Palo Alto Cable Co-Op Pitches Finance Plan

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Faced with a huge balloon payment on its system loans in 12
months, the board of the Palo Alto Cable Co-Op will turn to the cities that it serves with
a creative financing proposal.

The 27,244-subscriber system serves Palo Alto, Menlo Park
and other territories in the Greater San Francisco Bay area in California. Its executives
will try to convince the regulators to form a joint-powers authority, which will, in turn,
issue $63 million in revenue bonds. The bonds would allow the cable system to retire $42
million in debt, $38 million of which is due February 1999. The remainder of the revenue
will allow the system to activate its 'B' cable and to add fiber optics to the
all-coaxial system.

The deal 'will allow us to move forward while the
cities purchase a valuable asset for a reasonable price,' said Ron Kirkeeng, interim
general manager of the system. 'We could be their answer to the last mile.'

The bond sale could fetch the cities a cable system for
about $2,300 per subscriber. There appears to be great potential for growth: The Palo Alto
Co-Op is less than 50 percent penetrated. Also, despite the debt, the system has launched
a cable-modem service, which now serves about 300 customers.

'We're showing good basic growth, and we've
made all payments,' Kirkeeng said.

The cities themselves have already installed a fiber optic
ring to serve such local facilities as Stanford University. The cable company's fiber
would extend that reach, according to Kirkeeng.

City staffers deferred comment until after a full proposal
is submitted.

The co-op began in the early 1980s as a user-owned cable
system, but the operation was never profitable. It has become a more conventional cable
company in recent years, but with a stated goal of local ownership.

A year ago, on the selling block, the co-op spurned the
attention of Tele-Communications Inc., which owns systems that surround the area, in favor
of a deal with tiny MSO Sun Country Cablevision of nearby Pleasanton. That operator would
have refinanced the system, but the purchase fell through in 1997. Kirkeeng said the
system has not been in contact with TCI recently.

Kirkeeng and members of the co-op's board of directors
believe that two or more communities served could form the Silicon Valley Joint Powers
Authority to issue the bonds, which would protect general funds from supporting the cable
operation. The plan would keep cable-system ownership in local hands.

The operator's presentation to Palo Alto was delayed
due to a local emergency caused by heavy rains and flooding. The co-op will give its pitch
Feb. 17.

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