A municipal consultant will recommend this week that the
city of Little Rock, Ark., and four neighboring towns build their own cable system to
compete against Comcast Corp.'s Comcast Cable Communications.
Local government officials, who will get the report from
Savannah, Ga.-based United Telesystems Inc. Jan. 6, said last week that they are leaning
toward building a municipal system for $97 million.
The towns -- Little Rock, North Little Rock, Jacksonville,
Maumelle and Sherwood -- hired UTI in October.
UTI president J. Allen Davis said the company would
recommend building a state-of-the-art, two-way, 860-megahertz, hybrid fiber-coaxial
system, with 2,274 miles of plant passing 152,000 homes. He added that it should provide
88 analog channels (71 channels on the basic tier), 28 digital channels and high-speed
The system will take about three years to build, UTI
estimated, adding that it expects the cities to have signed on about 53,000 subscribers
after its third year of operation.
Although the municipalities have not been formally
presented with the study yet, officials like what they've seen.
"This is a way that we can differentiate our city from
other municipalities around the country," said Michael Keck, vice mayor of Little
Rock. "If it makes good business sense -- and the present information says it will --
then I believe [that municipalization] will happen."
Keck stressed that if the municipalities decide to go
ahead, it won't be just to provide cable service. He said functions ranging from
regulating city traffic lights and allowing for remote water and electricity-meter
reading, to providing high-speed Internet access for residents and schools, will be
integral to the system.
The municipalities should take about 120 days to make a
decision after receiving the report this week, Keck said. From there, they will determine
how to raise money for constructing the network -- either through municipal bonds or
Davis estimated that construction on the system could begin
within 12 months after receiving governmental approval.
Alison Jenkin, Comcast's vice president of public
affairs for the south-central region, said the operator has faced other situations similar
to the one in Little Rock, and it has prevailed.
"This is nothing new to Comcast," Jenkin said.
"We hear this a lot from various cities. We are moving into a competitive
environment, and we are looking at it that way."
Jenkin pointed to Comcast's planned upgrade to 750 MHz
in Little Rock - which is about a year ahead of schedule -- and to the inclusion of
high-speed Internet access. The company also plans to offer digital service in the Little
Rock area in March.
And Jenkin pointed to several industry studies asserting
that municipal cable systems rarely work financially.
But Keck believes that Little Rock's situation is
unique. The intention is for the system to pay for itself through subscriber fees, and to
keep those fees as low as possible. The difference can be made up through selling services
like high-speed data and Internet services, which have higher charges and bigger profit
margins, he said.
Keck pointed to Paragould, Ark. -- a small community 160
miles northeast of Little Rock -- which was vilified by the cable community for creating
its own municipal cable system in 1991. Although the Paragould system lost money during
its first few years -- it had to raise property taxes to cover the deficits -- it is
expected to turn a modest profit in 1999.
Paragould has also managed to keep its cable rates low.
Keck said the charge for expanded-basic service in Paragould -- 71 channels, including
Home Box Office -- is $17.50 per month. That same package would cost $52 per month on
Comcast in Little Rock, he added.
And the vice mayor believes that cable subscribers in his
community are eager for a change, especially since Comcast's reputation has declined
over the years.
"Comcast ranks up there [among residents] with HMOs
[health-maintenance organizations] and attorneys," Keck said.
According to a report in the Arkansas Business News,
a weekly business publication in Little Rock, Comcast's rates as of Nov. 1 were
$34.17 per month, including fees, for a 54-channel "preferred-basic" lineup.
Since January 1995, the cost of Comcast's preferred-basic service -- less taxes and
franchise fees -- has risen by 53 percent from $19.84 per month.
Davis said he has targeted an expanded-basic rate of about
$26.95 per month for the municipal system.
Jenkin said her company's rate increases have been in
compliance with Federal Communications Commission rules. She added that the last rate
increase, Nov. 1, was about 4 percent.
Keck is confident that a municipal cable system could
attract a large portion of Comcast's 86,000 existing subscribers initially. And he is
expecting Comcast to drop rates "by at least one-third."
However, if that does turn out to be Comcast's
strategy, Keck is unconcerned.
"With the rate structure that they've put out
there and the way that they poorly handled franchise negotiations, they will lose
one-third of their market as soon as competition comes," he said.