El Segundo Plans to Go Into Cable Competition

EL SEGUNDO —  Rebuffed in its effort to buy the cable franchise already serving the city, the City Council plans to construct its own system and compete for customers.

The council last week directed its staff to send out requests for proposals for the construction of a new cable system to serve the city’s 6,400 households. If it goes through with the plan, it would become only the second city in the country in which a city-owned cable company competes with a private company, industry sources said.

Mayor Jack Siadek, who has pushed for a city-owned system, said the city wants to build a 60-channel, state-of-the-art system for about $2 million and hopes to begin providing service in 14 to 16 months.

City Reserves

The money will come from city reserves or bonds issues, Siadek said.

The mayor said the city was left with few choices after it learned that Century Communications Corp. would assume control of the 14-year-old El Segundo system from Group W Cable, Inc., a subsidiary of Westinghouse Corp.

As part of a massive nationwide sale involving four other cable companies, the Group W franchises in El Segundo, Torrance, Hawthorne, Lawndale and Gardena are being sold to Century. Officials in all of those cities except Gardena have expressed fears that Century, which borrowed heavily to purchase the systems, will raise rates and cut service. Century has long owned the cable system in Redondo Beach.

In El Segundo, residents were complaining about the cable system even before its sale was announced, Siadek said.

Snowy Picture

“We are forced into this (building a system) because of the poor service and poor quality of reception,” Siadek said. “We would still rather buy the existing system, but they don’t seem to want to talk.

“Residents here are simply saying to hell with it and canceling their service. A lot of folks think that because they have cable service the picture is supposed to be snowy.”

A spokeswoman for Century at its headquarters in New Canaan, Conn., said company president Leonard Tow was on vacation and could not be reached for comment. In the past, Tow has said that he would rebuild the El Segundo system.

Bill Koplovitz, a New York attorney representing Westinghouse, Century and the other cable operators involved in the sale, said he was not familiar with the situation and could not comment.

The existing cable network in El Segundo is a 30-channel system with outdated equipment that is corroding because of the salt air of the oceanfront city and poor maintenance, according to a consultant hired by El Segundo to determine the cost of building a new system. The existing system has about 3,200 subscribers out of a potential 6,400.

In the past, officials in the four disgruntled cities have discussed public ownership of their cable systems, but none has gone as far as El Segundo did when the council voted unanimously last week to seek proposals for a rival system. The city hopes to get proposals within 30 days.

Cable television consultants said it would probably be impossible for two cable operators to survive in the same city, although the U.S. Supreme Court paved the way for such competition earlier this year when it said that exclusive cable franchises were illegal.

“I think it would be real tough,” said Jerry Yanowitz, a spokesman for the California Cable Television Assn., an industry trade group. “It’s very risky financially for one operator. It has to be tougher for two.”

Unfair Advantage

Yanowitz said there is also concern that a city would have some unfair advantages over a private firm. For example, he said, “a city would not have to pay property taxes and has a lower cost of borrowing money.

“I’m hard-pressed to see why a city would want to get into the cable business,” Yanowitz said. “I would be astonished to see a city conclude that it makes sense for a second operator to come into a city.”

David Korte, vice president of Washington, D.C.-based Cable Television Information Center, a consulting firm for cities, agreed that having two systems competing against each other, private or public, would not make sense, especially in areas where less than half the potential subscribers receive service.

“Over time, only one company is going to survive,” Korte said. “It is too expensive for two companies.”

However, Korte has recommended such competition for one city, Paragould, Ark., about 150 miles northeast of Little Rock.

“Paragould is the exception,” Korte said. “It’s conceivable there because of the high (number of subscribers). . . . The two can co-exist.”

Cable for Reception

Paragould’s population is about 16,000 with about 6,300 homes, numbers similar to El Segundo’s. Paragould Cablevision Inc., a subsidiary of Adams-Russell Communications Corp. in Waltham, Mass., has operated in the city for 21 years. Because of the city’s location, cable is needed for reception; as a result, the company has about 5,500 subscribers, or 85.5% penetration.

The city decided to build a rival system, said Larry Watson, assistant manager of Paragould’s light and water department, when pleas for improvement of the Paragould Cablevision system went unheeded.

He said the city is in the process of selecting a contractor to build the system, which is expected to cost about $2.5 million. Watson said the city will use bonds to pay for the construction and hopes to have all homes wired for cable by June 30, 1987. Watson said that nearly 80% of the city’s voters approved the plan for a city system in a ballot measure, and a separate poll of current cable subscribers indicated that 90% of them would switch service.

The city plans a 60-channel system with state-of-the-art equipment and will offer a 30-channel package for $11 a month, Watson said.

Until city announced that it would build its own system, the cable company operated a 30-channel system with older equipment. The company had offered 12 channels for $11 a month.

Upgrade System

Bill Little, general manager of Paragould Cablevision, said the company is now spending $1 million to upgrade the system to carry 60 channels. He said rates have been restructured so that 30 channels are now offered for $15.

“We’ve made some mistakes in the past, we should have dealt with the city better. We’re sorry,” Little said. “We’re improving the system now, but the city doesn’t want to listen.

“The city thinks it can make a little money now. It’s hoping we leave town. But if they want to compete, bring ‘em on. We just want the competition to be fair.

“It seems a little un-American for the city to compete against a private enterprise, especially when it owns its own electric company. There may be some legal questions about this being an antitrust and unfair competition situation. Can a city have a franchise that it regulates and then come in and compete against it?”

Cities can no longer regulate cable rates, but they still may impose franchise fees that require companies to turn over a percentage of their revenue.

No Rate Breaks

Watson said Paragould will not receive any breaks on the rates that its electric company charges to use utility poles and to string cable and denied that there will be any collusion between the city utility company and the new city cable company.

Because of cable deregulation, Watson said, cities are being forced to take actions such as building their own systems to protect residents.

“The Congress has given cable companies the right to steal,” Watson said. “Cities have to get into it if the people are going to get good service.”

But Little countered, “Where’s the necessity for cities to get involved? Cable is not a utility, it is strictly an optional service.”