Some Systems Too Small To Be Kept Alive

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Midcontinent Communications last week closed down a tiny system in Solen, N.D., that had only a half-dozen subscribers. As far as company officials remember, it’s the first time the midsized MSO has shuttered an operation.

“To my knowledge, that’s the only one in our history,” said Tom Simmons, Midcontinent’s vice president of public policy. “We’re just not in the business of shutting down systems.”

But Sioux Falls, S.D.-based Midcontinent, with more than 200,000 subscribers, wasn’t the only one closing down a cable system on that day, Aug. 16. The town of Center, Colo., also shuttered its 500-subscriber municipal cable system, recommending its customers sign up with EchoStar Communications Corp.’s Dish Network.

Midcontinent, Cebridge Connections and Allegiance Communications are among the operators who are evaluating what to do with typically non-rebuilt systems that only have a few subscribers — several at 100 or less — and are geographically isolated.

These systems, usually too small to justify an upgrade, are often in economically depressed rural areas where populations are decreasing, or where direct-broadcast satellite providers have decimated the subscriber base.

Cebridge, a 425,000-subscriber MSO, is conducting an in-depth economic analysis of systems with 50 subscribers or less, senior vice president of programming Patty McCaskill said during a panel at the recent National Cable Television Cooperative meeting.

Cebridge’s smallest system has only two subscribers.

“Unfortunately, we’ve got to make some hard decisions,” McCaskill said. “We got those two customers because the majority of people in that community have already voted that 330 Megahertz and 24 channels at $38 is not a good value, and they left us for DBS.”

Cebridge spokesman Peter Abel stressed that his MSO is weighing all its options to avoid just closing small systems.

Realistically, there aren’t that many alternatives for a two-subscriber system.

As McCaskill said at the NCTC convention: “We lost this battle before we acquired these systems or took them over, and we need to put our focus on the systems where we can grow. We have limited resources, and we can’t simply go out to do a service call to two customers.”

Similarly, Allegiance is examining the future of its small systems.

“We have never shut down a system, although we are addressing the issue,” said Ben Hooks, partner and CEO of Buford Media, which manages Allegiance. “We’ve got a few teeny ones and it really doesn’t make sense, I have to admit that.

“We haven’t decided what our final disposition of those are. But really from an economic standpoint, they’re not creating any value to the company.”

At the NCTC gathering, NewWave Communications president Jim Gleason discussed some of the system closings in which he’s been involved.

SOME DON’T WANT DBS

Ironically, in many cases these cable homes, with their often-elderly subscribers, didn’t want to convert to DBS.

“The process is very difficult,” he said. “What’s interesting is that the customers that are attached to those itty-bitty systems apparently really want to get cable, cause it’s hard to get them to convert to the dish … you have 25 channels on, and that’s the 25 channels they like.”

Officials at Cebridge, Midcontinent and Allegiance all have similar criteria they consider when they’re evaluating what to do with a tiny cable system.

First, they determine if it’s possible to consolidate headends and connect the small system, or systems, via fiber to one central headend. When systems are located in isolated far-off geographic areas, that’s sometimes not feasible.

“We’re still on a buying program, and if we can see some opportunities, we’ll actually tie them in with other interconnects,” Hooks said. “You can’t just let some 50-sub system sit out there all by itself. It really doesn’t do well.”

Secondly, operators consider if there’s a nearby cable operator who would be interested in acquiring their tiny system. In some cases, small operators are taking a page out of the book of their bigger brethren.

NCTC “members are almost daily trading systems to cluster, following the MSO model, to gain economy of scale,” said Alan Tschirner, the co-op’s director of engineering.

Operators like Cebridge would rather sell a small system than close it.

“We don’t want to shut down headends — that’s the bottom line,” Abel said. “We would prefer to turn that service over to another operator who can more economically provide the service.”

SOME GET SOLD

Cebridge has found some buyers. It recently sold a 250-subscriber system to Semo Communications Inc.

“Technically, one man’s gold is another man’s fool’s gold, I guess,” joked Semo president Tyrone Garrett, who has fiber-connected and upgraded several small systems in Missouri — with much financial success.

Finally, to determine a small system’s future, operators evaluate the economic prospects for the town where that tiny operation is located. If the area is on an economic upswing, or if its population is growing, the operator may opt to stick with the system, even though it’s currently small.

“We’ve taken a look at, to some extent, the economic-development potentials, but in a lot of the communities the answer is 'zero to none,’ ” Simmons said.

That was the case in Solen, where Mayor Larry Froelich offered this description of the town: “The population is 92 or 93 right now.

Farming is the main income here. There’s only three businesses in town: a bar, a Post Office and a garage.”

Midcontinent has built a large fiber-optic network that reaches from Sioux Falls to Minot, N.D., but some small systems — like Solen’s — are too remote to be tied into that ring.

“We, frankly, are a very long way away from our fiber network,” Simmons said. “In that particular case, it made all the sense in the world for us to leave that particular market, and take care of our customers after consultation with the city authorities, who said basically, 'We’re surprised you’ve been here this long. Nobody else has.’ ”

Midcontinent waited until the termination of its franchise agreement in Solen to pull the plug.

“It’s bad public policy to walk away from a franchise,” Simmons said. “So when we had the opportunity for the witching hour to hit, we gave notice to the city and let them know.”

FREE-CABLE PERIOD

The town is pleased with how Midcontinent handled the shutdown, according to Froelich. He pointed out subscribers had three months notice from the cable operator, which provided its service for free during that period.

“The occurrence was smooth,” Froelich said. “The company handled it professionally. And it was understandable for somebody when it isn’t feasible to stay in business with what you’ve got.”

Right now Midcontinent is “wrecking out” Solen, or removing its cable and equipment, with the exception of one item.

“Midcontinent had a little concrete building they put up and they asked us if we would want it rather than tearing it down,” Froelich said. “We took it for storage or whatever for the city, and they gave it to us free of charge.”

Allegiance — which has 49,000 subscribers in Oklahoma, Texas, Arkansas and Kansas — will probably wait at least a year before taking an action on its tiny systems.

“I would still say 50 subs, as small as they are, I wouldn’t say it’s wrong to shut them off, but if you’ve got the ability to hang onto them, it’s still worth waiting another year to see what develops,” Hooks said.

He’s considering offering wireless phone service to those tiny systems, or even Internet connections via satellite.

“A lot of our markets don’t even have a local connection for dial-up,” Hooks said. “They have to make a long-distance call. So it’s really an attractive application. A lot of these things are available and if we can find a formula, we can take advantage.”

Cebridge is actively looking to sell some of its tiniest systems not only to other cable operators, but to local rural telcos, according to Abel. He stressed that the tiny systems Cebridge is evaluating represent no more — and potentially less — than one-quarter of 1% of its subscribers.

Nonetheless, Abel said, “We have an obligation to all of our customers to be as efficient with our money as possible, and in some places, that efficiency is just not possible.”

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