San Antonio Municipal Overbuild Faces Hurdles

Author:
Updated:
Original:

Despite recent acrimonious relations with Paragon Cable, a
proposed municipal overbuild in San Antonio is apparently facing some harsh economic
realities.

Officials from city-owned electrical and gas utility San
Antonio City Public Service (CPS) confided last week that the cost of a municipal cable
network presents a "natural barrier" to the project.

Moreover, preliminary inquiries seeking a second cable
operator that would be willing to partner with the city on a network capable of competing
with Paragon's have drawn little interest because of cost estimates running as high
as $800 million.

"You have a heavily entrenched incumbent, with 300,000
customers and 60 percent-penetration rate," said a CPS official. "And although
there is a significant portion of the market to go, the cost means that anybody coming in
here faces an uphill fight.

"Even if you split the city in two sections,
they'd still be in the hole forever. Any prudent businessman would tell you,
'Thank you, but no thank you.'"

CPS, however, will proceed with the study, which was
requested by the San Antonio City Council, the official said.

The idea of a municipal overbuild was floated recently by
Councilman Mario Salas, who received support from 10 members of the governing body.

At press time, Salas had not returned repeated calls
requesting comment.

However, in an interview with the San Antonio
Express-News
, Salas described the proposed project as a response to repeated rate
increases by Paragon Cable.

"People are tired of being gouged again, and again,
and again," Salas told the Express-News.

Paragon, a division of Time Warner Cable, recently
announced rate hikes for its 22-channel basic package of about 3 percent, or from $9.10
per month to $9.55. It estimated that its standard package, or expanded-basic package,
will jump 7 percent, to $20.45 per month.

It attributed the rate hikes to programming costs that have
jumped 30 percent in 1998 alone.

"But that did not translate into a 30 percent increase
for our customers," Paragon president Navarra Williams said.

Moreover, Williams said, Paragon added four new channels to
its lineup last year -- Nick at Nite's TV Land, Animal Plant, Romance Classics and
ESPN en Español -- without raising rates.

The rate hikes, however, couldn't have come at a worse
time for Paragon, which has had a series of setbacks in its relations with the city.

Most recently, the MSO found itself vilified by the City
Council after it proposed moving The Catholic Channel from its basic tier to a spot on
expanded basic. It resolved the matter by agreeing to shift the offering to a preview
channel on its basic tier.

The MSO and the city were also at odds about some 300
"unauthorized" cable connections that the company had discovered at various city
buildings.

Williams said the connections were likely left over from
the days when the system belonged to any one of four different operators that previously
owned it.

He added that the company and the city have agreed to sit
down and hammer out a new policy that will determine exactly how many connections the city
is entitled to under the existing franchise.

As far as the proposed overbuild, Williams said, Salas
brought up the issue after discovering that he would not be able to follow through on his
campaign promise to control the MSO's rates.

However, he noted, similar projects launched in other
communities have not been financially successful, as reported by some recent independent
studies.

"If the city of San Antonio knows something that these
other cities didn't know, that would be news to us," Williams said.

Related