Is TCI Turning the Tide in Iowa?

Author:
Publish date:

Tele-Communications Inc., the predominant provider of cable
service in Iowa, is hopeful that the municipal-overbuild craze that swept the state in
recent years may be abating.

One sign may come this week, when the village of Carroll in
northwest Iowa votes on whether to build a municipal system to compete with TCI of the
Heartlands. The village of 9,500 votes Feb. 17.

MSO officials believe that an industry campaign alerting
consumers to the financial risks involved with overbuilding an incumbent operator has
finally slowed a trend that saw 12 Iowa communities vote to pursue such networks in
November.

'It's taken a while to get people's
attention, but patience is paying off. They're starting to listen,' said Deborah
Blume, TCI's director for communications for Iowa.

Iowa is one of the aggressive states in the country as far
as municipal overbuilds. Cable operators blamed the push primarily on rural electric
cooperatives that are fearful of the deregulation of the electric industry and that are
looking for alternative revenue streams.

According to the Cable Telecommunications Association
(CATA), 'to help them in their search, there is a cadre of consultants [or would-be
consultants] cheering from the sidelines, saying that cable is a perfect fit.'

However, whether the tide has actually turned in TCI's
favor depends on who you ask.

Webster City and Storm Lake, also in northwest Iowa, may
soon act on reports recommending municipal overbuilds that would target TCI systems.

Not surprisingly, Robert Haug, executive director of the
Iowa Association of Municipal Utilities, which represents 137 locally owned electrical
utilities, characterized any talk of cities backing away from telecommunications networks
as 'wishful thinking.'

As proof, Haug pointed to the 13 city elections in November
to decide whether to build local cable networks. Of those, 12 passed, with an average
voter-approval rating of 76 percent. That happened even though the cable industry spent
$90,000 fighting the initiatives, compared with 'a few hundred dollars' by the
cities, he argued.

'The cable and telephone companies talk about favoring
competition, but they sure as hell don't want it,' Haug said.

Nevertheless, Blume insisted that the signs of a turnaround
in Iowa are there.

On Feb. 4, for example, the city of Humbolt scuttled plans
for a municipal telecommunications network after a report revealed that the system's
day-to-day operations would produce sufficient cash flow, 'but the principal and
interest payments on a $4.6 million debt would be difficult to service.'

In Waterloo, the Waterloo Courier, which formerly
supported building such a system, now cautions against using a municipal network to settle
past 'grievances' with TCI.

In a Feb. 3 editorial, the paper warned that TCI's
role as a technological leader could give it a distinct advantage over a city-owned cable
network, leaving Waterloo residents to potentially eat 'a sizable investment in fiber
optics.'

However, it's Harlan, a rural community that has been
competing with TCI since 1996, that has given the MSO new ammunition against new municipal
overbuilds.

The utility's Board of Trustees voted two weeks ago to
approve a $768,000, 10-year, interest-free loan from its municipal gas utility to the
city-owned communications utility that competes with TCI.

Although it characterized the move as a normal business
practice, TCI was quick to label the loan as an indication that the Harlan cable network
is not paying its own way.

The MSO noted that the city's network cost an
estimated $3.7 million, or three times higher than projected, and that financial losses
for 1997 were also more than originally envisioned.

But more important, it said the 1,150 homes in Harlan not
taking the city's cable service are nevertheless subsidizing the network's
operations.

'That's the rub,' Blume said. 'If
you're not an HMU [Harlan Municipal Utilities] cable customer, you're still
paying for it, and that begs the question of fairness.'

Harlan officials accused TCI of 'twisting' the
city's data in order to produce 'propaganda' designed to scare other
communities considering overbuilds.

HMU general manager Gerald Quick said the loan from the gas
utility was part of the city's original business plan, and not a sudden move to prop
up a failing business venture.

'Our water utility has loaned money to our electric
utility, and our electric utility has loaned money to our gas utility,' Quick said.
'It's better than going into the market and borrowing money on which you're
going to pay a high rate of interest.'

Quick said the higher-than-expected loss in 1997 --
$150,000, compared with estimates of $130,000 -- was the result of signing up more than
1,000 local cable subscribers, or twice the number originally projected for the end of
last year.

'That meant that we had to build that much more
infrastructure,' he said. 'As far as I can see, TCI is using scare tactics
against communities looking at building their own networks.'

Replied Blume, 'I don't know how you can twist
data when it's a matter of public record that you're using your gas customers to
subsidize your cable operations.'

If TCI is trying to scare other communities, the ploy may
be working.

During a recent public hearing to discuss this week's
vote, Carroll Mayor Tom Gronstal said that even if the electorate approves building a
telecommunications network, more study may be needed before the project is actually
funded.

Meanwhile, Harlan has not been the only community under the
industry's microscope.

TCI and the Iowa Cable Telecommunications Association last
year sponsored a financial analysis of the municipal system in Cedar Falls -- presumably
one of the most successful locally owned video systems in the nation.

The report found that in 1996, Cedar Falls missed its
subscriber projections by 42 percent and its revenue estimates by 43 percent.

In a recent interview, Dan Mills, director of the Cedar
Falls system, called the report 'bogus' because it was based on a 1993
feasibility study, and not on the official business plan, which was formulated three years
later.

'Those numbers were never intended to be used. They
were a jumping-off point,' Mills said.

Moreover, he said that with 5,367 subscribers as of
November and plans to expand into telephony services, five banks were jockeying to lend
the city the necessary $1.25 million.

'If we're in such sorry shape, why are people
lining up to lend us money?' Mills asked.

Related