Originally created 02/21/99

Private industry competes with city for subscribers



NEWNAN, Ga. -- Both sides in the debate over cities' role in Georgia's cable-television industry agree that this West Georgia town of 45,000 is where the battle lines meet.

It has the distinction of being the only city in the state where the local government operates a cable system in direct competition with a private company.

But other cities are expected to follow suit soon, which has prompted the cable industry to seek legislation they say is needed to keep competition fair.

"Certainly they have some advantages that another marketer would not have," said Phil Skinner, general manager of Charter Communications in Newnan.

Among the advantages are the cities' ability to raise taxes to pay for wires and equipment. And they can issue bonds that pay tax-free interest as another way to buy wires and equipment.

Cities also already have workers paid to perform other services who can work for the municipal cable enterprise, which may not pay for them directly. They already own the utility poles, too.

Plus they don't have to pay themselves property taxes, franchise fees, business licenses or state and federal income taxes. But then all of their documents and meetings are open to public inspection.

Most importantly, though, cities are the only level of government that regulates cable TV, so they get to call all the shots in their towns.

"More and more, we are finding that the person we are regulated by is also our competitor," said Rusty Sewell, lobbyist for the Cable Television Association of Georgia.

And so, CTAG has joined representatives of the telecommunications industry in supporting legislation Sen. Eric Johnson plans to introduce next week that would scale back those advantages.

Mr. Johnson, a Savannah Republican and Senate minority leader, philosophically opposes government offering services private companies can perform.

He started with a bill former Sen. Steve Langford, D-LaGrange, sponsored unsuccessfully last year. It would have prohibited local governments from offering any services in competition with private companies, including construction, garbage collection and telecommunications.

When Mr. Langford gave up his seat in a failed attempt at the Democratic nomination for governor, his cause fell to Mr. Johnson.

Mr. Johnson's idea is to make cities relinquish their regulatory authority over cable to the Federal Communications Commission if they want to start their own system. And they would have to make what he calls an "honest accounting" of costs when they set rates.

That accounting would require them to pay city employees who work on the cable system as well as imputing a cost for fees and taxes so the rates would reflect the costs private systems pay.

"That's to keep them from being able to undercut their prices or subsidize their prices with taxpayer funds," he said. "For me, that pretty much ends it because I don't think government can do it as cheaply as private industry."

Both sides have been negotiating the bill's wording for weeks, agreeing to a number of provisions including some imputed costs and relinquishing of regulatory authority.

"If I were in the private sector, then I would not see it as fair, either," admitted Jim Calvin, executive director of the Georgia Municipal Association.

They have also agreed to a requirement to hold a public hearing and present a three-year profit-and-loss projection before a city council can vote to launch a cable system.

While the Newnan municipal system does have separate crews and pays 5 percent to the city and county general fund in place of a franchise fee, it is ahead of revenue projections without using any tax funds.

The city floated $10 million in revenue bonds through the local industrial development authority -- an option available to private companies, too -- with the expectation of paying them off in 2003.

Now it is on track to pay them off three years early, according to Ellis Cadenhead, assistant general manager of Newnan Utilities.

"We're accounting for everything we do," he said. "The biggest thing is we don't have to send our money to somebody out of town."

Earning profits for distant shareholders or local taxpayers isn't always as simple as Newnan's supporters suggest, warns Rick Almand, area general manager for Comcast Cable Communications in Atlanta.

"We don't get the kind of cash flow out of purely cable anymore," he said. "That's why you see us offering so many ancillary products" like Internet access and telephone service. "You don't see the kind of returns that you saw 10 years ago."

One reason Newnan is the only Georgia city with a municipal system in competition with a private one has to do with market potential. Across the country, most of the homes with access to cable already subscribe.

So a new competitor must concentrate on taking customers away from the initial system, usually through lower rates.

In several cities, rates have eventually risen after one of the systems has reached the breaking point. BellSouth raised its rates in the Atlanta area where it competes with Comcast, and in Springfield, Fla., the city gave up and offered to sell out to Comcast.

Last week, James Cable agreed to sell out to the city of Forsyth rather than face direct competition.

"We shouldn't be paying taxes to government to subsidize competitors for private companies," said Matt Glavin, president of the Southeastern Legal Foundation. "Government shouldn't be running private companies out of business."

Cities don't have all the advantages. National companies like Comcast, Cox Communications, Charter Communications and even AT&T's TCI subsidiary, buy programming and services on a wholesale basis smaller systems can't match. And their reach across several states protects them against a local recession.

"We are able to do that at much larger levels than cities will ever be able to do," said Alison Jenkin, Comcast vice president of legal affairs. "We are a very large competitor. Is this something cities should be doing, risking their taxpayers' money?"

Most supporters of Mr. Johnson's legislation acknowledge there are rural cities too small to attract private companies, leaving residents with the choice of setting up their own system or doing without.

As cable television becomes more entangled with high-speed data transmission, Internet access and telephone connections, cities without up-to-date communications may have trouble attracting new industries and residents.

"It's a matter of survival for rural Georgia, just like gas and electricity was earlier," the Municipal Association's Mr. Calvin said.

"There are some of these things cities have to do to link themselves to the modern world," said Stan Wise, chairman of the Georgia Public Service Commission.