PEG-Access Envy Stirs Towns Anger

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Three central California towns will try to woo a competing
operator for their residents if Falcon Cable TV Corp. refuses to capitulate on a
refranchising demand regarding public-access support.

The towns -- Gilroy, Hollister and San Juan Bautista --
boast about 34,000 cable customers served by the operator, and they decided to jointly
negotiate a new, 10-year franchise. Gilroy's franchise runs through the end of the
year, but the contracts in the other two communities have already expired.

The towns want significant improvements to the 36-channel
system that currently serves them, and Falcon has pledged a 750-megahertz rebuild, with 60
to 70 channels initially, said Linda Kimberly, Falcon's regional manager.

But the parties remain almost $1 million apart on the
launch of PEG-access (public, educational and government) channels and support of a
studio.

One city official said the communities have been
dissatisfied with Falcon's customer service for some time. The recalcitrance on the
PEG issue is indicative of the city councils' "lack of a forgiving mood,"
he said.

Both sides pointed to public-opinion surveys that supported
their sides of the dispute.

Jim McCann, public-information coordinator for Gilroy, said
a statistically valid phone survey of consumers demonstrated significant support for local
programming. Local-broadcast-television coverage emanates from neighboring Salinas -- a
small market that doesn't provide the kind of hometown coverage that Gilroy residents
crave -- he said.

On the other side, Falcon surveyed consumers regarding rate
increases that they would find acceptable. Kimberly said the consortium's proposal --
designed with guidance by consulting firm The Buske Group -- seeks $3.47 million in PEG
support from the operator over the 10-year life of the franchise.

The cities' version of the PEG project -- which
includes an I-net (institutional network) linking the cities to a studio at a local
community college -- would cost subscribers an extra $1.61 per month, Falcon insisted.
Falcon's version, which would dedicate six channel slots to local programming, would
cost just $1.11, Kimberly said.

Kimberly said Falcon's survey showed only mild
interest in educational coverage and none in governmental coverage. Further, consumers
said they would begin seeking out competing video providers if rate hikes exceeded 50
cents per month, according to Falcon.

The cities countered that based on The Buske Group's
analysis, Falcon's revenue per customer is above the industry average, and the
company could absorb the cost of the PEG project without a rate hike.

The frustrated cities voted late last month to draft a
request for proposals to be sent to all California operators, soliciting a competitor to
Falcon. The consortium communities are served by General Telephone of California, which
has wired-cable systems in Ventura County.

McCann said it was too early to determine whether GTE
Corp., another telco that offers wired-cable services, will be solicited.

An RFP will not be completed until at least September.
Meanwhile, both sides said, informal franchising talks may continue.

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