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From: The Tennessean

Tennessee Towns Offer Cable as a New Civic Necessity

April 3, 2007
By Naomi Snyder

Meg Montgomery thought at first it was a little odd that she was getting her cable TV service from the municipal electric company.

“But then I thought about it and they have the (utility) lines, they have the customer service and it seems like a natural market for them to tap into,” said the 33-year-old Jackson, Tenn., resident.

Meg and her husband, Mike, pay about $125 a month for cable TV, high-speed Internet and a phone connection, all provided by the Jackson Energy Authority, which also happens to sell them electricity.

Since 2001, a growing number of Tennessee municipalities have been entering the broadband Internet and cable TV business — often going head-to-head with private-sector cable companies. First came Fayetteville six years ago, followed by Jackson, Columbia and others.

A Metro Nashville task force looked at a similar option here last year but decided not to take the plunge or compete with private industry.

At least seven communities in the state now have such services, and more are in the works despite criticism from the cable industry and surprising costs for some cities that have tackled the projects.

Services basic, cities say

Municipal electric systems investing in these multimillion-dollar networks say such
services are fundamental to their communities’ economic future.

Although most of the towns already had cable TV and broadband Internet providers, the municipalities say those competitors didn’t always provide good enough service or adequate technology and that the public sector can do it better.

The Clarksville Department of Energy plans to offer high-speed Internet and cable TV to all city residents and businesses next year. It wants to build high-capacity fiber wires directly to each residential or business customer.

Voters approved a referendum last year authorizing the sale of $55 million in bonds to pay for the project.

Tullahoma’s municipal electric service, the Tullahoma Utilities Board, is moving forward with a similar business plan for fiber to the home at a cost of about $18 million.

Pulaski is signing up its first customers for a network that cost about $8.5 million — about $5,000 per household if it gets its estimated 1,700 customers.

Critics say such costs are out of line.

“The main issue with these municipal electrics is using taxpayer money to do a risky venture, even if they haven’t really sized up the market or really understand if it’s going to work,” said Stacey Briggs, president of the cable industry trade group Tennessee Cable Telecommunications Association.

University of Denver finance professor Ron Rizzuto, who has been a paid consultant for the cable industry, did a study a year ago that found municipal cable systems in Tennessee have been losing money for years.

“That’s the pattern over and over again,” he said. “They’re not successful ventures.”

NES doesn’t plan cable

Nashville Electric Service has not made plans to offer such services here, and a Metro Council task force stopped short of recommending public investments in any broadband Internet services last year.

One task force member, Ken Russell, said many others didn’t want the city to compete with the private sector, and he cited some legal problems encountered when municipalities did so.

The Jackson Energy Authority’s situation illustrates some of the problems.

Charter Communications tried to block the project, but the Tennessee Regulatory Authority approved it after seven months. Two other telecommunications companies sued to stop Jackson, but that case was settled on appeal.

The Jackson Energy Authority started its service in 2004 and expected to spend about $54 million by now. But it has spent about $60 million building out the fiber network, in part because it added more customers than projected.

Setting up new customers is costly because the municipality is running fiber directly to people’s homes and businesses. But TV programming also ended up costing more than expected, as prices for buying the rights to TV shows have gone up nationally.

The Jackson Energy Authority expects to have positive cash flow — making more money than it spends — by 2010, about two years behind its own schedule.

The energy authority’s senior vice president for telecommunications, Kim Kersey, remains optimistic.

“We built this network to serve the community,” he said. “We’re not trying to reap shareholder profits.”

Kersey said his agency’s fiber-to-the-home network has more capacity than the local cable company and phone companies generally provide using coaxial cable or copper wire. AT&T, formerly BellSouth, has been investing in fiber in its network, but not directly to the home.

Although Jackson is now offering broadband Internet speeds up to 10 megabits per second, its network could be easily upgraded to offer 100 megabits or more, according to Jim Baller, an attorney in Washington, D.C., who advises municipalities on their broadband networks.

For comparison, Comcast’s fastest broadband Internet speed in Nashville is 8 megabits per second.

“The communities can take a long-term look at this and say, ‘We don’t care if we don’t make a profit in three to four years, if this can create benefits for our community, then it can take longer,” ’ Baller said. “There are few sidewalks that pay for themselves, but I’ve never heard we shouldn’t have them because of that.”

Baller said municipal fiber systems take anywhere from a few years to close to 20 years to pay for themselves through customer revenues.

Towns see other payoffs

As consumers and businesses demand ever-faster speeds for everything from downloading huge documents to listening to music and videos, some municipalities argue that such products boost economic development options, especially in rural areas and small towns.

Chuck Jones, operations manager for a technology company that builds voice and data networks for businesses in Jackson, said the municipal investment in a fiber system let him offer a new service. His Xpert Systems Integration company has begun offering remote servers for rent so business clients can avoid the hassle of buying hard drives and servers and hiring an IT staff.

“It just opens a bunch of opportunities for us and other businesses,” he said. “This has been a wonderful tool for Jackson.”

Meg Montgomery, the Jackson Energy Authority customer, said she switched for broadband Internet and cable TV because she was fed up with the local cable provider.

“Nothing against Charter, but you called them and you’d get someone in Nebraska,” she said. “You call here and you get local folks. They send someone out immediately. The response is what makes it a premier product.”

Nick Pavlis, the state director of government relations for Charter Communications, said Charter had been working to improve its customer service. He said the Jackson Energy Authority initially took many customers from Charter because it could offer a triple package of Internet, phone and TV service when Charter didn’t have phone service yet.

Charter has been rolling out phone service and now has the triple package in Jackson for $99 per month, cheaper than the Jackson Energy Authority’s $125 per month.

Richard McKinney, the former chief information officer for Metro Nashville who now works for Microsoft, is among those arguing that fiber-to-the-home projects being built by the public sector are far superior to the private sector’s.

“In some ways, rural America has come to see broadband as a public utility, much as they did back when they tried to electrify their communities,” he said. “They weren’t going to wait for someone to do it for them. Wise cities are starting to see it like water, gas and electricity. This is ubiquitous. We need it in our homes and businesses and schools.”

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