted the overbuild would be able to beat Service Electric's prices because it doesn't have to pay any taxes.

"They have a 12- to 18-percent tax advantage, without lifting a finger," Tunnell said. "It's flat-out wrong, it's unfair, it's blatantly predatory. In the business world, that's illegal."

Kutztown is launching broadband services without the goal of a 30 to 35 percent profit margin. That's the real pricing advantage, Caruso said.

"We won't have any investors agitating for a quick payoff on the plant investment," he said.

Consumers will also trust the city operation because subscribers know the system won't be sold and that management won't be changed, he added.

Kutztown is going into broadband services because "like in all industries, competitive choice is an advantage."

When the community began talking about a broadband business in 1996, there was no cable-modem service and the local telco, Verizon Communications, had yet to extend digital subscriber line service to the area. Service Electric "just recently" deployed modems, Caruso said, and Verizon still hasn't brought in DSL.

The town didn't intend to poach Service Electric, Caruso said. In fact, it asked the operator to be a part of the project.

But Day said the offer was more like "give us your plant."

"We said no," he said.

CO-OP DISCOUNTS, TOO

Tunnell is also unhappy that the city will be able to take advantage of the National Cable Television Cooperative's pricing discounts on programming. The NCTC formed to allow small commercial cable operators to band together to negotiate more favorable content deals.

The PCTA executive stressed he's not angry at the co-op, but hopes that its membership rules will someday change to include only outfits with equivalent tax obligations.

Meanwhile, it appears the concern by commercial cable operators is justified.

"When we started looking at this, there were maybe five communities," said Caruso. "Now there are over 100 looking at broadband deployment."

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