The initial vote on Los Angeles' first citywide cable franchise won't be cast until the city's Board of Information Technology analyzes a financial report from applicant Western Integrated Networks LLC.
And although regulators commissioned the study, the city's incumbent operators are also advocating tight financial scrutiny. They assert that their potential competitor — which will do business in the city as WINfirst — is "overextended by a factor of two."
WIN proposes to build a fiber-to-the-home network that would provide bundled telecommunications services to 1.4 million homes. The company vows to deliver 300 channels of video and data at a rate of 10 megabits per second.
At a recent hearing, WIN executives testified that the company has $889 million in private-equity funding commitments. Los Angeles would be the company's eighth franchise, and executives said it currently has enough cash to start the build.
WIN anticipates that it can use its cash flow to complete construction.
But the Los Angeles Cable Operators Association faults the newcomer's business plan. WIN's model calls for $200 million per franchise to start work. Using that math, WIN should have $1.6 billion to fund construction.
The operators also question WIN's penetration expectations. WIN will build in three franchise areas in the first six years. The first area is served by AT&T Broadband, which currently reports a penetration rate of roughly 33 percent.
For WIN to meet its projections in just that region, the incumbents testified, it would need to either steal away all of AT&T's customers or attract 125,000 new cable homes.
"The record shows that WINfirst's plans for L.A. are, at best, a high-stakes gamble, not only for the company, but also for the city and its constituents," Time Warner Cable executive Eric Brown testified. He urged the city to scrutinize the company's finances with the same zeal as it did with respect to AOL Time Warner Inc. during recent franchise-transfer proceedings.
Technology commissioners noted that the city is building itself some protection, in the form of a $29 million performance bond. Should the venture fail and the plant remain inactive for more than 90 days, the city would use that fund either to complete a franchise area or tear down the network.
As in other competitive markets, the Los Angeles incumbents questioned whether the newcomer would be required to meet equal financial commitments to public, educational and governmental channels. The companies were also concerned about the fairness of the build-out schedule.
WIN has pledged to join the current operators' PEG interconnect and pay more than $10 million in access support. The city doesn't need 26 duplicate studios, officials said.
But the operators argue that "same means same," and said their current franchises require studio construction.
The city should also consider end dates for construction in each franchise, incumbents said. Otherwise, WIN could skip low-income neighborhoods in favor of high-income residential and commercial clusters, or put off extending its network to low-income communities until the end of its 15-year franchise.
The incumbents are closely monitoring WIN's application, in part because it is only the first contract that may emerge from negotiations. RCN Corp. has applications pending for five franchises (Area A, the San Fernando Valley; Area C, the Van Nuys area; Area F, from the Hollywood Hills to Calabasas; Area H, the region northeast of the city; and Area J, Playa del Rey).
Altrio Communications Inc. is also seeking permission to build the Sunland-Tujunga franchise (Area D). To date, Altrio has been granted a private wire easement so it can cross city property from its intended headend to its corporate office in neighboring Glendale.
The providers have tentatively agreed to a construction protocol, so the new providers can avoid interfering with ongoing upgrades and other activities of incumbents. But the ultimate traffic cop will be Southern California Joint Pole Authority, which includes the city's Department of Water and Power and local telephone companies.
Coordination will eventually pose quite a challenge, because if all pending applications are approved, poles in some parts of the city will have to accommodate three video providers.
Cable officials submitted notes to Los Angeles officials documenting problems related to WIN's Sacramento overbuild of AT&T Broadband. In that city, WIN contractors were called to task for attaching plant to the incumbent's strands and, in one instance, moving AT&T's wires to a spot too low on the pole, in order to fit in its own strands.
Board members appeared to have been left with mixed impressions of WIN's viability.
One said there's no reason to doubt WIN's ability to execute, just because it's a start-up. But others said the company's promises sound "too good to be true."
City officials expect to have the financial analysis of WIN's plan in time for a meeting June 4.