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Utility Diversification: Munis Find Cable TV a Costly Business

Fortnightly Magazine - September 15 1998

$30 million. The city rejected TCI's offer. "He came back to talk us out of it," says Councilman Steve Kirby. "He didn't have anything to put on the table. "

Councilwoman Dolores Silas represents one of the economically disadvantaged parts of town. "TCI was not giving us the best service," she says. "Seattle was getting 60 channels versus our 20 channels." Silas did not appear concerned about philosophical questions related to public-private competition, nor the role of regulation and taxation. Nor did she mention the risk of electric ratepayers subsidizing CATV. "The citizens will get better service," she says. "Now, TCI is putting in additional services. I see them everywhere in my part of town now, and we never saw them down here before."

Steve Kipp, a TCI spokesman, acknowledged that TCI is now investing "tens of millions of dollars" in its local cable system. The Seattle/Tacoma area is one of two areas in the U.S. where TCI is testing its @Home Network telecommunications products. The other is the San Francisco Bay area, where TCI is confronting municipal plans to enter CATV.

"TCI is going to get better; Tacoma Public Utilities is going to get better," says Councilman Kirby. "We're all going to benefit." Unless, of course, AT&T Communications Services - the combined AT&T/TCI telecommunications provider envisioned under the proposed merger of the two giants - should gain enough market share to defeat the municipal cable system.

After construction started in Tacoma, costs ballooned to $100 million as the accounting firm predicted. The municipal cable operation is now negotiating a cable franchise with the city, according to Klein. "The city is making efforts to maintain parity between TCI and Tacoma Public Utilities," Klein says. "What we all want is a healthy, competitive marketplace without cross-subsidization."

Singleton, former utility board president, says that competition is the important issue. "It will provide additional competition in a previously stagnant market," he says. "TCI's record of service was generally not good in this market." The board will monitor the project to assure cross-subsidization doesn't take place, and as a fall-back position, the city can always sell the broadband network if projected profits do not materialize.

Alameda: Sinking In Costs?

Alameda, Calif., bills itself as the Island City. It prides itself on having "an island consciousness." In 1887, the city bought the Jenny Electric Co., becoming the first municipal electric utility in California. Now, the Bureau of Electricity is speeding onto the information highway, laying fiber-optic cable despite city charter provisions prohibiting it from entering businesses other than electric service.

Like the other munis, Alameda says it needs the fiber network for SCADA and might as well make use of unused bandwidth. "We had to put in fiber for command and control of our utility system, and the business plan grew out of that," says Matt McCabe, the utility's public information officer. The bureau installed four miles of fiber cable in one high-tech business park, one mile in another, and began leasing bandwidth on the network despite the city charter prohibition. The project came to the city