Utility Diversification: Munis Find Cable TV a Costly Business

Fortnightly Magazine - September 15 1998
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THE OLD ADAGE ABOUT INNOVATION STILL HOLDS TRUE: "You can tell the pioneers by the arrows in their backs." More than 70 municipal utilities have either built or plan to build telecommunications systems with fiber-optic and coaxial cable to compete against local cable television, data communications or telephony providers. Profitability for these ventures has been abysmal, but their customers and regulators are happy. Now large, investor-owned electric utilities are stumbling down the same trail marked with cast-off bandages of these early pioneers. Moreover, the recent merger of AT&T and TCI will bring an unprecedented level of competition to the cable business, making such ventures even more risky.

Losses tracked by the Cable Telecommunications Association (CATA), the cable television trade group, have been horrendous. Glasgow, Ky., one of the first munis to build a competing telecommunications system, has lost more than $1.4 million since 1989 on the effort - subsidized by ratepayers, Glasgow electric officials and the Tennessee Valley Authority, according to CATA. Paragould (Arkansas) Light & Water built its system in 1990 at a cost of $3.2 million, and two years later began raising taxes to cover losses.

Similar horror stories can be found in Cedar Falls, Harlan and Waverly, Iowa; Morgantown, N.C.; Elbow Lake, Minn.; Daleville, Ala.; and Coldwater, Mich. Municipal utilities in these towns built CATV systems even though a private company already provided cable TV service. (CATV, which first appeared as an acronym for Community Antenna Television, is used here to describe a traditional, coaxial cable TV system.)

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